But, questions remain about exactly where this scale is going to come from in the future, especially as the world’s wealth begins to shift from the baby boomers to the millenials.
Portfolio Adviser has already written a lot about the technological questions being asked of wealth managers by younger clients, but a new white paper by Standard Life investments highlights the importance a good understanding of social and ethical factors is likely to be going forward.
Quoting a BlackRock survey that stated that 45% of millennials are more interested in investing today than they were five years ago, SLI said the important thing to note is how the nature of this investing has changed.
“The demand for transparency and accountability has taken on significant importance. As with consumer products, many are increasingly looking for investments that reflect their social and environmental concerns,” the firm said, adding: “They are demanding greater corporate responsibly from the organisations from which they buy their goods and services. The democratisation of information, thanks to new technologies, has – and will increasingly – hold companies responsible for their actions.”
The implications for the investment industry of this are two fold, not only do the firms and advisers themselves need to be as transparent and accessible as possible, but the type of investments need to change as well.
“Of course, returns will remain important,” writes SLI, “However, millennials are increasingly demanding investment solutions that ensure their money also has a positive environmental and social impact.”
Andrew Gilbert, investment manager at Parmenion Investment Management says that too much of a focus on the changing nature of millenials’ investment behaviour, however, runs the risk of missing the broader point – interest in environmental, social and governance (ESG) focused investing is rising across the board.
“People of all ages are much more aware of their environment, these days,” says Gilbert, pointing out by way of example that you can buy solar panels from Ikea now.
This chimes well with the findings of the World Wealth Report released in June by Capgemini and RBC Wealth Management.
According to that report,92% of high net worth individuals see it as important to invest their wealth, expertise and/or time to drive a positive social impact, with 92 percent viewing it as important to do so.
And, it added: “This year’s report notes that HNWIs turn primarily to wealth managers (30%), family (27%) and friends (22%) for advice on social impact opportunities and approaches. It also shows that of those HNWIs currently receiving social impact support from their wealth managers and firms, more than half (54%) want even more help in setting clear social impact goals, determining which investments will effect the most change, structuring their investments, and measuring the impact of their social efforts.”
According to Gilbert, there is no doubt that ESG investing will continue to grow, especially in the UK.
Last week, responsible investment research house EIRIS said it estimated that the amount of money invested in the UK’s green and ethical retail funds reached over £15bn in 2015, up from approximately £6bn ten years ago. And, while this is a significant jump, Gilbert pointed out that it remains significantly behind the US and Europe.
In the US, Gilbert said, as of 2014, there was around $5.67 trillion in ethical investments as at 2014, while in Europe that figure was around €127bn in 2014, up from €108bn in 2013.
“The UK is way behind,” Gilbert said, but added that the demand was there.
To back this up, he pointed to a 2011 EIRIS IPSOS survey of 1,030 adults in the UK. 38% said they were interested in green or ethical financial products and services. Of those interested, 90% said they would be likely to switch to a different provider if it offered green or ethical investment products, the survey reported.
There is a significant gap between that 38% number and the roughly 1% of the UK space that is currently invested in ethical funds, but, if the views expressed above come to fruition, it certainly looks likely to close.
But, it will only do so, if clients are aware of what their options are, which is where the wealth management community comes in. And, in a world where everyone is looking for clients, ensuring that you are providing the services clients increasingly want becomes ever more important.
