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How to talk to your clients about values and faith-based investing

2023-10-12




Executive summary:

  • There is a growing movement among investors to align their portfolio to their values or belief systems
  • Advisors can use Direct Indexing products and Separately Managed Accounts to help their clients pursue faith- or values-based investing
  • Advisors who understand a client’s values may be better prepared to help with legacy or charitable planning

You’ve heard the saying “put your money where your mouth is”? That usually means you are willing to spend money or take some action that supports what you believe in. Well, it seems more and more people are doing that these days.

An increasing number of companies donate a portion of their proceeds to charity or give consumers the chance to vote with their pocketbook. For example, shoe company TOMS donates one-third of their profits from the sale of their products to support grassroots organizations that focus on mental health support, ending gun violence or increasing access to economic opportunities.1 The outdoor clothing store Patagonia pledges 1% of its sales to the preservation and restoration of the natural environment.2

Chick-fil-A, the popular fast-food restaurant, goes even further in tying its values to its profits. It not only donates surplus food to shelters and soup kitchens, it supports numerous charities and is probably best known for closing Sundays to allow its staff to rest and worship if they so desire. Indeed, its corporate purpose as indicated on its website is “To glorify God by being a faithful steward of all that is entrusted to us and to have a positive influence on all who come in contact with Chick-fil-A.”3

This trend is showing up in the investment world as well. There is a growing movement among investors to align their portfolios to their values or belief systems – quite literally putting their money where their mouth is. For many investors, aligning their investments with their values can provide a sense of satisfaction and peace of mind knowing they are supporting companies and causes they believe in.

For some investors, the value they want to align their portfolio with is their faith. Using a Separately Managed Account can make it easier for advisors to help their clients pursue faith-based investing.

How may Separately Managed Accounts help investors pursue faith-based investing?

A Separately Managed Account allows investors to directly hold a basket of stocks that closely replicates an index. This gives the investor a similar market exposure as the index, but also gives them the opportunity to build a customized portfolio. That means the investor can avoid investing in companies that don’t align with their values, while giving them the ability to select companies that do.

Some SMA providers can run “screens” on the investor’s portfolio to determine which stocks don’t conform to the investor’s values. For example, they could screen for companies involved in distributing or producing fossil fuels, adult entertainment, alcohol or gambling. Or the provider can offer a group of stocks selected according to a specific theme, such as environmental stewardship or Catholic values, to name a few. This can take a lot of the work of researching names off the advisor’s plate.

How do I know what kind of values my clients have?

How do you know if one of your clients wants to structure their portfolio to match their values or faith? After all, not many people discuss their religious affiliation with their financial advisor. And how do you approach the topic with sensitivity and respect for the client’s beliefs?

It all begins with the discovery conversation. During the initial client discovery process or regular portfolio review meetings, you can ask open-ended questions to learn more about your client’s values and beliefs.

Here are some suggestions that can open the door for a conversation about faith-based investing:

  • Do you have any specific values or principles that you would like your investments to align with?
  • Does faith play a role in your financial decision-making?
  • Are there values you want reflected in your portfolio for personal reasons or as a legacy to leave to the next generation?
  • Are there any securities or companies you absolutely do not want to own?

By showing genuine interest and curiosity, you can create a comfortable environment for the client to express their preferences related to their faith and investments. Then once you have a sense of your clients’ values and beliefs, you can explain how you can either screen out companies or sectors they don’t want or how you can select names based on a preferred theme.

What is the size of the potential market?

 

According to the Pew Research Center's 2022 report on Religious Landscape Study4, about 63% of the U.S. population identifies as Christian, while another 6% have another religious affiliation such as Jewish, Muslim, Buddhist, Hindu, and other world religions.

 

There may be more demand for this type of strategy in some parts of the U.S. than in others. The South and Midwest tend to have higher proportions of individuals who identify as religiously affiliated, particularly Christian.  The Western and Northeastern parts of the country tend to have lower proportions of individuals who identify as religiously affiliated, and higher proportions of individuals who identify as religiously unaffiliated.

There are also demographic differences:

 
  • Age: Younger adults tend to be less likely to identify as religiously affiliated than older adults.
  • Race and ethnicity: White Americans are less likely to identify as religiously affiliated than Black and Hispanic Americans.
  • Education: Individuals with higher levels of education are more likely to be religiously unaffiliated.
  • Gender: Women are more likely to identify as religiously affiliated than men.

What are the potential benefits to an advisor of offering faith-based investment options?

Whenever you develop a deeper understanding of what’s important to a client, your relationship with them improves and they are more likely to trust your guidance. This can lead to even deeper conversations which could help you discover more details on their goals and needs, and that then can help you provide better advice. That in turn could encourage referrals.

Understanding how important their faith is to a client may also help you in legacy planning conversations or guide any charitable giving plan.

If you are located in a region where religious affiliations are strong, offering faith-based investment strategies may help attract and retain clients. It can differentiate your practice from other advisors who may not offer these strategies nor have access to Separately Managed Accounts.

You are positioned to meet a growing demand: Many investors today are looking for personalized investment strategies that align with their values and beliefs, and this demand is likely to grow in the coming years. By offering values-based investing options, you can tap into this growing market and position your business for long-term success.

You are able to offer a more holistic approach to financial planning: values-based investing is just one part of a broader approach to financial planning that takes into account an individual’s values and beliefs. It aligns with our Value of an Advisor Study where advisors have responded to client expectations for increased personalization by expanding and deepening their services.  It can help demonstrate you are focused on helping clients achieve their goals in other aspects of their lives, not just their finances.

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