Use Thematic Investing to Engage Your Clients

Financial advisors who are able to get their clients engaged in what is happening with their investment portfolios and financial plans are much more likely to get repeat referral business over the long term. One way advisors can improve their referral rate is by correlating their clients’ investment portfolios with their beliefs and values. Those who feel that their money is doing more than earning them a mere rate of return may be much less likely to make changes during periods of volatility, and may feel more confident referring friends or family to their advisor.

Many clients today want their money to do more for them than simply grow over time. Millennial clients in particular want their investments to be working for the greater good of mankind or the environment in addition to increasing in size. And advisors who are able to meet this demand can ultimately build deeper and more meaningful relationships with their clients in the long run. (For more, see: Socially Responsible Investing: How Millennials are Driving It.)

There are several investment alternatives that have recently become available that can help advisors to do just that. Impact investments are a category of investments that are designed to provide a larger benefit to society or the environment in addition to providing a competitive rate of return. The Global Impact Investing Network reports that the impact investing sector now stands at $77 billion in assets under management. These investments allow clients to choose options based on their impact on the environment, society or how they are governed as well as their style of investment management.

Passion investments represent another avenue that can provide additional benefits beyond a simple rate of return. These investments are geared for high-net-worth clients who can afford to purchase items that can provide enjoyment of ownership while they hold them. Items such as works of art, antiques, watches and jewelry and even classic automobiles fall into this category. In addition to the personal enjoyment factor, these investments can also provide additional diversification to a portfolio, as the prices of these items will not fluctuate in correlation with the mainstream markets. But the primary reason that most “investor collectors” will buy these items is to enjoy their beauty or use while they own them. (For more, see: SRI Funds and Your 401(k): What You Need to Know.)

Investment funds that cater to specific themes, such as helping the environment, are another type of impact investment. These funds transcend the traditional style boxes to encompass a philosophy or value that its investors will share. They usually focus on macroeconomic themes such as renewable energy, health and wellness or breakthrough technologies. An impact investment strategy can also help clients to reduce their overall level of risk, improve their returns over time and accomplish other important goals that the client values. They also provide a level of diversification that moves them away from the standard market indexes.

A recent survey by SourceMedia Research indicates that nearly three-quarter of the advisors who were polled said that they were already engaging in impact investing with their clients or were thinking about doing so. These advisors also revealed that about two-thirds of their clients were also either pursuing or contemplating this investment approach. Thematic investments can provide superior returns in some cases because they are more focused on social, political and demographic trends that are shaping the future. This means that they can often get in on the ground floor of some investment opportunities while the companies that are chosen are still in their infancy.

Financial advisors who are looking for a new way to strengthen their client relationships should take a look at thematic investing. This type of investment can get clients excited about more than what they can earn from it, and engage them on a deeper level. (For more, see: A Look at Advisors Serving Niche Clients.)