The ‘Belief Profile’ Opportunity

As the investing population skews towards millennials, socially conscious investing is outgrowing its past as a niche market. To capture the loyalty of tomorrow’s investors, financial institutions should think beyond risk profiles by constructing portfolios based on their clients’ beliefs.

Investors often design their portfolio around a “risk profile,” generated by their age, income, acceptable level of volatility and long-term goals. Thinking back to microeconomics, we know that individuals get different, though ambiguous, levels of utility from the different choices they make. For a growing number of investors, returns are important, but so is having a portfolio that lines up with their beliefs. For example, if I care deeply about the environment, and my wealth manager allocates half of my portfolio to a coal company, I won’t be happy, no matter how big a return I get. If we expand this concept to all of the broad ethical concerns one can have, it follows logically that personal interests and beliefs ought to be given more consideration when determining a proper portfolio. While today’s “socially responsible” investing is quite niche, and still focused on environmental sustainability, it’s becoming more customary for investors to buy what they believe in.


As wealth management fintech firms evolve, a client’s ‘belief profile’ will take an equal seat next to his or her risk profile (Stash, imaged above, is a great example of this). While a risk profile is essentially confined to a scale from risk averse to risk hungry, a belief profile is multidimensional, using clients’ stances on as many issues as they choose to weigh in on. A client’s ‘belief profile’ could consider environmental concerns, foreign policy, gender, and even religion, enabling one’s portfolio to more closely reflect oneself. With an estimated 84% of the millennial generation interested in sustainable investing, the more accurately a manager can construct a portfolio that resonates with an investor’s beliefs, the more assets they can expect to pull in. This is precisely why giants like Blackrock and Goldman Sachs have started to offer more sustainability-concerned mutual funds and ETFs in the past few years.


Sustainable funds are certainly not a new concept. Take Calvert, which was founded in 1976 and launched the first socially responsible mutual fund. Calvert’s fund excluded companies that did business in apartheid-era South Africa. Today, Calvert offers 26 different funds. What’s sparking the reinvigorated interest in this space seems to be a combination of Millennials’ belief-driven preferences being given more weight, along with more and more companies taking an interest in sustainability. Some of the most sustainable companies (certified as such) are benefit corporations, a.k.a. B-Corps. There are over 2,000 B-Corps, including some large publically traded companies, such as Etsy (ETSY; NASDAQ) and Natura (NATU3; BVMF).

Robo advisors can play a key role in the taking the “belief-profile” to mainstream investing. With more precise technological capabilities, robo-advisors can quickly and simultaneously adapt to their client’s needs and the current state of the markets. New institutions, like Swell, provide research on publicly traded companies who stand to grow, based on social and environmental trends. It may be easy enough to say “I don’t care about _____”, but it’s hard to ignore socially conscious investments that outperform their benchmark indices. For example, since 1990, the MSCI KLD 400 Social Index has returned an average of 8.4% a year, compared to the S&P 500 index’s 7.6%.


The MSCI KLD started with the name “Domini 400 Social Index” or “DSI”

Any financial marketer can tell you that Millennials expect “personalized experiences.” Building a strategy around a client’s “belief profile” will help wealth managers deliver just that, all while making them feel good about putting their money behind their values.


Read More:

Where to Find Socially Responsible (Robo) Investing

What Is Socially Responsible Investing?

Calvert to Launch Responsibly Managed Ultra-Short Income Strategy in NextShares™ Structure

Ethical funds see jump in investment inflows

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