Socially responsible investing is coming to robo-advice

August 18, 2017
3 min read

2 in 3 Millennials prefer to use financial institutions that back the causes they support
Many consumers want their assets to have a positive effect on society. This is especially true of Millennials at all wealth levels, with two in three saying they prefer to use financial institutions that back the causes they support, according to Mintel’s US Financial Needs of Affluent and High Net Worth Consumers report. As more investors look for ways to invest in accordance with their personal values, both new and established robo-advisors are adding investment options that allow them to do so.

New robo-advisors focus on SRI

While a small number of advisory firms focus on offering their clients access to investments that take ESG (environmental, social and governance) considerations into account and some independent and wirehouse advisors offer limited access to such investments, the TIAA survey also showed that most advisors don’t really understand how to evaluate whether an investment meets ESG criteria. As a result of this – and of the growing interest investors have in socially responsible investing (SRI) – robo-advisors have begun to fill the void. In the past two years, at least three – OpenInvest, Earthfolio and Grow Invest – have been established to focus on SRI investing. Each has a different minimum investment requirement and fee structure and each offers different investment options, but they are all working to combine growing client demands for responsible investing with digital platforms.

Betterment and Wealthfront are capitalizing on the trend

The trend toward SRI investing is also driving established robo-advisors to expand their offerings. Betterment recently announced the addition of portfolios that favor companies with strong records on various socially responsible factors, including the environment, governance and human rights. Using ETFs that track socially responsible indexes, the company will give investors the opportunity to invest in companies that behave in ways that reflect their own values. Betterment has recently overhauled its marketing and branding efforts to better reflect the affluent market the company is newly trying to attract and says that more than 10% of its 250,000 customers are “accredited,” or “wealthy,” and that a number of them have investments in excess of $10 million.

Wealthfront is giving clients the choice of investing in individual stocks or avoid ones that don’t fit their criteria. The company is building a one-click feature that will enable investors to omit buying securities in four major categories: fossil fuels, deforestation, weapons and tobacco. Regardless of the category they are in, additional securities can be eliminated just be entering them into an exclusion list.

What we think

An increasing number of investors are interested in investing in accordance with their values. Since Millennials and women – two groups whose investable assets are likely to grow – are among those investors most interested in SRI investing, human advisors who don’t educate themselves on how to measure the sustainability performance of investments risk losing huge chunks of both current and future clients to robo-advisors.

Robyn Kaiserman is a Senior Analyst, Financial Services at Mintel, researching and writing in-depth reports on the financial services industry. Her most recent topics include Innovations in Banking and Payments.

Robyn Kaiserman
Robyn Kaiserman

Robyn Kaiserman is a Senior Analyst, Financial Services at Mintel, researching and writing in-depth reports on the financial services industry.

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