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Investors and Their Financial Advisors Need More Education, More Communication about Responsible Investments - TIAA Global Asset Management Survey
As ESG Investing Grows in Popularity, Findings Reveal a Lingering Knowledge Gap Among American Investors
Offering Socially Responsible Investments May Lead to Stronger Client Relationships for Advisors and Employers, Help Build Connections with Millennials
New York, May 31, 2016 – Over three quarters (77 percent) of affluent US investors say that they want their assets to have a positive impact on society. Many may see investing as an extension of their focus on social issues, with 86 percent of respondents tending to recycle every day, 71 percent preferring reusable bags, and 61 percent shopping for brands that adhere to sustainable business practices. Yet with interest in social impact growing, and the availability of more responsible investment options than ever before, greater than one in three investment advisors (36 percent) concede that they are not able to adequately evaluate performance of responsible investments, and two in five affluent investors (40 percent) report they are unsure if they currently own responsible investments within their portfolios. These findings, revealed today in a new TIAA Global Asset Management survey of investors and advisors across the country, expose a fundamental challenge to the investing category: the lack of understanding among investors and advisors of what responsible investing really is.
“While interest in responsible investing continues to grow, a significant portion of individual investors and their advisors are still unsure about what it means to implement these strategies in today’s investment portfolio,” said Amy O’Brien, managing director and head of TIAA Global Asset Management’s Responsible Investment team. “Too many investors still question how to define responsible investing and whether they can produce competitive returns.”
“The fact is that responsible investing strategies vary widely in their intent and approach. As an industry, we need to do a better job of helping investors understand how these strategies work and what role they can play in a diversified portfolio.”
“Many people want their investments to reflect their values,” said Jill Popovich, managing director, Individual Advisory Services at TIAA. “We find that talking to clients about their personal values as well as their financial goals helps build deeper and lasting relationships. Often clients are pleased to learn that they can have a well-diversified portfolio with responsible investments.”
Disconnect Equates to Missed Opportunity
This knowledge gap also creates a missed opportunity for advisors to build client loyalty over time. According to the TIAA Global Asset Management survey, almost three-quarters of investors (74 percent) would be more likely to work with an advisor who could give them competitive investment returns from investments that also made a positive impact on society and 65 percent of investors would be more likely to stay with an advisor who could discuss responsible investing with them.
Meanwhile, just 45 percent of advisors believe this would be the case, and often choose not to address responsible investing options with their clients – over three in five investors (61 percent) indicated that their advisor had not brought up the topic of responsible investing in the past twelve months. This disconnect suggests that too many advisors forgo a chance to develop stronger relationships with their clients as a result of not communicating about these strategies.
Closing the Gap: Communication and Education
The results of the survey suggest a need to develop a better understanding of responsible investing overall. Seventy-four percent of advisors reported an interest in learning more about responsible investing options to better serve their clients. Developing a shared understanding of responsible investing terminology and benchmarks may be particularly helpful for non-millennial investors who hold significantly less of their assets in ESG options than those between the ages of 18-34 (22 percent vs. 65 percent, respectively).
The survey also suggests that misperceptions about the role and benefits of responsible investing may be limiting adoption rates. While interest in responsible investments is strong, investors are doubtful of the availability of best-in-class products. In fact, more than one in four affluent investors and advisors responded that responsible investment options are very limited or that the category lacks quality choices. More notably, over half (51 percent) of financial advisors believe responsible investing does not provide the same rate of return as other investment strategies, while 57 percent of investors believe responsible investing offers a lower rate of return than other strategies.
“More investors are considering the balance between leveraging their assets to have a social or environmental outcome while seeking competitive performance. According to our recent socially responsible investing performance analysis, indexes that follow SRI guidelines delivered long-term performance returns comparable to the broad market benchmarks,” said O’Brien. “Incorporating environmental, social and governance criteria in individual security selection can in fact deliver market competitive returns.”
Additional Key Findings
- The availability of ESG investment options through their workplace retirement plans would cause 71 percent of affluent investors to feel good about working for their employer.
- Millennial investors (90 percent) are more likely than non-millennial investors (73 percent) to want their investments to deliver competitive performance while promoting positive social and environmental outcomes.
- Affluent investors’ interest in responsible investments spans a variety of options, including U.S. stock funds (62 percent), U.S. bond funds (55 percent), stocks with an emphasis on low carbon (50 percent), international equity funds (49 percent) and international stock funds (48 percent).
- Nearly one in four (23 percent) affluent investors believe responsible investing is only for the very rich, whereas only 8 percent of advisors feel the same way, and more than four in 10 investors (42 percent) associate responsible investing with charity.
TIAA Global Asset Management’s analysis of ESG investment performance, entitled, Socially Responsible Investing: Delivering Competitive Performance its most recent fixed income white paper, Green Muni Bonds: Responsible Investing in a Centuries-Old Asset Class , and interpretation about including ESG funds in defined contribution plans, A Cure for the Cooties , are available at www.tiaa.org/public/assetmanagement/insights. To learn more about responsible investing, visit www.tiaa.org/responsibleinvesting .
To learn more about attitudes and perceptions of investors and advisors with regard to responsible investing, TIAA Global Asset Management commissioned two online surveys which were fielded in December 2015. 1,103 US investors age 21 or older who were working with an advisor and had $100,000 or more in assets, excluding 401(k), 403(b) or real estate holdings, responded. Over 275 advisors, one third of which were registered investment advisors, responded.
About TIAA Global Asset Management
TIAA Global Asset Management provides investment advice and portfolio management through Teachers Insurance and Annuity Association (TIAA) and more than a dozen affiliated registered investment advisers. Collectively managing $861 billion in assets, the business provides access to innovative investment strategies through expertise that spans traditional and alternative asset classes, generating new investment opportunities for clients through a wide array of vehicles including funds, customized strategies and solutions. TIAA Global Asset Management is committed to TIAA’s legacy of helping individuals and institutional clients achieve long-term investment success and financial well-being.