Is the family office a growth market that financial advisors should be looking at?
The answer is “yes,” based on the most popular breakout sessions at US SIF: The Forum for Sustainable and Responsible Investment’s (US SIF) 6th annual conference in Washington, D.C.
US SIF, with members representing more than $2 trillion in assets under management or advisement, is the leading voice advancing sustainable, responsible and impact investing across all asset classes. US SIF provides cutting-edge research and resources on SRI, advances key public policy issues, provides sustainable investment education and hosts national conferences and events around the country. Financial advisors attend the US SIF annual conference to learn more about how sustainable, responsible and impact (SRI) investing can help them grow their practices and develop new client relationships. Breakout sessions are led by industry thought leaders, subject matter experts and asset managers.
Michelle Clayman, a US SIF board member and founder of New Amsterdam Partners, an institutional money manager that counts numerous family offices among its clientele, said that “for financial advisors, the growth of family offices is an opportunity to advise on large pools of wealth and embrace the challenges that go with that kind of client relationship.” In Clayman’s experience, family offices have been active in impact investing for some time, and wealthy families around the world understand that what started out as philanthropy has shifted to a focus on the impact of how they invest their wealth as well.
According to the Family Offices and the Quest for Impact panel of experts, the millennial generation wealth transfer is also changing the way ultra-high-net-worth (UHNW) families manage their wealth as younger heirs demand a say on investment strategy. Today, more responsibility is being given to younger family members who are actively managing parts of the family office portfolio. Their investment decisions are more integrated with their choices as consumers. As a result, the dialogue within families is more detailed across generations regarding sustainable and impact investing.
US SIF described this growing trend in its 2016 report Family Offices and Investing for Impact. In particular, the report noted that millennial family members may champion certain causes, such as increasing education and work place opportunities for women and girls or limiting the environmental impact of extractive industries on the communities where they operate.
The report highlights that sustainable, responsible and impact investing provides multiple venues for family offices to extend their mission-oriented work. The report cites a recent survey of UHNW adults by U.S. Trust Bank of America Wealth Management (Insights on Wealth and Worth Survey 2015), in which 85 percent of millennial respondents agree that social or environmental impact is important to investment decisions.
Justin Conway, a US SIF board member and vice president of investment partnerships at the Calvert Foundation, explained “Impact investing focus is no longer restricted to a small carve-out from portfolio assets.” According to Conway, family members in their early to mid-twenties are being given more responsibility for impact investment strategies, often managing ten percent or more of total portfolio assets in the process.
Paul Hilton, CFA, chair of the US SIF Board of Directors and partner and portfolio manager at Trillium Asset Management, sees these trends developing when wealth is changing hands within families. “This has been an area of growth for our business,” said Hilton. He explained that when firms working with family offices are unable to build an SRI strategy to meet a family’s needs, they work collaboratively with firms like Trillium.
Conway reinforced the idea of collaboration, explaining that family offices, generally private in the past about approaches to investing, are developing more shared knowledge on impact investing strategies in part due to family office associations hearing from members about the need for collaboration.
For advisors who work with family offices, US SIF provides valuable research and access to members that include investment management and advisory firms, research firms, broker-dealers and RIAs, community investing organizations, pension funds and foundations.
“It’s very difficult for a small family office to learn about portfolio strategies, advocacy and policy issues in this field,” said Hilton, “and being part of our network gives them a range of tools and relationships that makes becoming a leader in this area easier.”
According to Clayman, there have been more opportunities in recent years for family offices to come together in highly confidential settings to talk about various issues, including investment strategies. This is where best practices are being developed that will help family offices become leaders in sustainable and responsible investing.
Paul Ellis founded Paul Ellis Consulting to work with financial advisors who want to integrate sustainable and impact investment strategies for their clients.
