Can Clients Have Principles and Performance? Younger Generations Think So

Put your money where your … beliefs are? 

Gen Z and millennials seem to be on board, viewing faith-based investments as more appealing than older generations do, according to a recent Crossmark survey. Many younger investors are even seeking advisors who can help prioritize values in the portfolio-building process, with a significant portion likely to choose an advisor that offers values-based investing over one that doesn’t. Advisors with younger clients said this trend is visible in their practices, and they’re finding ways to accommodate them without meaningfully sacrificing performance. Those who ignore this trend, or outright dismiss values-based investing, risk alienating an important client segment, said Crossmark CEO Bob Doll. 

“These generations are creating and inheriting significant wealth,” Doll, former chief equity strategist at Nuveen and BlackRock, told Advisor Upside. “They care about things like corporate governance, sustainability, workplace safety and, increasingly, policies that support the family, like paid parental leave. They don’t have to sacrifice performance to get it.”

Advisors’ Experience 

Dana Menard, advisor at Twin Cities Wealth Strategies, says younger clients are “definitely more conscious” about aligning investments with their values. It used to be logistically challenging to do so, he said, but technology improvements and work by asset managers has changed the game.

“Younger investors want portfolios that reflect who they are,” agreed Jeffrey Judge, advisor at Chesapeake Financial Planners. “It’s not a fringe preference anymore. I had a couple in their late 30s last year who came to me specifically because they’d left an advisor who brushed off this conversation.” By the numbers: 

• 44% of millennials and Gen Z said values-based investing is important, more than double the rate (19%) of retired respondents. 
• Three in four respondents under age 41 would choose an advisor that offers values-based investing over one that doesn’t.

The performance question is where nuance comes in, advisors agreed. “Doll is right that you don’t have to sacrifice returns to invest this way, but that’s true on average and over time,” Judge said. Generally, performance parity depends heavily on which values screen one is applying and over what time horizon. A broad ESG screen over a diversified global portfolio is one thing. Uber-strict screening of stocks according to religious principles is another.

Stacking Up. Matthew Higbie, advisor at Birchwood Capital, recently analyzed biblically responsible investing funds. The data shows it’s hard to beat market cap-weighted index funds over time, but he expects many Christians would switch to BRI funds if performance remains relatively close. He found one leading BRI fund has actually outperformed its total stock index benchmark, but most have lagged by between 100 and 400 basis points. 

Allan Moskowitz, advisor at Transformative Wealth Management, has likewise found values-based investments performance can be competitive, noting the sustainability-focused MSCI DSI Index has outperformed the S&P 500 index for over 30 years on average, although there are shorter-term periods in which it hasn’t.