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This report provides a summary of respondents views of new investment opportunities to assist financial institutions in developing these products as well as assisting existing financial advisors in retaining and growing their businesses. Those who participated had between $100K and $25MM net worth, not including primary residence (NIPR). The surveys were completed by the person primarily responsible for making the day to day financial decisions within the household. In total 3,070 persons responded to the survey. Spectrem conducted this survey through an online panel that is generally representative of the affluent investors throughout the United States. However, some age based weighting of the data was performed to insure a more representative sample. Net Worth, NIPR, includes all assets except primary residence, less all liabilities. We examine three distinct segments: Mass Affluent - $100,000 - $999,999 (1,266) Millionaire - $1,000,000 - $4,999,999 (1,264) Ultra High Net Worth (UHNW) - $5,000,000 - $25,000,000 (540) Five age segments are compared throughout the report: 35 (92) 36-44 (146) 45 54 (362) 55 64 (1,275) 65 and above (1,196) Comparisons of male and females are also included in the report: Males (1,943) Females (1,127) 2016 Spectrem Group 2
Socially responsible investing is the practice of investing in products and services which show or promise a corporation has a desire to have a positive impact on environmental, social and human rights issues. Investing in companies with socially responsible profiles serves to make the investor feel good about what they are doing with their investable funds, and ostensibly encourages corporations to promote their own efforts in socially responsible efforts. Socially responsible investing is becoming increasingly popular, although it remains mostly a purview of younger investors and those with lower net worth. There are definitely investors who have no interest in socially responsible investing, but advisors need to be prepared to discuss such investments with those investors who want their money to have an impact on the environment or significant social issues. 2016 Spectrem Group 3
Socially responsible investing remains a mystery to some investors. Placing their familiarity with socially responsible Investing on a 0-to-100 scale, familiarity came up at 46.75. Investors in the 36-44 age group had the highest rating for their familiarity at 49.17, and the oldest investors (65 and over) listed their familiarity at 46.61. Familiarity With Investment Terms (On a Scale of 0 to 100) Impact Investing Socially Responsible Investing 28.94 46.75 Not at all familiar 31.61 Microfinance Very familiar By Age 47.42 49.17 47.74 46.27 46.61 43.12 39.32 35.76 35.18 31.17 28.30 27.67 32.92 31.66 29.33 Impact Investing Socially Responsible Investing Microfinance 35 36-44 45-54 55-64 65 2016 Spectrem Group 4
Familiarity with socially responsible investing rises as wealth rises. Among Ultra High Net Worth investors with a net worth between $5 million and $25 million, familiarity was at 55.11. Familiarity among Mass Affluent investors with a net worth between $100,000 and $1 million was at 42.24. By Wealth 25.66 29.14 36.20 42.24 47.69 55.11 26.13 32.80 41.64 Impact Investing Socially Responsible Investing Microfinance $100K - $999K $1MM - $4.9MM $5MM - $25MM At the same time, investors under the age of 36 place the significance of socially responsible investing at 51.68 on a 100-point scale, well over the 36 rating which came from investors over the age of 64. Male investors report a greater familiarity with socially responsible investing than women, 49.27 to 42.37. By Gender 31.22 25.02 49.27 42.37 33.64 28.11 Impact Investing Socially Responsible Investing Microfinance Male Female Wealth and age are predictors of knowledge about socially responsible investments. 2016 Spectrem Group 5
Younger investors have a significant portion of their investment portfolio pointed at socially responsible investments. Twenty-seven percent of investors under the age of 36 have at least 25 percent of their portfolio directed at socially responsible firms or products. Among investors over 54, 83 percent have less than 25 percent of their portfolio placed in socially responsible investments. 47% Percentage of Portfolio in Socially Responsible Investments 36% 12% 4% 1% 1% 0% 1%-24% 25%-49% 50%-74% 75%-99% 100% By Age 39% 42% 0% 44% 1% - 24% 33% 35% 33% 34% 39% 25% - 49% 18% 17% 14% 10% 11% 50% - 74% 75% - 99% 100% 7% 5% 4% 5% 4% 2% 1% 1% 1% 1% 0% 1% 0% 1% 1% 35 36-44 45-54 55-64 65 48% 49% 6
Investors with a smaller net worth have a greater percentage of their portfolio aimed at socially responsible investments. Among Mass Affluent investors, 20 percent have at least 25 percent of their portfolio in socially responsible investments. Among Ultra High Net Worth investors, only 14 have that percentage of their portfolio aimed at socially responsible firms or products. Percentage of Portfolio in Socially Responsible Investments By Wealth By Gender 1% 1% 1% 1% 2% 1% 5% 4% 3% 1% 2% 4% 5% 10% 12% 10% 12% 14% 33% 38% 37% 36% 35% 48% 45% 48% 48% 44% $100K - $999K $1MM - $4.9MM $5MM - $25MM Male Female 0% 1% - 24% 25% - 49% 50% - 74% 75% - 99% 100% 2016 Spectrem Group 7
There are several motivations that would cause an investor to want to place their investments in the hands of companies that are socially responsible. Chief among them is to create a better world for their offspring (62 percent). Fifty-seven percent point to a desire to improve the environment (more true among older investors). Main Interest for Socially Responsible Investing 62% 46% 48% Create a better world for children and grandchildren Investing in these companies will cause other companies to embrace social responsibility in their business practices Socially responsible investing will create a better world for the less fortunate 57% 41% 7% Socially responsible investing will help improve the environment Socially responsible investing will penalize and send a message to those companies that create products that are harmful to people Other/None of the Above 8
Obviously, a majority of investors do not consider socially responsible investing, and they also have several reasons for avoiding that target for investments. A majority say their investments are purely aimed at making a profit and their considerations are entirely financial (moreso males than females). Reasons for Lack of Interest in Social Responsibility 57% 32% 10% My investment objectives are purely financial I feel most companies claiming social responsibility in their corporate behavior is nothing more than public relations. I believe social responsibility is not a corporate responsibility 20% 35% 6% I believe corporations should do all they can to generate a profit and let individuals use their investment returns for providing social change I ve never given much thought to social responsibility in my investing Other/None of the Above 9
More than one-third admit they have given no thought to socially responsible investing (and that is especially true among female investors). By Age Reasons for Lack of Interest in Social Responsibility 63% 61% 57% 55% 59% 35 36-44 45-54 55-64 65 35% 34% 33% 33% 30% 24% 19% 19% 10% 10% 11% 11% 12% 14% 8% 35% 37% 28% 28% 35% 13% 9% 7% 6% 7% My investment objectives are purely financial By Gender I feel most companies claiming social responsibility in their corporate behavior is nothing more than public relations I believe social responsibility is not a corporate responsibility I believe corporations should do all they can to generate a profit and let individuals use their investment returns for providing social change I ve never given much thought to social responsibility in my investing Other/None of the above 63% Male Female 44% 33% 29% 11% 8% 23% 13% 31% 45% 6% 8% By Wealth 54% 57% 65% $100K - $999K $1MM - $4.9MM $5MM - $25MM 39% 32% 28% 9% 14% 9% 39% 31% 34% 30% 21% 14% 7% 5% 8% 10
The problem with socially responsible investing is wondering whether it is a more profitable or equally profitable way to invest funds. Just over half of investors believe socially responsible investing will provide similar returns to investing without that focus, while 43 percent believe it will provide lower returns than the overall stock market. Only 6 percent perceive socially responsible investing as providing a greater return than the stock market. Feel Socially Responsible Investments Result in a Greater Return, Same As, or Less Return Greater Return than Overall Stock Market) Same Return as Overall Stock Market) Less Return than Overall Stock Market By Age By Wealth By Gender 16% 14% 10% 6% 4% 8% 5% 4% 5% 8% 63% 54% 52% 54% 47% 55% 51% 44% 48% 58% 21% 32% 38% 40% 49% 37% 44% 52% 47% 34% 35 36-44 45-54 55-64 65 $100K - $999K $1MM - $4.9MM $5MM - $25MM Male Female Less Return than Overall Stock Market Same Return as Overall Stock Market Greater Return than Overall Stock Market 11
Sure, you want your investable funds to make a positive social and environmental impact, but are you willing to pay for that to happen? Only 3 percent say yes, they would pay more for a socially responsible investment. Twenty-two percent would pay much less than normal for socially responsible investments. Younger investors are more likely to pay more for social responsibility. How Much Would You be Willing to Pay for Socially Responsible Investments? Much more than the price of other investments 3% Same price as other investments 75% Much less than the price of other investments 22% By Age 79% 73% 74% 78% 71% 10% 8% 3% 4% 2% 10% 19% 22% 18% 27% Much more than the price of other investments Same price as other investments Much less than the price of other investments 35 36-44 45-54 55-64 65 12
In some cases, it s not about investing in firms that are doing good work, it is not investing in firms that are harmful to the consuming public in some manner. Placing their investment plans on a 0-to- 100 scale, investors placed their decision to avoid companies with a bad human rights record at 70.06. Investing with an eye toward companies with a good environmental record, or avoiding those with a bad environmental record, came in at 68.79. Interest in Investing in the Following Types of Socially Responsible Investments (0=No Interest, 100=Great Interest) Companies that encourage and promote diversity and have specific programs in place that create a diverse workforce Companies that encourage and foster environmentally friendly practices and avoiding those companies that harm and damage the environment Avoiding those companies that produce or solicit products that are harmful to the consuming public, either physically, socially 56.82 68.79 67.24 Avoiding companies whose practices hamper human rights such as companies that don't have adequate pay Companies that encourage and promote diversity and have specific programs in place that create a diverse workforce Companies that encourage and foster environmentally friendly practices and avoiding those companies that harm and damage the environment Avoiding those companies that produce or solicit products that are harmful to the consuming public, either physically, socially Avoiding companies whose practices hamper human rights such as companies that don't have adequate pay By Age 70.06 51.14 56.02 56.05 57.48 57.08 63.88 66.40 67.78 69.93 68.74 63.32 61.11 66.54 68.08 68.02 65.20 66.39 69.08 71.17 70.25 35 36-44 45-54 55-64 65 13
Interest in socially responsible investing seems to be growing. Nineteen percent of investors say they have more interest in the topic than in the past, while 13 percent say their interest level has dropped. Thirty percent of investors under the age of 36 have a greater interest than in the past. Interest in Socially Responsible Investments More interest than in the past 19% Same amount of interest as in the past 69% Less interest than in the past 13% More interest than in the past 30% 23% 16% 20% 17% Same amount of interest as in the past 65% 70% 75% 68% 67% Less interest than in the past 5% 7% 10% 12% 16% 35 36-44 45-54 55-64 65 14
So what kind of socially responsible investment do you want to make? Forty-four percent of investors choose companies focusing on water conservation while 42 percent invest in companies promoting good health and a vigorous lifestyle. Older investors have a greater interest in water conservation and developing solar power. Organizations or Charities Interested in Water conservation 44% Forest management 33% Developing wind as an energy source 36% Developing solar energy Promoting exercise and good health 41% 42% None of the above 28% 37% 40% 39% 47% 33% 45% 33% 32% 34% 31% 32% 33% 33% 38% 34% 38% 39% 38% 44% 40% 40% 43% 42% 42% 26% 29% 42% 26% 30% 30% 35 36-44 45-54 55-64 65 15
Implications and Conclusions The media message regarding social responsibility and global awareness becomes stronger each day and highlights the importance these issues will have to investors of the future. Investors face the delicate balance of wanting to be socially responsible but wanting to ensure their own future financial success. Advisors need to position themselves as the expert in helping investors help the world while still protecting the investor. Advisory firms must consider the following: Ask investors about their interest levels in socially responsible investments. In most cases, they may not have an interest. It might be useful, however, to point out different types of socially responsible investments and highlight how some may not really seem to be socially responsible at the outset. For example, is Tesla a socially responsible investment? Is it a good investment for them? Or Tom s, the shoe company? Would this fit in their portfolio? Or companies that are exploring water technologies? Make sure that they understand that socially responsible investing is not the same as a charitable donation. Be familiar with different types of socially responsible investments. As highlighted in this report, investments in water or fitness or human rights are of interest to many investors. To the extent that you are aware of the initiatives various companies may have in these areas, you may be able to interest them in different stocks or other investments. Familiarity with socially responsible companies may allow you to develop a relationship with the children of your existing clients. In many cases, investors don t really know how to find out about socially responsible investments. The expertise you have in this area may allow you to open up a dialogue with the children of your clients. Generally, younger investors are more interested in these investments. Discuss the difference between microfinance, impact investing and social responsibility with your customers. Many investors are more likely to find impact investing or micro-finance more appealing than socially responsible investing. Spectrem research indicates that most investors attribute their own success to Hard Work. To the extent they believe their funds are assisting someone willing to work hard, they may be more willing to risk their own assets. The traditional concept of social responsibility for older investors often tends to be the sin-free investments that they believe are not generally profitable. As millennials continue to increase their own affluence and as Baby Boomers begin to feel comfortable with their own retirement plans, social responsibility will become increasingly important. Corporations will generally start to be held to higher standards and investors and the media will become increasingly aware of the practices of these companies. Advisors must be articulate about various issues and help investors of the future weigh the benefits of social investing against pure profit. 16
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