The impulse to do good while doing well is much older than popular acronyms like ESG and SRI might suggest. In fact, impact investing dates as far back as the 1800s. It’s human nature – and a product of both altruism and self-interest – to assist others and promote communal well-being: it’s the “rising tide lifts all boats” rationale at work from small enterprises to global communities.
So, while the “why” behind impact investing has remained relatively constant through time, the “how” is always evolving. Technology, a great tool of transformation and, in many cases, a great equalizer, is a crucial resource when it comes to delivering on the promise of philanthropic endeavors. From access to efficacy and execution to assessing outcomes, technology is elevating the wealth management industry’s ability to serve high-net-worth (HNW) and ultra-high-net-worth (UHNW) investors’ ability to meaningfully support the causes that matter to them and promote the values they espouse.
What difference is technology making on this growing segment of the investment universe? Digital Wealth News spoke with three financial services specialists whose understanding of this market and the financial professionals who serve it uniquely qualify them to speak to the current state of affairs and what to expect going forward:
- John Guthery, Chief Investment Officer, FusionIQ, a leader in the delivery of cloud-based wealth management solutions
- Bud Sturmak, Head of Impact Investing, Perigon Wealth Management, an advisor-led, independent wealth management firm with offices across the country
- Mike Papedis, Managing Partner and Co-Founder, Fusion Financial Partners, a third-party strategic consultancy to the independent RIA space
DWN asked how technology/digital tools and platforms can better enable advisors and asset managers to support HNW and UHNW client demand for impact investment opportunities; and what do these tools look like? Here’s what our experts had to say:
John Guthery, Chief Investment Officer at FusionIQ – Cloud-native wealth management platforms are changing the game in how impact investment strategies are accessed by HNW and UHNW investors. These cutting-edge technologies are breaking down the silos between asset classes, providing both the scale and flexibility investors and their advisors need to access and invest in impact opportunities in a single market.
For example, FusionIQ’s FIQ Market One is delivering access to digital assets, alternative funds, private investments and ETFs in a single market that investors and advisors can digitally onboard to. This gives them access to a broad range of impact opportunities in asset classes that would not normally be accessible in a single market. In this way, cloud-native investment platforms are democratizing access to impact opportunities.
Just as it is essential to create a single digital workflow to access a variety of asset classes, it is also necessary for wealth management platforms to seamlessly integrate multiple custodians, giving investors and their advisors control over where their assets are held, expanding the range of impact opportunities available to them, and making the investment process effortless.
Bud Sturmak, Head of Impact Investing at Perigon Wealth Management – From our perspective, a confluence of factors, including high-quality ESG data, direct indexing technology and impact reporting tools, are ushering in a new era of personalization for HNW investors.
While mutual funds and ETFs have been an adequate solution for clients seeking a portfolio that integrates sustainability themes, the latest tools and technologies may offer certain advantages. A direct indexing portfolio can be tax advantaged, as positions can be tax loss harvested when markets dip since clients directly own a portfolio of stocks in this type of portfolio. Additionally, certain direct indexing solutions offer the ability to personalize the impact/sustainability lens to exactly what each client cares about. This differs from a more traditional ESG portfolio that typically integrates a sustainability lens that is defined by the investment manager, which may not always align with the client’s values. Impact reporting is a new tool that allows advisors to show clients their portfolio weightings and exposures to various impact themes such as greenhouse gas emissions, hazardous waste exposure, diversity & inclusion and business ethics. This can help clients better understand their portfolio impact exposures and may lead to changes to better align the portfolio with what clients care about most.
Mike Papedis, Managing Partner and Co-Founder at Fusion Financial Partners – The evolution of wealth management has undergone transformative events over the past several decades in channel coverage and product offerings. In the early days, wealth management 1.0 advice was centered on human-led client engagement models and traditional asset classes. Under wealth management 2.0, passive investing models were added to support distinct client models. Today, wealth management 3.0 is defined by a significant expansion of client scope, digital-led and human-led coverage models, and adding specializations such as private markets, digital assets, and ESG / impact investing as modular service offerings.
Wealth management firms must align with the evolving demands of affluent, HNW and UHNW clients. One area of expansion is serving client requests for intentional investing through sustainable and socially responsible philosophies. This is particularly true when advisors engage younger generations, such as Millennials and Gen-Zers, who are loud voices of climate change activism and rewriting rules. In short, aligning an RIA’s services to match client value systems centered on social and environmental impact is future-proofing the firm and ensuring organizational stability.
In the past, the challenges in impact investing were due to limited means to measure the returns and social effects of investments. Technology, especially through advancements in AI, is providing an expansive suite of data-led perspectives, making it easier to measure and track social and financial returns.
