Socially Responsible Investors and Their Advisors

Abstract

Socially responsible investors are similar to conventional investors in some ways but different in others. Like conventional investors, socially responsible investors want high returns and low risk, but socially responsible investors also want their portfolios to conform to their values, whether promotion of worker rights, opposition to war, or protection of the environment. Financial advisors new to socially responsible investing ask important questions. How can we make sense of socially responsibility when it means different things to different people? Is it right to mix financial goals with social goals. And won't such mixing violate our fiduciary duties? Socially responsible investing often means different things to different people, but so does risk. It is the role of advisors to explore clients' social, ethical and religious preferences, just as they explore attitudes toward risk. Social questionnaires can facilitate that task as risk questionnaires do. Mixing non-financial preferences with financial goals is not really new to any financial advisor. For example, advisors routinely accommodate the home bias of clients by titling portfolios away from foreign stocks, even when such tilts diminish the benefits of diversification. And socially responsible investing does not violate advisors' fiduciary duties when clients direct such investing in the investment policy statement. This article presents, in their own words, four financial advisors who advise socially responsible investors. They tell about the life experiences that have drawn them to socially responsible investing and offer lessons about serving socially responsible clients.