In terms of actively engaged clientele with sturdy to impressive levels of assets, advisors primarily deal with three demographics – baby boomers, Gen X and millennials.
One of the nifty things about demographics is that there's always another one on the rise. Today, that group is Gen Z. Speaking strictly in growing a practice terms, Gen Z is still a riddle for advisors. The oldest members of this generation are just 26 or 27 years old – just a few years removed from college. Plenty are still in college. In other words, many Gen Zers aren't flush cash and aren't going to, at least not yet, generate much revenue for advisors.
However, ignoring any demographic is foolhardy. Moreover, Gen Z presents advisors with a unique opportunity because this group is arguably the most environmentally and socially hip when it comes to investing, meaning advisors have ample runway with which to discuss sustainable investing concepts with a captive audience.
“This generation of people up to age 26, who are either finishing school or starting their professional careers, has grown up immersed in a world surrounded by environmental and social concerns. For many of this generation, sustainability is not a secondary concern, it’s the main concern,” says Morningstar analyst Calista Duggan.
Avoiding Minefields with Gen Z Clients
When it comes to issues such as the environment and social justice, Gen Z, to their credit, are active and impassioned and they want to invest in a way that aligns with those values.
For advisors, those factors are positive – if they know how to navigate some potentially sensitive issues. As Duggan rightly notes, the “E” in environmental, social and governance (ESG) is widely known and easy to quantify. It's the “S” and “G” where companies' implementation is fluid at best, murky or downright lacking.
“What is more subtle are the "S" and "G", and this is where we could use professional advice. Social issues, such as Black Lives Matter, are central concerns for Generation Z,” says the Morningstar. “What opportunities are out there that support companies or infrastructure projects that could reflect that? We’d like to put our money where our values are.”
Problem for advisors and clients is that many companies that pay lip service to being good social and governance stewards really aren't and that problem is compounded by the fact that many of these firms reside in sectors that Gen Z is familiar with and wants to be engaged in.
For example, Silicon Valley loves to talk about diversity, but the data confirm many companies there have abysmal minority hiring records. That's makes for disappointment on the social front. Likewise, plenty of well-known companies are governance offenders.
“Governance is another area that requires deeper knowledge an investment professional can advise on. What companies have opaque supply chains that might involve child or unethically compensated labor? Which ones are wasting the earth’s fresh water?,” adds Duggan.
Names won't be named here, but suffice to say some well-known companies appealing to a broad swath of investors, Gen Z included, are outright governance offenders on the human rights front.
Easy, Desirable Fixes
The bottom line is ESG and sustainable investing can drift into thorny political conversations, which of course are dangerous for advisors and likely off-putting to clients.
Clients, particularly younger ones, may be dismayed to learn about the carbon footprints some renewable energy strategies sport, the amount of coal needed to make solar panels and the ravages of rare earths mining necessary to make their iPhones.
Fortunately, advisors have “outs” here and they can lean on some familiar concepts that Gen Z are likely to find interesting. An assortment of market research confirms many disruptive growth companies, by way of business models that are already in place, are already driving environmental sustainability, efforts to make finances more equitable for everyone and to enhance education, among other noble pursuits.
That's good news for advisors because they don't need to green wash or engage in useless political chatter. They simply need to show Gen Z there are ways to invest their values, some of which are more pure than meets the eye.
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