- In 2016, the global action community for impact investors – Toniic – launched the Impact Advisory Survey
- From this survey, 37 Impact Advisors provided their insights in helping investors move their portfolios into impact
- There were 6x key findings including that: there has been a significant increase in the depth and diversity of impact intermediary offerings; sector growth has been led by client demand; and financial returns are on target
- The survey also built up a picture of why intermediaries are moving into impact and how their businesses have changed to build their impact practice
- The respondents also shared their thoughts on the challenges, accomplishments and lessons
You may have missed the inaugural report back in 2016 from Toniic that presented the portfolio findings from the T100; a subnetwork of Toniic’s Impact Investor Network. The T100 members are “principal-level investors who have intentionally committed to moving 100% of an investment portfolio to investments that create positive social and environmental impact.”
While these ‘100%ers’ may not be directly comparable with investors encountered in most UK-financial advisory firms, they do offer an interesting group from which a lot can be learnt. Particularly as ‘Advisors and in-house staff assist over 65% of the respondents in reaching their impact goals’ and as such, can provide significant lessons of their own.
In fact, ‘[i]n the 2016 T100 Launch Report, Toniic found that investors who are working with advisors or consultants are moving faster into impact than investors without advisors. Additionally, Toniic has seen demand from investors who want to learn more about the available impact intermediaries in the market.’
To meet this demand, Toniic launched the Impact Advisor Survey and in 2017 published a report outlining the insights from these Impact Advisors. The report offers ‘a glimpse into 37 impact advisories and consultancies worldwide’ and incorporates many personal stories, some of which are included in the report excerpts below.
Findings of the report
The six key findings were:
1. A significant increase in the depth and diversity of impact intermediary offerings
‘Once the domain of small impact intermediaries, the impact marketplace is now attracting a vast array of new entrants, including large financial institutions. The survey findings indicate an evolution in the intermediary industry, with increasing product and service offerings to suit more and more impact investors’ needs.’
2. Sector growth led by client demand
‘Clients–especially 2nd generations, millennials, and women–are pushing the agenda forward. One respondent reflected, “We have a lot of competition. I think it’s exciting. Seven years ago, we had to explain what an impact advisor was and prove how we would add value. Today the conversation is more about how are we different from the competition.”’
3. Challenges, but none deemed insurmountable
‘Impact measurement and trust building are at the forefront of challenges. Also, solving for access to appropriate investment opportunities for clients remains a priority. As measurement advances, building client trust, and trust within larger organizations will assist intermediaries as they seek to balance financial returns, risk, and impact returns.’
4. Accomplishments and optimism as milestones achieved
‘All survey respondents shared one or more success story, from engaging with new impact clients and transitioning existing clients into impact, to creating new products, and becoming a viable 100% impact advisory business.’
5. Financial returns on target, while impact measurement remains a work in progress
‘Clients and intermediaries alike target mostly market rate returns. [Similarly], [c]lients expect their impact to be managed, measured and reported. Currently, many advisors are adopting qualitative metrics, while the sector strives to achieve a robust methodology for managing, measuring and reporting purposes within 3 years.’
6. Outlook = Growth.
‘Growth is being seen in the number of investors, advisors, consultants in the space, the breadth and depth of products and services, and the level of talent entering the ecosystem.’
Let’s take a deeper look at the advisory and consultancy firms included in this survey.
What do these firms look like?
- The bulk are in North America but nearly a quarter are domiciled in Europe
- The majority of firms have fewer than 100 employees and 38% are in the 1-10 employee range
- Their experience in impact investing is variable with roughly a third across each category of ‘1-5 years’, ‘5-10 years’ and ‘10+ years’
- 1/3 of the respondents were women advisors – a stark contrast to the advisory community as a whole
- They serve mostly individuals, foundations and family offices, managing impact across a wide range of portfolio sizes, with most between $1-100m.
Why are intermediaries moving into impact?
Demand – 100% of the respondents see their business growing and one-third expect a significant increase in clients in the coming year.
“I kept getting asked by my clients for help navigating this area. I looked for the right resources for them, but they kept coming back asking me to help.” Jennifer Kenning (Align Impact)
Personal epiphany – “To build a global society where we value both planet and people and everything in it, we have to do something different. For us it’s more about the switch people make from thinking and being exclusive, to thinking and being inclusive.” Tera Terpstra (Wire Group)
Opportunity – “I started this firm because I did not see anyone else doing this.” Annie Roberts (Open Capital Advisors)
How are intermediaries building their practice?
‘Most respondents were inspired by client requests for impact-related services. Some took the bold step of building an independent practice, while others looked to embed themselves in a larger firm’s infrastructure.’
‘Supporting the premise that the impact ecosystem continues to mature and deepen, the most telling statistic is that 43% of respondents now dedicate their whole practice to impact products and services, suggesting demand from impact investors is sufficient to enable some intermediaries to be financially viable relying solely on the impact sector.’
‘Startup capital often comes from founder sweat equity and/or customer equity investments and earned revenue…Earned revenue for smaller size companies is mostly comprised of retainer or consulting fees, while larger size companies’ fees are often based on assets under management or assets under advisory plus specific consulting/brokerage-type revenues on a project-by-project or transactional basis.’
‘Some challenges cited are limitations on fee structures dictated by the type of firm, fee structures that don’t work for smaller clients, and impact management that is not cost efficient for the client or the intermediary.’
How have their businesses changed?
Advisor responses to the question fell into 3x main themes:
1. Broadened service offerings over time
“As certain clients’ needs have evolved toward the alignment of values, we have worked to add impact as the third axis along with risk and return when building and managing client portfolios. Our approach blends the rigor of traditional investment with an understanding of complex social and environmental issues. William McCalpin (Athena Capital Advisors)
2. Increased staff levels and new impact specific job descriptions
“We have grown our team substantially from three full-time staff to 50+ today. We invest heavily in local talent development, and have today seen promotions within our team directly from our university graduate scheme to our management team.” Annie Roberts (Open Capital Advisors)
3. Volume of products increased
“Our growing knowledge and sophistication with respect to impact investment alternatives allows us to attract and serve larger clients.” Steven Ellis (Colorado Capital Management)
How has the industry evolved in the last 5 to 10 years?
Advisor responses to the question fell into 4x main themes:
1. Steady growth
2. Embraced by a wider audience
3. Significant innovation in product development
4. More competition.
“The focus has evolved from just analyzing companies’ negative effects, to proactive indicators of impact outcomes taking centre stage. Conferences have grown from 100 to thousands of participants. Women and millennial are quickly entering the field…Mainstream interest in impact investing is here.” Casey Verbeck (Veris Wealth Partners)
‘Kathy Leonard of UBS Financial Services notes that the impact ecosystem is now embraced by an audience that can bring much more money into the space. “Traditional firms can bring financial rigor, greater acceptance by a wider audience, a fresh set of eyes and significant resources to the table.”’
Challenges, accomplishments and lessons
‘Respondents cited overcoming myths about impact financial performance as the biggest industry challenge, followed by a shortage of quality investments.’
This was in addition to ‘trust building with clients and within their own organizations’, ‘finding appropriate opportunities that meet thematic, liquidity, risk and asset size constraints’, ‘managing the impact of investments from intention through to exit, [which remains] a work in progress’ before, finally, ‘attracting the right team members.’
The feeling of accomplishment among the respondents is high. Words like “fun,” “empowerment,” and “greater impact” reveal that the act of helping a client move into impact is having a positive impact on the intermediaries and their sense of job satisfaction.
‘Lessons learned, while many, can be summed up as follows:
- Patience and pragmatism are essential
- Education and partnerships are key – share your failures
- There is no “one size fits all” solution for impact
- The impact learning journey is personal and goes as long and deep as clients wish.’
‘Respondents shared that building a client/advisor relationship, when impact is the objective, requires patience, perseverance, and a healthy dose of pragmatism. As one respondent observed, “change is a process,” and “you can not be in it for the recognition.” Another mused that “clients often need our support to go beyond strategic advice into very practical application.”
Respondents pointed to education as key to adoption, citing the need for investors to have a better understanding of the dynamic impact landscape in order to feel confident to take their first steps.
Impact objectives are, by their very nature, diverse and often personal. Some portfolio themes are bespoke, while some impact themes are finding a broader audience within advisories, like gender lens investing. The personal journey is not exclusive to the clients, but rather, as seen in the responses from the intermediaries, this is a personal learning journey for them, too.’
Where are you in your impact investing journey? We’d love to hear your story and if you’d like to find out more about how you and your company could take the next step, please get in touch here.
 Toniic is a global action community for impact investors serving individuals, family offices, foundations and funds.Tags: advisor insights, client needs, financial adviser, financial planner, impact investing, impact investment