Heart and Money: Finding a SRI Advisor That's Right For You

by Rona Fried

Heart and money – these are words that don?t usually appear in the same sentence, unless, of course, you happen to be speaking with a social financial advisor.

Many people want their investments to be consistent with their values; so many, in fact that social investing has become a two trillion dollar industry. Over the past 20 years the field has grown organically, pushed forward by a grassroots movement of activists who proved you don?t have to wall off your heart to grow your money. Today, the full array of investment options are available for socially aware investors: mutual funds, bonds, stock portfolios and advisors that specialize in helping socially aware investors manage their finances.

If you choose to work with a financial advisor how do you decide who is right for you?

It?s hard to imagine activist financial planners and money managers, but that really is how the pioneers in the field think of themselves. Says Joan Bavaria, CEO of Trillium, the first social money manager (founded in 1982), ?Trillium was set up to do social activism, not just to clutter the world with yet another financial advisor.? Trillium?s website proudly states, ?We are a majority employee- and women-owned firm, guided by a belief that investing can return a profit to the investor, while also promoting social and economic justice.?

?I’m an activist and then I became a money manager,? notes Carsten Henningsen, Progressive Investment Management CEO, another SRI pioneer. ?Doing this work really comes from my heart. It?s the way I make change in the world.?

?Our clients tend to be people that live, look and breathe sustainable living because that’s really who we are,? says Hal Brill, president of Natural Investing, another SRI pioneer. ?People know when they talk with us about the importance of organic food and renewable energy that we share their values.?

In fact, choosing an advisor who shares your values is an important consideration, says Eric Steenson, Progressive Asset Management CEO. ?You have better relationships with people that can really empathize with you. I think you want to look for someone that shares your views and has developed the professional skill set to translate your values into appropriate investment decisions.?

Socially responsible investing (SRI) started with a focus on negative screening – filtering out companies that don?t meet baseline standards of social and environmental responsibility. SRI investors generally stay clear of companies that make more than 5% of revenue from tobacco, alcohol, nuclear or military weapons. Today, the field has evolved beyond that. Leading firms also use positive screens, seeking out companies that proactively meet high standards, while actively using the shareholder advocacy process to work with companies that need to improve. The leaders also participate in the trade association Social Investment Forum?s 1% campaign, investing 1% of assets in community investments.

Before you look for an advisor do some soul-searching to clarify your values. Is it important to you to work with someone that employs all facets of SRI investing – negative and positive screens, shareholder advocacy and community investing? Or are you satisfied with simply screening out certain companies you don?t feel comfortable investing in? Are you more concerned about some issues than others such as environment, social issues or animal welfare?

When you begin working with someone s/he can help you further define your values and how they affect your investment goals. A SRI professional should have the skills to help you go deeper into discovering your values over time, says Steenson.

?When Sun Oil company signed onto the CERES principles,? remembers Steenson, ?I had very interesting discussions with many clients about their comfort level investing in an oil company. As the first Fortune 500 company to support this set of environmental principles, apparently serious about cleaning up their act relative to their industry, would you like to invest in them?,? he asked.

?It?s great the field has grown so much and now attracts more players. That makes a bigger pie,? says Carsten Henningsen. ?With so many people offering SRI advisory services these days it?s even more important to be clear about your values and what you hope to achieve by working with an advisor.?

Indeed, many of the original SRI pioneers express concern about what they call ?SRI Lite? that the activist orientation may be diluted as large Wall Street firms enter the field offering only negative screening, or neophytes that simply choose stocks from the Domini 400, instead of researching the full universe of thousands of stocks.

While Tim Smith, director of socially responsive investing for Walden Asset Management, acknowledges some newcomers may be opportunistic, he says, “There are many leaders, some are very public, visibly filing resolutions, and others, like Dreyfus Third Century and Neuberger Berman, are working behind the scenes, doing research and letting companies know they care.”

One way to tell if a firm you are considering working with thinks the way you do, suggests Carsten, is to ask for a sample portfolio. Which companies do they invest in? “I would spread everyone’s portfolio that I’m considering on a big table and look at the companies they invest in. Then I would ask each of them why they invest in one company but not another. That should help you make an informed selection.”

Many people want to work with someone locally, says Eric Steenson. “It also depends on your specific interests. Over time, people gain experience in one area or another and tend to specialize. Ask about an advisor’s client base. One advisor may have many clients that are foundations, while another might be particularly well versed in college education or retirement planning.”

Be prepared for probing questions when you work with a SRI advisor. Comments Steve Scheuth, president of First Affirmative Financial Network (FAFN), you will probably have a “head level” conversation with a conventional financial advisor – how old you and your kids are, when you will retire and how much money you need. We connect with people at the heart level, identifying who they
are, what they care about and what kind of world they want to leave to their children and grandchildren. The conversation is about how can your money can achieve your financial goals and also help improve the quality of life for all of us.

Profiles of SRI Advisors

The next decision in choosing an advisor has to do with which services they provide and how they fit with your financial situation and your investment style.

Progressive Investment Management, Trillium Asset Management and Walden Asset Management are “money managers”, meaning they do their own stock analysis and buy and sell stocks and bonds for clients. Client portfolios consist of individual stocks, or stocks and bonds, based on one or more model SRI portfolios they have constructed.

All the money managers provide a full range of custom, personal financial planning services from college and retirement planning to estate planning.

Trillium Asset Management
Trillium got the field rolling in 1982, and now has 470 clients with $800 million under management. Minimum investment: $600,000. 37 employees in 4 offices – Boston, San Francisco, Boise and Durham, NC – enables them to stay close to clients. “Trillium is all about service,” says CEO Joan Bavaria. “We have a very stable management team with negligible turnover. ” Their investment style is growth at a reasonable price, combining elements from growth and value investing (GARB).

Trillium offers three distinct portfolio products: Large Cap, All Cap Core Equity (mostly larger companies with a smattering of small companies) and Smid (small and mid-sized companies). They do not invest in companies outside the US. They employ a best in class approach, investing in stocks representing most industries, while tailoring each portfolio to meet client social concerns.

All of Trillium’s clients want an emphasis on shareholder activism, Joan says. “Our clients often let us know how happy they are to feel part of a negotiation with a company whose stock they own on issues like sustainable logging or getting rid of sweatshops.” Trillium works on an average of 12 shareholder resolutions a year and have staff dedicated to that end.

Environment tends to be clients’ first concern and that’s where there emphasis is, hiring an analyst who focuses only on that area. Joan was the founding chair of CERES and remains on the Board. Human rights runs a strong second one analyst works tirelessly on gay and lesbian rights, while another developed the Burma coalition.

Current resolutions they are pursuing include: climate change, global water scarcity, forest protection, indigenous rights, genetically engineered foods, sweatshops, sexual orientation discrimination, community lending and media responsibility.

Progressive Investment Management
Progressive also opened its doors in 1982. They have 200 clients and manage a total of $225 million. Their minimum investment is $1 million in cash they don?t convert existing portfolios into SRI stocks. Located in Portland, Oregon, they tend to attract clients from that geographical region. Their style is large cap growth investing with a few mid cap companies thrown in.

“We buy well- established, well- positioned companies that have been doing well and hopefully will continue to do well. It’s the most stable and predictable kind of equity investment,” explains CEO Carsten Henningsen.

Progressive has 12 employees and likes being small. “We try really hard to protect our quality of life. If we converted conventional portfolios to SRI portfolios we’d have to double our staff size to babysit stocks we don’t know as well and prefer not to own. We have a horizontal corporate structure we all sit around the same table but you lose that when you reach 20 or more employees,” says Carsten.

As an activist SRI firm, Progressive emphasizes shareholder advocacy to influence corporate behavior, participating in about 70 resolutions over the years. Since they are a small firm they don’t have dedicated staff to it, but they apply as many resources as they can to it and consider it a very high priority.

One of the novel ways they help clients invest in community is by cutting their management fees in half. On average, every client has 1% of their portfolio in community investments.

Walden Asset Management
Walden is the SRI arm of Citizens Bank and plans to go employee-owned, joining Boston Trust Investment Mgmt later this year. Walden manages $1.3 billion in assets and has 20 staff members – 10 portfolio managers and five people devoted to social research and advocacy. The minimum investment is $2 million.

Core value is the primary investment style. Clients can invest balanced portfolios, fixed income, and/or Innovations, a small cap portfolio consisting of leaders on the environment, employee relations, and diversity. They also offer two mutual funds – an equity and a balanced fund – each requires a $100,000 minimum investment.

People come to Walden because of their 25-year history on social investing and shareholder advocacy, says Tim Smith, director of socially responsive investing. “Clients that want SRI leadership, not SRI Lite come to Walden,” he proudly states. They do social research in-house and offer the full range of SRI services: screening, a very strong shareholder advocacy program, community investing, and activism on public policy.

Tim says clients aren’t interested in having “pure”portfolios that consist of the best companies as much as owning shares of companies they want to influence through the advocacy process. “That’s a bit of a myth anyway,” he notes, “because any social portfolio still contains companies that could improve a lot.” Walden is involved in about 25 resolutions a year covering the range of issues: climate change, diversity, codes, sweatshops and governance.

Based on their specific interests, they offer clients 8-10 community investment options twice a year, and have invested about $8 million in community thus far. And Walden also actively advocates for changes in public policy, lobbying the SEC on rule changes, for example.

Natural Investing
Natural Investing is a leader among the hundreds of very small firms that offer SRI advisory services. This firm, run by a father and son team, prides themselves on giving very personal attention to their several dozen clients. “We get to know our clients really well – managing someone’s money is a very personal thing. Rather than offering model portfolios, we customize what we offer to each person,” says Hal Brill, president.

Many people choose an advisor that lives close by, but since they are located in Paonia, Colorado, their clients are around the world. “We were in the hot tub at the first SRI in the Rockies conference trying to figure out how to expand the field.”

Although Hal’s minimum is $200,000, a client can work with Natural Investing with as little as $50,000 (it isn’t cost effective to hire an advisor with less than that). “I don’t want to turn away people who want to invest with their values many people work with us for just a couple of hours a year. We help them create a financial plan, give them a copy of our book and turn them loose to invest in no-load mutual funds.”

“One of the areas we pioneered early on was finding ways to get people income without investing in Treasuries,” he says. We use Ginny Mae funds for bonds instead because of the state of the “Offense Department,” he quips.

Investors can also dabble in individual stocks. “It’s great that there are SRI mutual funds, especially those that do shareholder advocacy, community investing and have pretty good screens, but many clients also want to invest directly in companies they really want to support.”

He puts many clients in the Portfolio 21 mutual fund since they
invest in leading companies, but for those that can afford for 10% of their portfolio to be higher risk, he creates a set of ‘Hal’s green stocks.’ “I’ve been following the natural foods industry and renewable energy for years. Some companies end up like AstroPower (a solar company that recently declared bankruptcy) and some end up like Whole Foods (a natural food supermarket with outstanding performance).”

First Affirmative Financial Network (FAFN)
FAFN is a network of 120 SRI financial advisors. They manage portfolios of $50,000 and up and have $360 million under management. In an interesting twist to SRI investing, FAFN member advisors work with clients to define financial goals and then FAFN actually manages the investments.

Steve Scheuth, president, explains, “The advisor helps us understand the client and her goals, risk criteria and so on. We come to agreement with the advisor on the strategy and asset allocation model that best fits the client’s situation. We manage the investments and the advisor focuses on the client relationship. If the client’s situation changes, the advisor will ask us to modify our approach accordingly.”

Even at the $50,000 level, FAFN would diversify a client’s holdings among as many as 15 mutual funds. FAFN makes sure clients are diversified across the entire market: across asset classes, fund companies, and fund managers.

“Our real value added,” says Steve, “besides our knowledge of SRI – is providing a disciplined approach and sticking with it through thick and thin. It isn’t buying and selling investments that is so difficult, it is defining a strategy to achieve your goals within your social criteria priorities – and sticking with it. Emotion causes people to loose lots of money. “

If you have half a million dollars, you can put your money with one money manager like Trillium or you can have FAFN divide it among up to seven managers. FAFN has worked with Folio – an online platform where investors can choose among hundreds of model portfolios – to include SRI options. Investors with a minimum of $100,000 can put any amount of money in up to seven of 25 model SRI folios, including Trillium and Progressive Investment. And each folios can consist of up to 100 mutual funds and/or stocks.

FAFN might put 10% in a high impact folio to give a client exposure to leading green companies, and put 40% in Trillium for an emphasis on shareholder advocacy, as an example.

Progressive Asset Management (PAM)
Founded in 1987, PAM is a licensed full service broker-dealer specializing in SRI. 50 advisors nationwide participate in the network, gaining access to benefits such as in-house screened research and bi-weekly educational phone conferences.

Some SRI advisors are members of PAM and FAFN. If they want to charge a commission they need to work under PAM’s broker dealer license; they would join FAFN to invest with certain money managers through the Folio program.

PAM members operate independently, each deciding on their minimums and investment styles. “People who have been in the business a long time tend to have higher minimums,” explains Eric Steenson, president. “People are at different stages in their careers we have the entire range in the PAM network.”

“Another thing to look at in evaluating which firm to work with,” he says, “is the range of products they offer beyond the usual mutual funds. We do our own in-house stock research and offer clients the ability to invest in individual stocks as well as mutual funds.” PAM offers other products like managed futures and index notes.

If a client’s portfolio consists of stocks and mutual funds, an advisor might coordinate the whole portfolio, but might select FAFN for the mutual funds, Walden’s Innovation Fund, and Progressive for individual stocks.

For those that can afford to, PAM also offers the possibility of investing in privately held, high impact companies. Last year, they raised money for Equal Exchange, a leader in Fair Trade Coffee. This year, accredited investors can get involved in Clipper Wind Power and Soil Soup, a compost company.

PAM is involved shareholder activism, which is also a big draw for members. “We also work hard to keep advisors and clients informed on resolutions that come up with companies they own, advising them on the issues and how to vote their proxy shares.”

“When you’re part of this group you are part of a community of professionals who really care about using financial instruments to make society a better place. I started my career with Merrill Lynch and I know how difficult it can be to have social values and work at a mainstream brokerage firm. In PAM, advisors get feedback, ideas and support,” Eric says.

In Conclusion
What stands out in talking with these leaders is their commitment to propelling social investment forward and the respect they express for their peers. Many of them work together on shareholder advocacy, co-filing resolutions. Overall, a spirit of cooperation and congeniality prevails as they work together to make change in the world.

And the investors? The advisors we spoke with share the feeling that investors are becoming more stringent in the companies they put money into and are more interested than ever in shareholder advocacy. They are also more interested in diversification and a measured means to growing their portfolios.

The reality for many people is that they have very busy lives – earning a living and taking care of a family is all consuming – many investors don?t want to watch every issue that affects their portfolio. They want to trust their advisor is putting them in investments that fit with their values, feel they are doing the right things, and growing their savings.

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Rona Fried, Ph.D., is President & CEO of SustainableBusiness.com, the online community for green business: daily sustainable business & investor news, Green Dream Jobs, and Business Connections. SustainableBusiness.com also publishes Progressive Investor, which provides ongoing analysis of clean tech investment opportunities

Contact her: rona@sustainablebusiness.com