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Jan 11, 2022

How To Choose a Financial Advisor for Green Investing

If you’re seeking help in managing or investing your money, working with a financial advisor may help you to achieve your unique financial goals.

A financial advisor might not only help you to increase your return, but they might also limit your downside risk of loss through prudent investment strategy and asset diversification. When it comes to something as important as protecting and growing your hard-earned money, getting the advice of someone who really knows what they’re doing is never a bad idea.

And if you’re interested in “green” investing, that can often add another layer of complication. Options for “green” investing have become common over the last several years and it’s not easy to understand the differences between the many products and investment options available. Green investing can actually provide even greater returns than conventional investing alternatives, but it’s critical to be aware of the risks that accompany each opportunity. 

A financial adviser can help you weigh and evaluate the many options, help you achieve your unique goals, and ensure your money is creating the impact that you want. 

This article provides some helpful tips to find a good financial advisor for you, your money, and your values. 

What is Green Investing? 

“Green” is synonymous with “Environmental” when it comes to investing. 

The term ESG is an acronym that stands for “Environmental, Social and Governance.” This form of investing, along with SRI (which stands for “Socially Responsible Investing”), has become trendy in recent years so there are more options than ever if you’re a retail investor. That’s great, right? 

Yes, of course! But when it comes to investing, it’s important to read the fine print. One of the reasons ESG and SRI investing options have become so prolific is that there are few rules or regulations in the US determining what can be deemed “ESG'' or “SRI”. And with terms these broad, more and more companies are claiming ESG or SRI status without necessarily delivering on the impact. If this sounds scary and frustrating, it’s because it is.

Why would they do this? Higher demand for a product pushes the price higher in a secondary market (i.e. stock market). Amidst the quickly growing trend of values-based investing, companies that can claim ESG or SRI can increase or at least maintain demand for their stock among retail and institutional investors, which grows or at least maintains their market capitalization (# of shares outstanding x price per share). You may not be surprised to hear that executive compensation is often tied to stock performance. 

Green investing is simply limiting the ESG filter to ‘E’ to ensure your money is making an environmental impact. And let’s face it, the environment needs all the help we can give it! 

Tips to Find the Right Green Financial Advisor

There is a growing number of financial advisors that are enabling more intentional green investing. You’ll want to choose a person or company that is doing the research so that it doesn’t all rest on your shoulders. That’s why you’re partnering with a financial advisor after all! 

Consider what level of management you want 

Financial advisors can offer a variety of services and functions. 

Some money managers provide specific stock picking advice and can help build an investment portfolio specifically for you. Hedge funds fall into this category. This level of service typically comes with much higher risk due to lack of diversification, but can also come with much higher returns. You’ll typically find this level of service requires higher minimum balances and higher management fees.

Other financial advisors will help identify different available funds that strive to meet your purpose-driven and return-driven goals. And beyond this, some financial advisors will help with more detailed financial planning, including things like saving for school tuition for your children or even finding the best mortgage rate for you.

To decide what type of financial advisor is right for you, think about what you need help with, how active you want them to be with your money and what level of involvement you prefer to have.

For instance, if you have little confidence when it comes to personal money matters, an active financial advisor that can help with everything from budgeting to investing may be the right choice. Or, if you want a more hands-off approach and are seeking financial advice for portfolio allocation only, an investment firm might be right for you. 

Remember that you’re not limited to using just one type of financial advisor or making one type of investment. So, you might find that some combination of the financial planning services mentioned above works best for you.

Good financial advisors will find ways to reduce fees 

One of the fastest ways to see the return on your portfolio drop is to pay higher fees. High fees might come from making a lot of transactions (buy/sell orders) or by the underlying portfolio management fees you’re being charged.

Naturally, the lower the fees, the more money you can keep invested (and making more money!). That being said, fees aren’t everything — and you often get what you pay for. 

If you’ve decided you want a more hands on advisor, it’s not uncommon for the fees to be a bit higher. That’s OK! The trade-off will be an increased sense of safety and guidance when it comes to making money decisions. 

Generally, you’ll want payment linked to performance after expenses to ensure your financial advisor isn’t incentivized to make investment decisions that aren’t in your best interest. 

Good financial advisors, no matter what level of service they provide, will look for ways to reduce fees for their customers while achieving all of the return and impact goals. 

Choose a financial advisor you trust

One of the most important things when it comes to picking a financial advisor is to ensure that you can trust them. First, ensure your financial advisor is a fiduciary. A fiduciary is someone who is legally and ethically bound to act in their client’s best interest. 

Choosing a financial advisor that is a fiduciary is the first step. Next, understand how the financial advisor incorporates green investing principles into their strategies. Ask potential advisors questions that probe their own value system and how they approach each client. Some questions might include:  

  1. How are they personally invested in ESG/SRI strategies? 
  2. What percentage of their invested net worth are values-aligned? 
  3. How do they rate various ESG/SRI investments?
  4. Do they use a positive filter to include ‘good’ companies, or a negative filter to disclude ‘bad’ companies?
  5. How do they filter for environmentally positive investments? 

And since it’s money we’re talking about, performance is key. Ask each advisor about historical performance, and if you’re interested in specific sectors or geographies, ask those questions too. 

When it comes to building trust with a financial advisor, you can’t ask too many questions. Your questions should seek to understand just as much about their philosophical approach as it does their performance history. 

After you’ve sat down and interviewed them, you can dig deeper by asking to talk to other current clients (to get testimonials) and by researching them online.

One way to check whether or not a financial advisor is really committed to ESG and SRI is to look for B Corp certification. You can find Certified B Corp investment managers by searching the B Corp directory

Ultimately, choosing someone you trust is paramount when it comes to matters of money.

Our Final Words on How To Choose a Financial Advisor

Picking a financial advisor to help with your personal financial planning is a big decision, but one that can really push you in the right direction towards reaching your own financial goals.

Working with a financial advisor in-person or letting online financial advisors manage your money are both options when you want to start impact investing, so you just have to decide what works best for you.

If you’re reading this article you’re on the right path. Here are a few of our favorite financial advisors

As long as you take into account all the factors we discussed in this article, you should be able to make a good decision about what type of financial advisor to choose to start improving your financial life today.

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