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Most are at least somewhat familiar with socially responsible investing. If you’re not, you can probably decipher what it means. Making a conscious choice to invest in a way that aligns with your values to better society.
But, there are flaws with the current socially responsible investing options.
- Many socially responsible investments are exclusion based. (IE – exclude tobacco, oil or other certain industries)
- Many socially responsible investment platforms are very concentrated in certain sectors. (IE – solar energy, water etc.) Sector investing is risky.
- Ask 10 different people for their definition of socially responsible and you will get 10 different answers.
And let’s not forget the most important downfall – research shows that long term, there is little measurable benefit in investment selection but a lot of measurable benefit in Financial Planning.
Meaning, your financial planners value is in their behavioral coaching, tax planning, helping you keep costs low and NOT in them designing you a fancy investment portfolio.
Knowing this, I’ve spent the last two years rebranding my Financial Planning practice to address these issues. Greater Good Financial
With over 10 years experience as a Financial Planner, I’ve come to realize that there is rarely the perfect solution to any financial issue. I’ve also realized the incredible value of “options”.
The heart of Greater Good Financial is that we donate 20% of our revenue to non profits that feed children or provide microloans.
We offer various pricing models to fit your specific needs. Some may just want access to financial planning software and support so they can manage their own money. There’s an option for that. Some may want someone to do everything for them. Manage their investments and give them a detailed guide on their overall financial situation. There’s an option for that. Some may just want to know their investments are professionally managed. There’s an option for that too…
We charge lower management fees and has lower investment fees than the industry average. Leaving more money in your account to grow. More importantly, the fee schedule aggressively declines as your assets grow. Whereas the rest of the industry averages a 1% charge on accounts up to $2 Million. We don’t believe that a $1 Million portfolio is twice as difficult to manage than a $500k portfolio. Nor is a $500k portfolio five times as difficult to manage as a $100k portfolio. Costs should reflect this. So, as your assets grow, our fees get lower and lower saving you more and more money compared to the rest of the industry leaving you more money to make your own impact.
We offer both a low cost traditional portfolio as well as a low cost socially responsible portfolio. Remember those flaws from earlier? Having options is powerful. You can choose to invest with your values in a socially responsible portfolio, or you can use a more traditional portfolio with a slightly lower cost.
Our traditional portfolio excludes nothing and is not specifically socially responsible. But, knowing 20% of the revenue is donated we believe is a way to offset this.
Our socially responsible portfolio is broadly diversified giving you protection from being too heavily invested into any specific industry. It is exclusion based and it may not perfectly align with your values. But it is purpose built and low cost. Remember, there is rarely a perfect solution. We believe that any socially responsible portfolio is designed imperfectly because your values are different from the person next to you.
For context. Let’s say you have a $100k portfolio. A diversified index fund usually holds no more than 3-4% in any one holding. And, the portfolio is normally diversified among many index funds. So if an index fund that is 10% of your total portfolio holds at most a 4% position in any one stock, you may at most own $400 in that company you dislike!
Here’s the breaking news.
That company will neither succeed nor fail because of your choice to invest or not invest $400 with them. Don’t waste your time nit picking the investments.
Spend your time getting solid financial advice which could lead to you having more money long term meaning you can make a better impact! Our solution is that we do our best to offset this “imperfect” investment solution by donating 20% of our revenue.
Now, I don’t mean for this to be an infomercial for my company.
At our heart I believe social entrepreneurs are more motivated about inspiring change over profits. I’m simply trying to create some awareness to a better way for you to use your investments to inspire change.
There are plenty of companies that offer socially responsible investments and that’s great. But, look at the research. Vanguard, the low cost leader for do it your selfers, published a study that says investment selection equates to minimal value for an investor. They show the real value you receive is the Financial Planner that you work with and the things they’re doing in the background.
Financial Planning, not investments make or break you.
This rebranding has consumed me for nearly two years. In that time, I have found exactly ZERO other companies who take this approach. If you’re socially conscious and you work with a financial planner, ask them how much time they spend on your investments vs. your financial planning. Ask them how they get paid and keep asking until you get a short and direct answer. Ask them how exactly they make an impact with their business other than picking socially responsible investments.
Socially responsible investing is not enough. You’re not going to change the world by deciding not to invest your $400 into a company that has hundreds of millions of dollars of annual revenue. Be socially responsible with your financial planning and urge your current financial planner to donate a portion of their revenue from your relationship. I can guarantee you, $400 will change the world of someone living in poverty. $400 will change the world of someone looking for a microloan so they can support their family.
So, urge your financial planner to consider this business model.
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Latest posts by Dan Murphy
- Why Socially Responsible Investing Is Not Enough - June 4, 2018