Big Idea 2014: Investing Will Completely Change

This post is part of a series in which LinkedIn Influencers pick one big idea that will shape 2014. See all the ideas here.
2014 may be the year in which investing fundamentally changes.
Baby Boomers are marching into retirement, thereby beginning to liquidate their investments; thus the profile of the “typical investor” is changing. For example, although women are still referred to as a “niche market” by the wealth management industry (yes, seriously), it is estimated that by 2030, they will control some two-thirds of US wealth. And at the same time, Millennials are entering their prime earning (and thus investing) years.
The changes driven by these demographic shifts will be far-reaching. An example: as a rule, today’s investors compartmentalize their money. They have their investment money, which is slated to earn the highest return, and they have the money that they give away every year to charitable organizations. These pools are separate. (It is worth noting that, regardless of the underlying goals of this investing approach, many in this generation have failed to achieve their goals of being well prepared for retirement.)
And so this is changing, as the opportunity to express one’s values – be they social, environmental or political – will not remain compartmentalized going forward. The ability to amplify one’s impact, by expressing one’s values through investment dollars, is becoming mainstream.
The differences in approach by categories of investors are stark: about half of affluent women report to be interested in environmentally or socially responsible investments, as compared to just one-third of men. As for Millennials, 90% of today’s MBAs are willing to exchange some financial benefits for a strong commitment to social good, according to Ourtime.org. And 79% of Millennials seek to work at a company that is socially responsible, according to CatchAFire.
In other words, if this group buys their shoes at Toms, their glasses at Warby Parker, they drive a hybrid, they look to work at companies whose values align with theirs….are they really going to pass up the very powerful opportunity to have their investments also express their values?
Certainly this is good thing for the causes that will benefit, driving significantly more capital – and thus more opportunity – to them. And it can be a good thing for governments, many of which are groaning under deficits, which can ultimately limit what they can accomplish on this front.
But it is also GREAT for Wall Street.
For years and years, the central message of Wall Street has been that its goal is to deliver relative outperformance to investors. Billions of dollars are poured into this undertaking year after year. But for the industry as a whole, this is (by definition) not achievable, as the sum of the industry’s investment performance equals market performance less fees.

On mainstream Wall Street, investing for impact has been eschewed as a niche market, not the stuff of serious investors. But there is no clear reason why those companies that are “doing the right thing” for the environment should underperform over time, for example; and there is a great deal of research that shows that those companies that are more inclusive in their treatment of their workforce outperform over time.
If, on the other hand, traditional Wall Street does not broaden its mandate to include a more modern approach to investing, it will continue to lose share. Women live on average six to eight years longer than men; they rank Wall Street at the very bottom of the industries that serve them; and, today, some 70% of women change their Financial Advisor within a year of widowhood.
Thus, this represents an opportunity for Wall Street to move away from its tired value proposition and to engage the next wave of investors on topics that matter to them. It is a great thing for Wall Street.
Photo: Allen.G / shutterstock

Featured on: