Among a new generation of financial advisors, with 3 to 9 years of industry experience, nearly all (99%) of those who use individual bonds discuss social impact goals with their clients, which is almost 25% more than advisors with over 10 years of tenure, according to a new survey released by Incapital LLC, a leading underwriter and distributor of fixed income securities.
“This generation has had more access to information on social impact investing than any before them, so it is no surprise that millennials and the generation of advisors that serve them, are like-minded in their support of results-driven causes,” said Louise M. Herrle, Managing Director and Head of Incapital’s Legacy™ platform for distributing social impact investments. “They understand that they can achieve their clients’ financial goals with investments that reflect their personal values.”
A majority of surveyed advisors continued to use equity assets to achieve social impact goals, with fewer using fixed income options.
- Actively managed equity mutual funds: 44%
- Individual stocks: 35%
- Equity ETFs: 31%
- Fixed income actively managed mutual funds 30%
- Bonds: 29%
- Fixed income ETFs: 22%
Yet 58% of those advisors with 3 to 9 years of tenure agreed there are too many equity ESG (Environmental, Social and Governance) options and not enough fixed income ESG options to show their more conservative investors. Only 34% of advisors with over 10 years of tenure agreed.
“Advisors are looking for options that best match their clients’ risk tolerance,” said Ms. Herrle. “Equity ESG funds may have too much risk for some conservative clients. Advisors are finding that social impact bonds — which do carry credit risk but also the benefits of income predictability, return of principal at maturity and declining interest rate risk as the maturity date approaches — can be utilized as part of a conservative income portfolio strategy.”
It’s important to understand that the risks for equity and bond funds differ from those of individual bonds. While multiple holdings within a fund can achieve issuer diversification, they are still subject to market risk. Individual bonds are subject to the credit risk of the issuer. If the issuer defaults, the coupon payments (predictable income) and principal could be at risk. Funds have strong liquidity, but it is important to note that individual bonds are intended to be held to maturity. If they are sold prior to maturity there may not be an active secondary market and the investor could receive less than the original investment.
About the Survey
The Incapital Financial Advisor survey was conducted by Q8 Research LLC using a quantitative online survey methodology. A total of 200 financial advisors across channels completed the survey during the period September 20 to October 1, 2018. It was conducted among a diverse set of respondents from various firms, including wire houses, regional dealers, independent dealers, as well as Banks and RIAs. The survey’s objective was to uncover insights about financial advisors’ perceptions and behaviors regarding fixed income investing, client asset allocations broadly, as well as looking specifically within the fixed income sector. All respondents have 3+ years tenure as a financial advisor and are involved in portfolio construction decision-making with their clients.
About Incapital
Incapital was founded in 1999 and today is a leading underwriter and distributor of securities to more than 800 broker-dealers, institutions, asset managers, RIAs and banks. The firm represents more than 300 issuing entities and has underwritten more than $470 billion in securities. The firm is headquartered in Chicago, IL and has a principal office in Boca Raton, FL. Further information is available at www.incapital.com.
Any financial product sold prior to maturity may be worth more or less than the original amount invested. Depending upon the specific product offering, investment risks include, but are not limited to, interest rate risk, credit risk, call risk and liquidity risk. Additionally, unless otherwise specified in the respective offering documentation, the product(s) discussed herein are not FDIC insured, may lose value, and are not bank guaranteed. Past performance is not indicative of future results. Securities offered through Incapital LLC. Member FINRA/SIPC. Survey conducted by Q8 Research LLC, a full-service marketing research consultancy. Incapital LLC and Q8 Research LLC are not affiliated.
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