By David Wismer
It seems appropriate during Fourth of July week to talk about "foundational values" - and how they relate to financial planning and principled investing.
Ray Sclafani, the founder of coaching and consulting firm ClientWise, says that "financial advising is a noble profession" - one that is capable of not only impacting the current generation of clients that financial advisers work with, but also "carries forward through multiple generations." He adds, for advisers, "Being relevant in the life of the ideal client, knowing who they serve, and designing a total solution to meet the needs of that client are paramount."
His thinking ties in nicely with a trend that has accelerated over the past decade: Financial advisers have been increasingly embracing values-based financial planning and principled investing for their clients.
For many advisers, this starts with their personal philosophies and fundamental beliefs about how they would like to work with and serve clients.
Several advisers from across the U.S. have discussed the topic in interviews with Proactive Advisor Magazine. Here is a brief sample of some of their comments:
"From a potential client's very first exposure to our advisory firm, I want them to know about our values-based philosophy in working with clients... I believe that a foundation in humanistic principles is critical to our advisory firm's success and can help define clients' interactions with our firm."
-A financial adviser from Pennsylvania
"There are characteristics I look for in potential clients. Do they see the value in long-term relationships? Do they want to make a difference in their family and community? Are they highly optimistic? Do they see themselves as having something of value to share? … When I see these characteristics, I am confident that we can work well together. Their needs and expectations will match well with what I can offer and deliver."
-A financial adviser from Colorado
"I believe that when professional, process-driven financial advice resonates with clients' values, people can become empowered to make decisions with clarity and confidence."
-A financial adviser from Utah
Having a values-based practice philosophy is just the first step
While these advisers and others work to incorporate a values-based approach throughout their working relationships, many clients are looking to take that to the next level in terms of principled investment implementation.
They would like their investment strategies to reflect, to the degree possible, their personal beliefs, whether those are in the areas of socially responsible investing or faith-based investing. This is especially true for younger generations, who will be increasingly using the services of financial advisers over the next several decades.
The financial-services industry as a whole has increasingly come to the realization that this investor sentiment is a trend that will only become stronger in the future. There has been impressive growth in client assets now falling under the umbrella of ESG investing (companies that score well on factors of environmental, social, and governance practices).
"Doing good" and "doing well" don't have to be mutually exclusive when it comes to meeting investment objectives for clients
Research shows that organizations that adopt solid ESG practices reap better operational performance. Another study shows that the incorporation of corporate social responsibility proposals can lead to increased shareholder value. In fact, according to research conducted by the Global Impact Investing Network, 89% of "principled investors" said their financial performance was in line with or outperformed their expectations.
Advisers can help their clients achieve their financial goals while providing the additional benefit of investment risk management - all within the context of contributing to a long term, positive impact on the world.
One adviser summed it up this way in an interview with Proactive Advisor Magazine:
"I find that if clients understand what they are investing in, and how those investments align with their passions and values, they have a much better chance of sticking with their plan and being successful."
After several days of weakness last week, and a slightly down week overall, the S&P 500 came back somewhat to finish off an impressive June and the first half of the year. Analysts attribute much of the first-half gain to the Fed's willingness to consider cutting benchmark interest rates.
Barron's lead column last weekend noted, "Fed-fund futures are anticipating three quarter-point cuts by year-end, based on the expectation that the Fed and other central banks will seek to offset the apparent decline in global economic activity."
According to CNBC, there were several significant market data points achieved in June and the first half of 2019:
- The Dow Jones Industrial Average rallied 7.2% this month, notching its best June performance since 1938.
- The S&P 500 posted its best first half of a year since 1997, soaring 17.3% and posting an all-time high.
- The Semiconductor ETF (NYSEARCA:SMH) notched its biggest one-month gain since September 2010.
- Gold surged more than 7% in June, its biggest gain since June 2016.
- Oil gained more than 9% in June.
As I write this article on July 1, the S&P 500 has achieved another new all-time intraday record. The move higher was powered by comments coming out of the meeting between President Trump and China's President Xi Jinping. It was announced that the two countries had agreed to stop escalating the ongoing trade dispute (for now).
Bespoke Investment Group provided the following analysis last weekend, after the close of the quarter and before Monday's move higher:
"While we haven't seen big legs higher over the past 18 months, the S&P 500 has still managed to make three all-time closing highs, which has extended the bull market to 10+ years in length.
"New highs are new highs, and they're indicative of a market that still has upside momentum. As shown in the chart of the 200-day moving average for the S&P, the index is currently in an extended sideways consolidation phase, which it has seen at two other points since 2009. A one- or two-month leg higher above prior highs would start sending the 200-DMA higher again."
Bespoke added this commentary on Monday (7/1):
"It's hard to imagine a stronger way to start off the second quarter. … While the news surrounding trade has been positive, the reality on the ground remains less optimistic. Manufacturing PMIs for the month of June continued to show weakness around the world … a busy week of economic data in the U.S. will go a long way in determining whether the market is correct in its pricing of 100% certainty that the FOMC will cut rates at the end of the month."
Editor's Note: The summary bullets for this article were chosen by Seeking Alpha editors.