How To Find a Socially Responsible Financial Advisor
Finding the right financial advisor to manage your money is tough. It gets even more complicated if you are looking to invest sustainably. Learn how to find an advisor who specializes in environmental, social, and governance (ESG) investing.
SustainFi Updated October 6, 2021
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A 2019 survey from Schroders found that 62% of U.S. investors thought they could contribute to a more sustainable world by choosing sustainable investments. Yet few financial advisors know much about sustainable investing or suggest ESG funds to clients. We will now go through the essential steps to find the right sustainable financial advisor for you.
Step 1. Do you need a financial advisor?
You can certainly go it alone and manage your money on your own. If you’re an experienced investor, you may be fine building your own portfolio. Then again, you could also do your taxes and search the internet for legal advice instead of asking a legal professional.
Mastering the different areas of personal finance requires years of research and learning. If you don’t enjoy it or have a complex financial situation, it may not be worth your time. As you get wealthier, start a business, or get awarded stock options, you may want to get a financial advisor.
Financial advisors can help you save, invest and meet your financial goals. They specialize in areas like tax planning, retirement planning, investment management, or estate planning. Some are experts in sustainable or ESG investing.
Different types of financial advisors
If you decide to outsource your investment portfolio, you need to decide between a robo-advisor and a human financial professional.
If you are young, have fewer assets to invest, and don’t need extensive financial planning, a robo-advisor may be the best option. Platforms like Acorns, Wealthfront, or M1 Finance are cheaper than working with a human advisor. These platforms offer sustainable portfolios, charging 0.25%-0.35% of your assets each year ($25-$35 on a $10,000 investment). Many of these platforms also provide human advisors a la carte for an extra fee. Personal Capital is a robo-human hybrid that assigns one to two advisors to each investor.
Human financial advisors
However, robo-advisors are not the best solution for many investors. If you have a complex financial life, paying a human professional 1% of your assets each year may not be crazy. In fact, it can save you money by preventing you from making expensive mistakes. A human professional can offer you a buffet of financial advice on taxes, stock options, insurance, real estate, and retirement. You won’t get the same level of support from one-off financial planning sessions.
Human financial advisors frequently act as therapists, preventing you from selling all your holdings when markets drop or keeping too much money in a checking account.
Human financial advisors can work in person or virtually. Many in-person advisors have moved online during the pandemic. If you are OK with working remotely, your choices are going to be broader. Having more choices is particularly important because ESG advisor options are limited.
Beware of free advice from brokers. Brokers get paid a commission when you buy or sell stocks, and they benefit from having you trade as much as possible, which may not be in your best interest.
Note that some human advisors have asset minimums, such as $250,000 or $500,000. In contrast, robo-advisors don’t generally ask for a big minimum investment. (Personal Capital is the exception, requiring a $100,000 minimum investment.)
There are several databases that list socially responsible advisors. Before you search, you should decide if you want someone in your ZIP code or are comfortable working remotely (in which case your options expand dramatically.)
The CFP Board
The CFP Board is a nonprofit that administers the Certified Financial Planner (CFP) certification program. The CFP designation is the most rigorous designation for any financial planner. To be certified, the advisor must have several years of experience putting together financial plans, pass the CFP exam, and adhere to the ethical standards set by the Board.
The CFP Board offers a search tool that lets you pick “Socially Responsible Investing” in the search criteria. The tool shows you the services the advisor offers, the minimum assets they require, and the type of clients they focus on (such as widows or LGBTQ clients.)
XY Planning Network
The XY Planning Network is a network of fee-only financial advisors (who don’t earn commissions). Some of these advisors charge by the hour. They let you search for advisors who designate themselves as “socially responsible.” In October 2021, our search revealed 63 socially responsible advisors across the U.S.
Chartered SRI Counselor (CSRIC)-designated advisors
CSRIC is the only socially responsible investing designation in the U.S. It is offered by the College of Financial Planning in collaboration with US SIF: The Forum for Sustainable and Responsible Investment. Candidates must complete a course requiring roughly 60 hours of study, pass the exam, pay the $1,300 fee and an annual $95 renewal fee. They are also required to spend 16 hours on continuing education every two years. The exam covers sustainable portfolio construction, shareholder advocacy, community investing, and ESG rating metrics. The exam has 70 questions and a 70% pass threshold.
You can search for CSRIC-certified advisors through the Kaplan financial website.
Because the designation is new, there aren’t many advisors who are certified. Our search revealed 634 advisors across the U.S. (as of October 2021).
B Corp Designation
Some impact advisory firms go as far as to be certified B Corps, meaning that they are legally required to balance profits and purpose and take the interests of their customers and employees into account. You can search the B Corp directory for socially responsible advisors. The search reveals several socially responsible wealth management firms such as Good Capital Investment Group.
The Forum for Sustainable and Responsible Investment (US SIF)
US SIF is a membership association that advances sustainable investing. They let you search for financial advisors who are members through their site.
Positivly is a new platform offering to match you with an advisor based on your financial personality. They are focused on ESG and impact investing, though they also have conventional advisors on the platform.
🔔 Read our review of Positivly.
First Affirmative Financial Network
First Affirmative is a network of around 20 financial advisors focused on socially responsible and ESG investing. They have advisors across the U.S., though the number of advisors they have is small.
Most regular financial advisors don’t know much about sustainable investing. As a result, the generally recommended search tools like the NAFPA (The National Association of Personal Financial Advisors) database or the Garrett Planning Network are not very helpful. They offer a wide network of advisors in your state, but they don’t tell you anything about their ESG credentials. You can safely assume that most advisors listed won’t be much help with socially responsible investing.
🔔 You can also check out our list of top 50 socially responsible and ESG advisors.
Step 3. Is the financial advisor a fiduciary?
Many financial advisors are not required to act in your best interest. The fact that an advisor calls themselves socially responsible doesn’t mean that they are legally required to act in your best interest.
Once you’ve created a shortlist of socially responsible advisors, you need to make sure they are a fiduciary with respect to all of your investments, meaning that they promise to always act in your best interest.
A recent survey by Personal Capital found that nearly half of the respondents believed that all financial advisors were fiduciaries. That is not the case. Not all financial advisors are legally required to recommend the best options for you. Some can take advantage of you by promoting financial products that pay them the highest commission.
Non-fiduciary advisors are required by law to recommend only a “suitable” investment, which is a loose standard. They could recommend an expensive mutual fund that would pay them a fat commission even if it isn’t the best option, so long as it is an OK option. Advisors that abide by the “suitability” standard do not have to avoid conflicts of interest, and they are not required to put the clients’ interests ahead of their own.
Look for a fiduciary advisor. A fiduciary advisor will spend more time with the client to understand their situation and goals. They will explain why they recommended certain investments and monitor the clients’ investments throughout the relationship. A non-fiduciary is not required to do the same level of analysis, and their duty to the client ends as soon as the investment is made.
Even though in 2020 the government started to require that investment advisors act in their clients’ best interest, the regulation is very loose and complex, applying only to some assets, certain advisors, and under certain circumstances. It doesn’t fully protect you.
So we still suggest that you verify that the advisor is a fiduciary with respect to all of your investments (not just retirement accounts.) You can even ask them to sign a fiduciary pledge.
Step 4. How does the financial advisor get paid?
Look for a fee-only advisor. You also want a fee-only advisor who doesn’t take commissions for selling you various products. The commission structure may create an implicit conflict of interest. Fee-only advisors get paid only by you. Always ask the advisor if they are fee-only and if they get paid commission on any of the products they recommend. (You want to avoid “fee-based” advisors who “double-dip,” getting paid both by you and from commissions.)
Fee-only advisors can get paid in several ways:
|Fee Type||Average Cost|
|Percentage of assets under management (AUM)||1%|
|Flat fee (per plan)||$2,500|
It is common to charge a percentage of your assets that the advisor manages (1% annually is typical.) Some advisors charge by the hour, like lawyers ($250 is average, though it can go up to $500.) Some advisors charge a flat fee for a specified package, such as $2,500, to put together a financial plan. Fee-only advisors charge more than those who take commissions because you are the only one paying them. However, conflicted advice may cost you more in the long run.
Paying a percentage of the assets you’ve invested seems expensive, but you will get ongoing access to your advisor throughout the year. Paying an hourly rate or a flat fee is better if you have specific questions or issues you want to address and won’t need ongoing support.
Step 5. What are the advisor’s certifications and credentials?
First, you should always check the advisor’s certifications. But there are many such credentials, and this can get very confusing. Here are the top five:
1. Certified Financial Planner (CFP) – best overall and best for general financial advice. This is the most reputable certification for general financial advice. To be a certified CFP, the advisor needs a bachelor’s degree and at least 6,000 hours of professional planning experience. They must pass a rigorous, seven-hour exam and uphold the CFP Board’s code of ethics. Fewer than 20% of financial advisors have the CFP label. All CFPs have fiduciary responsibility to their clients and commit to continuing their professional education.
2. Chartered Financial Consultant (ChFC) – best for specialty financial advice. ChFC is an alternative to the CFP certification. The program offers niche specialties like financial planning for divorce or small business planning. ChFCs must have at least three years of experience to become certified.
3. Chartered Financial Analyst (CFA) – best for investment management. CFAs are experts in investments and securities. The certification requires a bachelor’s degree, four years of work experience, 1,000 hours of study, and a rigorous, three-part exam with a 20% pass rate.
4. Chartered Public Accountant (CPA) – best for tax advice. CPAs are above all accountants and tax specialists. Some of them also offer financial planning. The certification requires 150 hours of coursework and passing a rigorous exam. However, many CPAs are not experts in investment or wealth management.
5. Personal Finance Specialist (PFS) – best for tax advice with financial planning. A PFS is a CPA with additional expertise in wealth management. Candidates must pass a five-hour exam in addition to holding an unrevoked CPA license.
Second, we recommend running a background check on your planner. You should also ask them if they’ve ever been disciplined or prosecuted for any reason.
BrokerCheck database. The Financial Industry Regulatory Authority (FINRA) site shows if the advisor has any penalties or disciplinary history, for example, if they’ve been fired for cause. You can also see how long they’ve been in the industry, where they worked before, and where they are licensed.
U.S. Securities and Exchange Commission (SEC) Investment Advisor Public Disclosure database. The site also offers information on the advisor’s licenses and work history.
CFP Board. If the advisor is a CFP, you can verify their certification and background through the CFP Board website.
Step 6. How committed is the financial advisor to ESG investing?
Some advisors with all the right certifications call themselves socially responsible only for marketing. They may not, in fact, care or know much about sustainable investing. You have to assess how sustainable they really are.
Advisors who are serious about environmental, social, and governance (ESG) investing will make that clear on their site, if they have one. We also recommend asking them:
- How long they’ve been investing sustainably
- What ESG funds they like
- What percentage of the assets they manage is invested sustainably vs. conventionally
- If they have any ESG investing certifications, such as Chartered SRI Counselor (CSRIC)
- What funds they personally invest in and if those funds are ESG
- If they are a member of sustainable investing organizations such as US SIF or Green America
Step 7. Does the advisor make unrealistic promises?
A great financial advisor is part financial planner, part therapist. Their job is to prevent you from putting all your retirement assets in dogecoin or selling all your stocks if the market crashes. That’s why you should be concerned if they tout new asset classes, promote “once-in-a-lifetime” opportunities, or offer “confidential” tips.
Promising to beat the market may be the biggest red flag. Chances are, your financial advisor is not Warren Buffet, and we would steer clear of anyone who brags or makes unrealistic promises.
- What financial planning services do you offer?
- What type of clients do you typically work with?
- Do you have any account minimums?
- How much do you charge?
- What are your credentials and certifications?
- Do you have any ESG certifications, such as Chartered SRI Counselor (CSRIC) designation?
- Are you a member of any sustainable investing organizations (such as US SIF, Green America)? Is your firm a B Corp, Public Benefit Corp, or a signatory of the UN Principles for Responsible Investment?
- How long have you been working?
- Are you always going to act as a fiduciary, with respect to all my investments?
- Are you willing to sign a fiduciary pledge?
- Have you ever been convicted of a crime, or disciplined by any regulatory body or industry group?
- How long have you been investing sustainably?
- How do you incorporate ESG factors in client portfolios?
- What percentage of the assets you manage are invested sustainably vs. conventionally?
- Do you personally invest in ESG funds? If so, what funds do you like?
- What information do you need to develop my financial plan?
- How often will we meet or talk?
- Will you collaborate with my other advisors, such as my accountant?
- How often will you monitor my investments?
More advisors and wealth management firms are starting to take ESG investing seriously. If you search, you should be able to find the right advisor to help you meet your goals.
🔔 Still considering working with a robo-advisor? You may be interested in checking our guide to sustainable robo-advisors.