How to Find a Socially Responsible Financial Advisor

A socially responsible financial advisor can strengthen your portfolio by directing you toward companies with sustainable business practices while helping you work towards your financial goals. For investors who prioritize their values, this can feel like a win-win. However, to find a socially responsible financial advisor, it’s necessary to know what to look for, and what you’re seeking in the relationship.

To find the right investment strategy for your situation, consider talking to a financial advisor.

What Is a Socially Responsible Financial Advisor?

A socially responsible financial advisor specializes in investing in companies with ethical, environmentally friendly practices. Typically, these advisors prioritize socially responsible investing (SRI) and focus on businesses with high environmental, social and governance (ESG) ratings.

These scores indicate a company dedicated to minimizing pollution and facilitating positive social change. So, if you’re concerned about investing according to your values, a socially responsible financial advisor can help.

What Is a Socially Responsible Investment?

A socially responsible investment is one that considers both financial returns and social or environmental impact.

Socially responsible investment involves purchasing stock in companies with a pro-environment, pro-human rights outlook. For example, socially responsible companies prioritize:

Championing social justice
Advocating for human rights
Developing green technology
Producing fewer carbon emissions than industry competitors
Earning high ESG scores

By researching which companies match these values, you can better invest in a socially responsible manner.

Credentials to Look for in a Socially Responsible Financial Advisor

While a socially responsible advisor should be conscientious, it’s also wise to look for an advisor with one of the following credentials: CFP®, CFA or CPA.

Certified Financial Planner

A Certified Financial Planner™ (CFP®) earns their title through rigorous study, years of work in the field and passing required examinations. CFP®s are experts in numerous financial topics, such as investing, financial planning and taxes. In addition, CFP®s are known for following the “four E’s” in their work: education, experience, exam and ethics. Together, these four values help financial advisors conduct themselves with professional excellence and social responsibility.

Chartered Financial Analysts

Similarly, chartered financial analysts (CFA) work and study for years to earn their credentials. On average, a financial professional studies for 1,000 hours and works for four years to earn their CFA. This field focuses on investing, financial analysis and economic trends. As a result, they are sharp investors with insight into the market.

Certified Public Accountants

Finally, certified public accountants (CPAs) are tax and accounting experts. If you’re concerned about how your investment income affects your tax situation, look no further than a CPA. They can file taxes on your behalf and help you optimize your return.

How to Find a Socially Responsible Financial Advisor

Finding the right financial advisor to work with can be challenging. Use these strategies to help you find the one that will serve you best:

Identify What You Need

Before you start speaking with an advisor, identifying your needed services is crucial. Obviously, you’re looking for a professional to help with socially responsible investing. But you might also need help budgeting, managing debt or filing taxes. These considerations will guide you as you move forward.

Decide How You Want to Pay

Financial advisors have various ways of charging for their services. For instance, an advisor can charge per hour when you speak to them or a percentage of the assets they manage for you.

On the other hand, you might pay a monthly or quarterly subscription fee. In any case, it’s vital to ask each advisor you speak with about how they will charge you. Don’t be afraid to keep asking questions until this is crystal clear – after all, it’s your money they’re managing.

Speak With Multiple Advisors

When searching for a financial advisor, it’s best to shop around. Interview several advisors so you get a sense of different investment styles.

Feel free to ask as questions as you like, such as their credentials, frequency of communication, measurement of results and investment strategy. You’ll be able to understand what you resonate with and which advisor matches your preferences.

Verify the Credentials

Claiming to be a CFA isn’t the same as holding the title. Fortunately, you can use the Investment Adviser Public Disclosure (IAPD) website for free to confirm the professional you’re speaking with has the credentials they claim.

In addition, you can view customer complaints and disciplinary actions against the advisor (if there are any). Ideally, you’ll find an advisor with bona fide credentials and a clean record.

Other Factors to Consider When Looking for a Socially Responsible Financial Advisor

It’s recommended to be thorough in your search for a socially responsible financial advisor. Rushing in because a financial advisor makes big promises can be a one-way ticket to losing money. Therefore, consider the following during your search:

An Advisor Should Demonstrate Their Fiduciary Status

‘Fiduciary’ means the advisor is legally bound to act in your best interest. However, any advisor can bear the moniker without acting accordingly. As a result, you will need to do some digging to verify the advisor’s fiduciary status.

For example, asking the advisor about their continuing education on new tax regulations can help you see if they stay updated in their field. Advisors who disregard ongoing education are less likely to serve your needs.

Shy Away from Commission-Based Compensation

An advisor who earns a living through commissions might not invest according to your best interests. For example, they might put your money into a fund that pays them the most instead of one that provides you with the highest return.

A fee-only financial advisor can clear up some of these potential conflicts of interest. They only earn money from the fees you pay them, ensuring they’re only working for you.

Find Someone You Connect With

A financial advisor needs to produce results but should also demonstrate empathy and approachability. You’ll feel like you can talk about any financial topic and share your concerns about your money with an excellent advisor. In short, you should feel heard by your advisor.

Potential Drawbacks of Socially Responsible Investing

While socially responsible investing can align your money with your values, it may also have trade-offs. One possible drawback is higher costs. Funds that focus on ESG or SRI often have higher management fees than standard index funds. These higher fees can reduce your long-term returns, especially if you invest over many years.

Another issue is that there is a smaller pool of investment options. When you exclude companies that don’t meet certain environmental, social, or governance standards, you limit your choices. This could mean missing out on certain industries or companies that are profitable but do not meet ESG criteria. A smaller selection of investments may also make it harder to diversify your portfolio.

Performance can also vary. While some ESG funds perform as well as or better than the broader market, others may lag. Market conditions, sector exposure and fund management decisions can all affect returns. Investors should be prepared for the possibility that focusing on social goals may mean accepting different performance outcomes.

Finally, ESG ratings themselves can be inconsistent. Different rating agencies may give the same company very different scores based on their own methods. This means you could think you are investing in a highly rated “responsible” company, while another agency sees it differently. Before investing, it’s important to look beyond the label and understand exactly what the fund or advisor considers socially responsible.

Bottom Line

Potential drawbacks of socially responsible investing include higher fees and limited investment choices.

Finding a socially responsible financial advisor means choosing someone who prioritizes ESG scores and SRI while also meeting standard considerations like credentials and fair fees. Investing according to your values is possible with the right advisor, but it is important to stay attentive when interviewing to be sure they are committed to acting in your best interest.

Tips for Finding a Socially Responsible Advisor

If you’re looking for an advisor with the same social sensibilities, finding one can be difficult. Fortunately, SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
Socially responsible investing doesn’t mean giving up excellent returns. Putting your money into impact investing can facilitate the change you want to see in the world while helping you save for retirement or other major financial goals.