A combination of portfolio fundamentals, structured overlays, and deep client knowledge inform this advisor’s approach when his clients want their values reflected in their portfolios
Chris Warner takes a utilitarian view when his clients ask him to reflect their values in their portfolios. The wealth advisor and client relationship manager at Nicola Wealth Management Ltd. knows that after a point, values based investing can involve running down unproductive rabbit holes. His approach is instead about maximizing the alignment of a portfolio to a client’s values, without losing sight of the fundamentals of portfolio construction.
Warner explained how he goes about striking that balance for his clients. He outlined some of the challenges that a values-based approach can present to advisors. In any situation, Warner said that a conversation about values in a portfolio needs to begin with the fundamental principles at work in the portfolio.
“With us, the goal is to ensure the investment plan works in the context of the financial plan. We have to understand what the client’s goals are, what their money is for,” Warner says. “Before we even talk about investments, we talk about how we deliver that with a high degree of certainty. All of that comes before the conversation about values because I think it’s important to discuss the probability that you’re going to achieve what you’re setting out to do.”
The values conversation that follows is deep and wide ranging. Warner says that some clients may want to focus on philanthropic causes and sustainable investments. Nicola Wealth’s Private Giving Foundation, for example, allows clients to create a lasting impact through charitable giving. This donor advised fund helps clients establish and manage their charitable donations, ensuring that their philanthropic goals are met efficiently and effectively.
In addition to the private giving foundation, Nicola offers their clients a range of sustainable funds targeting innovation and infrastructure.
The Nicola Sustainable Innovation Fund targets investments that drive positive environmental and social change, supporting innovative companies and projects committed to sustainability and addressing global challenges. For example, the fund has increased its exposure to water technologies and sanitation by investing in companies like Veolia, a world leader in environmental services.
Conversely, the Nicola Global Infrastructure Limited Partnership invests in essential infrastructure projects worldwide, including renewable energy, transportation, and social infrastructure. These investments provide clients with opportunities to contribute to the development and improvement of communities globally.
Beyond these foundational options, Warner recognizes that some clients desire an even more personalized touch. Certain clients will ask that additional value sets be incorporated into the portfolio. That can sometimes raise questions around the implications for overall portfolio performance, or the degree of granularity being applied. If a client voices concern about the rise of AI, for example, there may need to be a conversation about the growth potential being traded off.
There is also the risk of the ‘hidden’ stocks that don’t align with values. Texas Instruments Inc., for example, makes both high quality graphing calculators and missile guidance systems. A client who wants to avoid conflict stocks may not see that company as a weapon’s manufacturer. Warner says that it’s important for advisors to disclose that information with clients when they think it will matter to them. It’s also important to use discretion and recognize where weeding out every sign of what one client sees as opposed to their values may be impossible. The perfect is the enemy of the good in these cases.
“There’s a reason why we talk about modern portfolio theory and ask, ‘why are we invested in this?’” Warner says. “We ask what this is going to do for them, and if the portfolio is achieving their goals, or if this is an area where they want to take a principled stand.”
Just as he works to align his client’s portfolios with their values, Warner will remind them that in a deeply interconnected economy, it’s easy to unearth something that feels deeply concerning or negative. Rather than focus on those negative connections, though, he’ll talk about the good that can be done by creating tax efficiencies and freeing up capital for philanthropic causes. He notes that advisors can help clients live their values in ways that go well beyond the portfolio alone.
Because client values are so different, Warner tries to take a bespoke approach to each client. That involves tailoring their exposures beyond the cookie-cutter ESG or responsible investing index products that tend to dominate this market. Having those more nuanced discussions and creating more bespoke strategies can take a lot of work, but Warner says that his firm offers enough support through their two-advisor model and robust associate pool that they can deliver the service levels needed.
As other advisors speak to clients who want better values alignment, Warner believes that they need to make an effort to have these more nuanced discussions, because that’s the level of service that clients now expect.
“It’s an old style of investment advice to just put a client in an ESG fund, and I don’t think clients are as amenable to that anymore,” Warner says. “People want to engage with their advisor, they want to know how everything interacts. You have to have a values based discussion, you have to know your client, and you have to build trust. They’re not going to take your advice if they feel like you don’t understand them. This is how you demonstrate integrity, that you’re not just dictating investment advice or using word salad.
“Values based advice is, I think, fundamental to showing that you care and you are focused on the client.”
