This Startup Shows How To Grow Your Wealth Without Compromising Values - Forbes

LA-based Swell Investing is marrying UN's SDGs with personal finance.Swell Investing

LA-based Swell Investing wants to bring transparency and solutions-driven investing to the convoluted world of personal finance. Founder and CEO Dave Fanger says Millennials are "far from being the 'avocado toast' generation."  They're also thinking about money, how to build wealth, and save for their futures -- however, without compromising their values and goals.

At the beginning of the year, as many people prepare to do their taxes and plan for 2019, it's worth looking at the different options in the market today. With big banks being scrutinized for their investments, treatment of customers, and general practices, digital companies in the financial sector are rethinking the future of finance.

Esha Chhabra: What does your average customer look like?

Dave Fanger: Swell’s investors tend to be older Millennials between 28 and 32. This age group turns to Swell primarily because they are at an inflection point in their lives. They’ve recently gotten married or started a family and are thinking about their impact on the world.  What kind of world are they creating through their actions and money? What kind of world are they passing along to the next generation? Those are the questions they are grappling with and the reason that they are interested in impact investing.

While a large group of investors falls within that age range, we also have investors who are much older and much younger. Regardless of age, our investors are united in their lifestyle choices. They tend to enjoy outdoor activities and care about their health and the health of their families.

If you’re the kind of person who shops at the farmer’s market, always carries a reusable water bottle and recycles, it makes sense that your investments would reflect those choices. When you invest in the S&P 500, 10% of your dollars are going towards companies in the fossil fuels, tobacco and firearms industries. For a lot of our investors, those industries just don’t align with their personal values.

How old is Swell?

Swell launched in May of 2017, so we are coming up on our two year anniversary. But the idea for Swell started much earlier than that. Back in 2015, I was working for Swell’s parent company Pacific Life in their M&A department. I noticed as I was traveling around the country evaluating companies that those companies that treated their employees well tended to deliver better returns to investors. On a red-eye flight returning from one trip, a colleague and I discussed why there wasn’t an easy and accessible way to invest in that trend.

Also, I have Type 1 Diabetes and rely on a technology company called Dexcom to help manage the disease. I had always wanted to find a way to invest in life-saving companies like Dexcom. With the marriage of those two ideas, the idea for Swell was born. Today, Dexcom is actually a portfolio company in Swell’s Healthy Living portfolio. With the support of Pacific Life and design thinking firm IDEO, we researched and built out the company. Now we have 46 full-time employees in our own office in Santa Monica.

What has the response been like? What products are customers most interested in?

The response has been really remarkable. Since launching, we now have more than 13,000 clients and $29 million in assets under management. We offer seven portfolios on the platform. The original six thematic portfolios launched in September of 2016. They are Green Tech, Renewable Energy, Clean Water, Zero Waste, Healthy Living and Disease Eradication. We find that investors like to create a mix of those portfolios and align them with their interests. Those who are interested in the environment tend to be drawn to Green Tech, Renewable Energy, Clean Water and Zero Waste. Those who are especially interested in a healthy lifestyle tend to be drawn to the Healthy Living and Disease Eradication portfolios. Our iOS app, which is launching in a couple of months, will include predetermined mixes based on our investors’ interests.

Since launching, we heard from many investors that they were interested in an impact portfolio with exposure to a broader set of social and environmental causes. Last summer, we launched the Impact 400, a portfolio of 400 public equities that each align with one or more of the United Nations Sustainable Development Goals. Together, the companies in the Impact 400 address all 17 of the global goals. We saw a very strong positive response to the launch of this portfolio and today many investors choose this portfolio in addition to one or more of the thematic portfolios when creating their Swell "mix.”   

How does Swell go about selecting which companies make the cut?

Each Swell portfolio is constructed with two equally important factors in mind - impact and performance. We use a research process designed to identify the stocks of companies that are making a positive impact towards socially responsible initiatives. Those companies also tend to be good investments. A company solving an increasing global challenge like access to clean water or renewable energy is also likely to drive returns.

In vetting the companies in our portfolios for impact, we first identify the companies that produce or provide products or services that address environmental or social challenges as they are outlined in the U.N. Sustainable Development Goals and derive revenue from those products or services. We then deeply research each company’s ESG metrics to ensure that each company is conducting its business responsibly. ESG stands for environmental, social, governance and it’s a metric that looks at how well a company treats the environment and its people.

As a third step, Swell’s portfolio management team screens each company for any “controversial events.” For example, was the company recently involved in a lawsuit? We use big data providers to scan thousands of news stories to determine whether any big events have recently impacted the company making it a less socially responsible option for investors.

Finally, we then weigh each selected company to optimize the portfolio’s risk-return profile, taking into account investment fundamentals such as valuation, momentum and liquidity. We rebalance the portfolios twice a year to ensure they stay true to our standards of both impact and performance.

Can you share some examples of companies that are perhaps "hot" stocks and popular companies, but do not make the cut for Swell based on your criteria?

Many of the socially responsible investing options available to retail investors (people who don’t have millions in their portfolios) look solely at ESG. They filter out companies based on their business practices. ExxonMobil is one example of a company that can be found in many ESG products. While the company is dedicated to increasing renewable energy use and that’s admirable, at their core they’re still an oil and gas company. We find that investors who are looking to invest in an environmentally conscious way are looking to avoid investing in oil and gas companies altogether.

Another company that many socially responsible investors were surprised to find in many ESG products is Facebook. When the Cambridge Analytica news broke last Spring, Facebook was in the top 10 of 80 ESG funds because of their use of renewable energy in their data centers. But, the company never would have made it into a Swell portfolio because their core business does not derive revenue from a product or service that solves a major global challenge.

Where do you think other financial advisors miss the mark?

One frustration we hear when conducting consumer research is around transparency. With many investing platforms, it can be difficult to see what companies your money is being invested into. The most commonly used financial products today are ETFs and mutual funds, whether they are being accessed through an advisor or a platform. But without doing some digging, it can be hard to see the companies that are within those funds.

That’s why Swell made sure its platform provides clients with transparency into each of the stocks in their portfolios. We offer “company cards” for each company that show how it derives revenue from a product or service solving a global challenge. We also display the United Nations Sustainable Development Goals that the company aligns with and recent news stories with the positive progress the company is achieving.

What trends are you seeing with your Millennial base? Are they as focused on saving and building wealth as previous generations?

Yes, definitely. Far from being the “avocado toast” generation, our Millennial investors are thoughtful about their money habits and plan well into the future. When we ask our investors why they are putting money with Swell, they often say that their account is building towards buying their first home, saving for their children’s education or having the freedom when they’re older to focus solely on work that they enjoy.

They’re also thinking deeply about the long term impact of their investments. According to a study that we recently conducted, nearly three in four of all Gen Zers (between ages 18 and 24) think that decisions made around investing can have a meaningful impact on climate change and the release of greenhouse gases. Millennial and Gen Z investors that we surveyed were also most likely to think that building wealth brings with it a responsibility to make sure their investments support positive social and environmental outcomes.


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