Millennials are members of an interesting generation. They have been blamed in headlines for killing everything from the car industry to golf — even American cheese.
They spend differently, get married later in life and as the financial services industry has known for a while, they tend to invest with a different set of factors leading their decisions compared to prior generations.
According to a 2016 Morgan Stanley study, 84% of millennials cite investing with a focus on ESG — environmental, social and governance impact — as a central goal. They are also nearly twice as likely to invest in companies or funds that target specific social or environmental outcomes.
Because of those facts, brokerages have been scrambling to appeal to millennial investors by providing ESG investment opportunities via portfolios or 401(k) offerings. Doug Heske, a former director of wealth management at Piper Jaffray, hypothesized that traditional brokerages are not going far enough — especially for a generation that has grown to distrust large financial institutions.
So, Heske quit his job in 2016 to help launch Newday Investments, a standalone investment app that helps users invest in companies through ESG portfolios dedicated to specific issues, including gender equality, animal welfare and ocean health. The app, which itself is free, requires a $5 investment minimum and charges a 1% annual fee on investments.
“The traditional wealth management segment has shunned smaller investors for years,” Heske tells Yahoo Finance. “So especially for younger investors who might not have had access to those funds, they haven’t had this type of option.”
You can make money while investing in good causes
Of course, Newday has its share of rivals in other ESG newcomers like OpenInvest and Swell (the former has a $100 account minimum). So Heske understands at the end of the day the performance of Newday’s investment portfolios will be critical to attracting users. Over the past year, four of the startup’s six portfolio’s have posted returns that beat their respective benchmarks — the most impressive of which notched a 30% one-year return.
“[Performance] is fundamental to everything that we do,” he says, pointing to the fact he brought on a former BlackRock director as his chief investment officer to help organize Newday’s funds. “What we’ve heard from users was, ‘We want to do good and invest in responsible companies, but we don’t want to sacrifice return.’”
However, in that same Morgan Stanley study, about half of individual investors revealed they believed investing in ESG companies meant inevitably little to no return on investment. Heske contends that investing in socially responsible companies and making money don’t have to be mutually inclusive.
“There is a growing level of evidence that shows… that companies that emphasize corporate and socially responsible governance outperform other companies in the long-term,” he says. A 2016 Morningstar report echoed that sentiment, revealing that ESG companies tend to boost portfolio performance by reducing overall volatility.
Having spent little on marketing efforts so far, Heske expects his company’s $1.2 million in assets under management to grow as it potentially attracts family office investors as well as millennials. A cause-related marketing campaign with Conservation International, one of its NGO partners that receives 5% of Newday’s portfolio revenues, is expected to launch soon.
“The generation that ends up coming in and using the app will likely be more diversified than just this 25- to 35-year-old set,” he says.
Zack Guzman is a reporter for Yahoo Finance. Follow him on Twitter @zGuz.