by Jeff Schlegel, Financial Advisor magazine
The folks at Natural Investments LLC (www.naturalinvestments.com) see themselves as different from mainstream financial advisors, and consider their clients to be different from garden-variety investors. In short, the Natural Investments team takes pride in being out of step with conventional Wall Street and financial services norms. It is, they will tell you, what makes them who they are.
The advisors who make up the Natural Investments (NI) network are scattered from coast to coast, as well as beyond in Hawaii. Most work from home, and Hawaiian shirts and tie-dyed shirts are the uniform of the day for some of them. NI advisors have backgrounds ranging from social/environmental activism and the ministry to scientific research and Wall Street. But what unites them is a passion for sustainable and responsible investing, which is the new version of SRI that formerly was known as—and is still sometimes used interchangeably with—socially responsible investing.
NI advisors are into green-economy investing and companies in any sector that earn a profit without negatively impacting the planet and its denizens. They also facilitate community- and local-based investing for clients that can run the gamut from a private-equity offering that buys organic farmland to loans with various purposes such as boosting small local businesses or helping low-income people pay their mortgages and stay in their homes. NI believes the latter types of unconventional investments both promote the public good and help diversify client portfolios.
The firm was founded 16 years ago, but its founders had been practicing and writing about SRI since the days when it was considered kooky. And with a recently published book written by NI’s three partners that introduces the concept of resilient investing, the firm is trying to take the SRI space to the next level.
“We’re a fairly quirky firm,” says Christopher Peck, a managing partner and NI’s chief compliance officer, who works in Windsor, Calif. “Even though we may look a little quirky and our personalities are, too, I don’t want to undersell the fact it’s a super-professional group. In college, we were the kind of folks who were drinking a beer at 11:00 at night and talking about what we read in class. We don’t necessarily conform to the standard box, but we’re totally into what we’re doing.”
NI’s investment minimum is $50,000, but it has numerous high-net-worth clients and its aggregate assets under management are roughly $260 million. It’s a fee-only firm that also does financial planning on a project, hourly or retainer basis. It has slowly built up its advisor network over the years, but it isn’t looking to build an empire.
The firm’s patriarch is Jack Brill, who began his career as an SRI advisor 30 years ago and was an original member of First Affirmative Financial Network, which remains the largest network of SRI advisors. His son, Hal, followed in the family business, so to speak, and together they launched Natural Investment Services Inc. in 1999, the same year they and Cliff Feigenbaum, the editor of the GreenMoney Journal (www.greenmoney.com), wrote a book called Investing With Your Values, Making Money and Making a Difference. It was Jack Brill’s second book, the first being Investing From the Heart in 1992.
Michael Kramer came on board as the third advisor in 2000, followed by Peck four years later. Jack Brill is now retired, and today Hal Brill, Kramer and Peck are NI’s three partners. The firm reorganized as a limited liability company in 2007, and the rest of the advisors who’ve joined NI are independent contractors.
“We’re owner-operated and have no employees, and the three partners run the firm in addition to having their own clients,” says Kramer, who works from Keauhou, Hawaii. “We kind of function informally as a cooperative rather than a hierarchal structure built around management and a central office making decisions.”
Kramer notes that NI has never recruited anybody. “They’ve all approached us because they felt a resonance with the values of our firm,” he says. “We get approached periodically, and we’re very selective because we want to make sure it’s the right fit with our very small company. The people we bring on really have to walk their talk and not just see this as business. We want people where this is really core to who they are because clients want us to be leaders in social and environmental change. ”
So-called values-based investing goes by many names including different takes on SRI, ESG (environmental, social and governance), impact investing and others. But whatever you call it, the overall sector in recent years has transcended its fringe status as both retail and institutional investors have funneled more money into the space.
According to US SIF—the Forum for Sustainable and Responsible Investment, assets under its definition of SRI (sustainable, responsible and impact investing) zoomed 76% from the start of 2012 to the start of 2014, to $6.57 trillion. That accounted for more than one out of every six dollars under professional management in the U.S., the group says.
Regarding performance of SRI-type investments, there are a number of studies showing that incorporating environmental and social factors into investment portfolios doesn’t negatively impact financial returns. Meanwhile, the number of SRI-related investment funds and other products is growing, but like with any sector the track record is mixed. Nonetheless, proponents such as NI believe SRI can provide comparable ROI versus conventional investment vehicles.
Despite SRI’s growing acceptance, it still carries a stigma that it’s not “real” investing. “There’s a little bit of weird sexism about it where like it’s not sufficiently macho to care about other people and you should just power through and make a lot of money, and then in a show of patriarchal magnanimity you give a little bit to the poor,” Peck says.
A lot of what drives NI is its clients, many of whom aren’t fans of go-for-the-jugular capitalism.
“A lot of our clients are reluctantly wealthy, in a way,” Peck explains. “A common profile is they’re inheritors and not entrepreneurs; they work at a nonprofit or are artists or do some kind of activism. There’s a little bit of a rebellious streak there, certainly against the broader Wall Street message.”
And that informs NI’s investment and philosophical approach. On its website, NI addresses the “corporate agenda” and its potential negative consequences for social justice and the global environment, while acknowledging that corporations also provide us with a lot of good things. “Each of us, as investors, consumers and citizens, must be conscious of how we interact with corporations,” the website says.
For its part, NI says it devotes “a great amount of research and soul-searching to finding ways that investment capital can be best used to achieve our client’s financial goals while encouraging greater corporate responsibility.”
In some ways, this soul-searching represents an inner tension the company has with its very livelihood. “We feel it because we’re in this industry where standard Wall Street thought has, in my opinion, defined capitalism in an extreme way,” says Susan Taylor, an NI advisor in Louisville, Ky. “And we have lots of clients who are longtime activists and social critics who question whether they should even be in the stock market. We live between those two perspectives.”
“I think extreme capitalism, where profit is the only thing that matters, isn’t the way capitalism was intended,” she continues. “Our planet and social structure can’t survive with that version of capitalism. That’s not sustainable in the long run on a social or mental health model, or any way you look at it. How do we take what works with capitalism and make it better, and make sure human and environmental health have a priority that supersedes profits? Yes, profits matter, but it can’t matter exclusively.”
That might sound like Hippie Economics 101, but Taylor has a PhD in economics from the University of Maryland, formerly worked as a corporate economist at Bank of America and describes herself and her firm as “unapologetic capitalists.” She and her husband, Andy Loving, an ordained Baptist minister, operate their practice called Just Money Advisors, which they affiliated with the NI network in 2011. They saw NI as a good fit because it was open to the type of less-traditional, community-oriented impact investments they like to make.
Freewheeling, Yet Disciplined
All NI advisors serve on the investment committee, and they rotate quarterly so that everyone plays a role in analyzing the holdings and recommending changes in the model portfolios. “We like to make changes by consensus as much as possible, and that’s possible at a small firm when everyone can get on a conference call and have real conversations,” Kramer says, noting that NI advisors can customize and deviate from the models if they think it’s suitable.
Despite the seeming freewheeling, democratic process, the investment committee is anchored by Scott Secrest, the firm’s director of investment research who’s located in San Luis Obispo, Calif. He affiliated with NI in 2005. “At Natural Investments, we’ve been fortunate—either by design or happenstance—to attract a group of advisors with expertise in a variety of different areas including regenerative or other types of alternative investments,” Secrest says.
But while NI considers its forte in less mainstream, perhaps more exotic sustainable-oriented investments to be one of its strengths, these vehicles aren’t right for all investors because of their liquidity and risk-reward considerations. So Secrest does the legwork to find more traditional investment vehicles.
“My role is to apply all of the best practices in mutual fund portfolio management to what’s available in the SRI sphere, which is a big and growing list,” he says.
NI offers its clients a variety of model portfolios that include SRI, green-economy and fossil-fuel-free portfolios. Each has different allocations ranging from aggressive to conservative.
It also uses separate accounts, along with various alternatives—including private debt and equity—for its higher-net-worth clients. But most of its investment vehicles are SRI-focused, retail-oriented funds such as the Shelton Green Alpha Fund and the Pax World Global Environmental Markets Fund.
NI is down to two-and-a-half active partners as Hal Brill downshifts into semi-retirement. Going forward, Peck expects the firm to expand its ownership base. “We’re having that conversation now about adding new partners, and that’ll probably happen in the next year or two,” he says.
And looking 10 years out, Peck also expects NI to grow its membership. “I definitely see us with roughly 50% more advisors, finally covering the Central time zone and serving progressive clients across the entirety of the country,” he says.
NI says the wonders of modern technology make it possible to efficiently run a small advisory firm across multiple time zones. “While we don’t have water-cooler conversations, as a cloud-based company we are able to use online technology to operate quite smoothly,” Kramer says. “This enables any of our advisors to effectively manage client accounts from anywhere while giving us the capacity to provide compliance monitoring and cover for each other.”
He adds that some key programs they use are Black Diamond Performance Reporting, RedBlack, Redtail and Morningstar. Nonetheless, some challenges remain. “We are a bit frustrated finding an affordable video conferencing tech that will work for the size of our team,” Peck says. “That’s a nut still to crack.”
NI members meet en masse once a year, usually at the annual SRI Conference produced by First Affirmative Financial Network. By all accounts, the group meshes well together. “There’s wonderful collegiality,” Taylor says. “Our meetings are interesting because we come from all over and there are lots of cultural variation with different backgrounds.”
And NI keeps moving forward in its mission to help foster the gentler side of capitalism and to view investing in a different way. Hal Brill, Kramer and Peck earlier this year published The Resilient Investor: A Plan for Your Life, Not Just Your Money, which looks at people’s financial investments; personal and social assets such as skills, relationships and community; and tangible assets including homes, shared infrastructure and ecological systems in the context of various future scenarios.
“With our latest book, we’re already assuming people have got the sustainable investing story and we’re moving on to the next step in the evolution and pushing the boundaries,” Peck says. “What we’re pointing out is your portfolio includes a much broader array of investments than you think.”
Peck and others at NI believe the book continues the firm’s efforts to be thought leaders in the SRI space and, by extension, the financial services industry in general. To them, these endeavors, along with their active role in shareholder advocacy work with major corporations and public advocacy in Washington, D.C., are part and parcel of their jobs as financial advisors.
But while NI may not be your standard-issue advisory firm, not all of its members think of themselves as being unusual within the broader advisor universe. “I don’t feel like I’m quirky or on the outside looking in,” Taylor says. “I just feel this is our sector; this is our piece of the work.”
Article from the Dec 2015 issue of Financial Advisor magazine