SEPTEMBER 2016

Leveraging Positive Psychology in the Hunt for Value

Category: Impact Investing
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Bain & Co.’s consumer research, featured in the Harvard Business Review, underscores the value proposition offered by impact investing strategies.

By Lisette Cooplisette-cooper_220x190er, PhD, Founder and CEO of Athena Capital Advisors

The September cover story of Harvard Business Review highlighted the challenges faced by corporate America when it comes to understanding and pinpointing what consumers really desire in their ongoing and evolving hunt for value. Building off of Abraham Maslow’s Hierarchy of Needs, the authors from Bain & Co. identified 30 different fundamental attributes of value – “in their most essential and discrete forms.” They proposed that these elements, when channeled effectively, can translate into a distinct competitive advantage for those companies able to address the right combination of needs that together offer the highest and most rewarding payoff for consumers.

The fundamental sources of value as identified by Bain & Co. can be categorized as either functional in nature, emotional, life changing, or as having a social impact. Each category effectively represents a progression as consumers ascend upon the hierarchy of Bain & Co.’s identified need states (see graphic: The Elements of Value Pyramid). While the most perceived value may lie in the highest-order elements of value, such as those residing in the “life changing” or “social impact” categories, the authors note that companies seeking to address these demands can’t do so without first meeting consumers’ more basic functional needs.blog

This resonated with me because it speaks to how we have defined our own value proposition here at Athena. In wealth management, clients rightly demand market-beating risk-adjusted returns. They demand strategies that enable capital preservation and an ability to successfully manage risk. A high-touch service offering in which advisors continually stay ahead of client needs is also a prerequisite.

While differentiation can and does occur in this functional level, the recognition of an RIA’s value proposition is often far more pronounced in the elements that exist higher on Bain’s “Elements of Value” pyramid. Access, for instance, can be a critical characteristic in wealth management, particularly among high-net-worth clients seeking investments in hedge funds, private equity or venture capital. And in the “life changing” category, RIAs can provide heirloom value through helping clients manage assets across generations. Going one step further, advisors can enable self-actualization through freeing clients to immerse themselves in those activities that bring the most joy and fulfillment.

The holy grail, however, as it relates to fulfilling the “self transcendence” need that Bain identified at the very top of its value pyramid, is in helping clients achieve a social impact. This is the category that channels the power of positive psychology to drive the most value, yet it is also perhaps the hardest to quantify for both consumers and companies alike.

This is an area where we’ve also dedicated considerable time and resources because our clients increasingly recognize impact investing as one of the most valuable ways to generate a return on their capital, from both an investment and social perspective.

Our own research, “Social Finance and the Post-Modern Portfolio: Theory & Practice,” was published this spring in the Journal of Wealth Management. Through the paper, we sought to introduce metrics of social return in the construction of portfolios that can accommodate the unique and specific goals of investors seeking values-based investment strategies. Similar to the Bain research, at the heart of our findings was the effect of positive psychology. This helped us formulate a new contemporary lens through which we redefined the meaning of utility as it relates to a more comprehensive and holistic vision around our clients’ investment goals.

Of course, value is in the eye of the beholder. For many, our mandate remains the pursuit of the highest possible risk-adjusted returns. For others, a growing segment of our client base, our mandate increasingly requires us to find the right balance in meeting their functional needs around risk and returns, while facilitating a desire for self-transcendence that only comes through making a social impact.

Used with permission from Bain & Co.