MONEY Financial Planning

A Simple Tool for Getting Better Financial Advice

financial advisor with couple
Ned Frisk—Getty Images

If a financial adviser doesn't know what's going on in a client's life, the advice will suffer. Here's one easy way to fix that.

True story: Many years ago, I was meeting with a married couple for an initial data-gathering session. Halfway through the three-hour meeting — the first stage in developing a comprehensive financial plan — the husband excused himself for a bathroom break. As soon as the door shut, the wife turned to me and said, “I guess this is as good a time as any to let you know that I’m about to divorce him.”

That’s just one example of why exploring a client’s financial interior is a worthwhile investment for both the adviser and client. All the effort we had expended on their financial plan, for which they were paying me, was for naught.

So how can an adviser really understand what’s going on with his or her clients?

A great first step is to fully explore the simple question “How are you doing?” Not “How are your investments doing?” or “How is your business doing?” but “How are you doing?”

As financial planners, we are quick to put on our analytical hats. We will gladly examine numbers down to three decimal places, but we often fail to delve below the superficial on a relational level.

Here’s a tool that can help. I include it with permission from Money Quotient, a nonprofit that creates tools and techniques to aid financial advisers in exploring the interior elements of client interaction. It’s called the “Wheel of Life”:

Wheel of Life

The instructions are simple: you rate your satisfaction with each of the nine regions of life listed on the wheel. Your level of satisfaction can range from zero to 10—10 being the highest. Plot a dot corresponding to your rating along each spoke of the wheel. Then you connect the dots, unveiling a wheel that may — or may not — roll very well.

If you’re wondering what value this could bring to your client interaction, consider these five possibilities:

  • It’s an incredibly efficient way to effectively answer the question, “How are you doing?” In a matter of seconds, you know exactly where your client stands. You now have an opportunity to congratulate them in their successes and encourage them in their struggles.
  • It demonstrates that you care about more than just your client’s money. It shows that your cordial greeting was something more than just obligatory. It shows that you recognize the inherently comprehensive nature of financial planning.
  • It helps in gauging how much value you can add to a client’s overall situation. For example, if this is a new client, and all the numbers are nines and tens except for a two on the “Finances” spoke, then it stands to reason that good financial planning could have a powerfully positive impact on the client’s life. If, on the other hand, a prospective client’s wheel is cratering, you might conclude that his or her problems lie beyond the scope of your process. Your efforts may be in vain, and a referral to an external source may be in order.
  • It could tip you off to a major event in a client’s life that should trump your agenda for the day. Many advisers use this exercise as a personal checkup at annual client meetings, sending clients the “Wheel of Life” in advance. Doing so encourages clients to share if they have suffered one of life’s deeper pains, like the loss of a loved one. That’s likely your cue to recognize that now isn’t a time to talk about asset allocation. It’s simply time to be a friend and, as appropriate, address any inherent financial planning implications.
  • You’ll likely find it a beneficial practice for you, too! I don’t recommend putting a client through any introspective exercises that you haven’t completed yourself. So please, complete your own “Wheel of Life” exercise. You’re likely to see this tool in a new light and find valuable uses for it that I’ve not uncovered here.

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Financial planner, speaker, and author Tim Maurer, is a wealth adviser at Buckingham Asset Management and the director of personal finance for the BAM Alliance. A certified financial planner practitioner working with individuals, families and organizations, he also educates at private events and via TV, radio, print, and online media. “Personal finance is more personal than it is finance” is the central theme that drives his writing and speaking.

MONEY Kids and Money

You Can Teach a Two-Year-Old How to Save

child's hand with ticket stubs
Frederick Bass—Getty Images/fStop

Worried about your children's retirement? With the help of a few carnival tickets, says one financial adviser, you can get them started early on saving.

A new type of retirement worry has recently surfaced among my clients. These investors are concerned not just about their own retirement, but about their children’s and even grandchildren’s retirement as well.

Much of our children’s education is spent preparing them for their careers. But in elementary school through college, there is little discussion about what life is like after your career is over. Little or no time is spent educating children about the importance of saving — much less saving for their golden years.

When it gets down to the nitty-gritty, parents want to know two things: One, at what age should they start teaching their children about saving? And two, what tactics or strategies should they use to help their children understand the importance of saving?

While parenting advice can be a very sensitive subject, discussing these questions has always worked out well for my clients and me. I keep the conversation focused around concerns they have brought up. In a world where student debt is inevitable and other bills such as car loans and mortgage payments add up quickly, parents are concerned for their child’s financial future. We now live in a debt-ridden, instant-gratification society, so how can our children live their lives while still saving for the future?

Here is what I tell my clients:

You can start teaching children the value of saving as early as two years old. At this age, most children don’t necessarily grasp the concept of money, so instead I recommend the use of “tickets” or something similar — maybe a carnival raffle ticket. As a child completes chores or extra tasks, he or she receives a ticket as a reward. The child saves these tickets and can later cash them in at the “family store.” This is where parents can really get creative: The family store consists of prepurchased items like toys or treats, and each item is assigned a ticket value. The child must exchange his or her hard-earned tickets to make a purchase.

I’ve seen first hand, and been told by others, that the tickets end up burning a hole in children’s pockets. They want immediate gratification, so they cash their tickets in for smaller, less expensive prizes. This is where parents can begin to really educate kids. Through positive reinforcement, they can encourage their children to save their tickets in order to purchase the prize they are really hoping for.

Eventually, saving becomes part of the routine. As children receive tickets, they stash them away for the future with the intentions of buying the doll, bike, video game or whatever their favorite prize may be.

As the child gets older, parents can transition to actual money using quarters or dollars. Now the lesson has become real. Parents can also implement a saving rule, encouraging the child that 50% of the earnings must go straight to the piggy bank. By age five, most children can grasp the concept of money and can begin going to an actual toy store to pick out their prizes. By starting out with tickets, parents are able to educate children about the power of saving at a younger age. By switching over to real money, children can then begin to learn the importance of saving cash for day-to-day items while still setting aside some money for later.

While this tactic may seem like it’s just fun and games, I have received feedback from several clients and family friends that it does in fact instill fiscal responsibility at a young age. Most importantly, I have seen it work first hand. My wife and I used this system with our five-year-old daughter. She was like most children in the beginning and wanted to spend, spend, and spend. Now, it is rare that she even looks at her savings in her piggy bank. She has graduated to real money and seems to really value its worth. She identifies what she wants to buy and sets a goal to set enough money aside for it. Before purchasing, she often spends time pondering if she actually wants to spend her hard earned money, or if she wants to continue saving it. In less than a year, she developed a true grasp on what it means to save and why it is important.

By implementing this strategy, financial milestones like buying their first car, paying for college, or purchasing their first home could potentially be a lot easier for both your clients and their their children. And the kids will learn the value of saving for their retirement, too.

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Sean P. Lee, founder and president of SPL Financial, specializes in financial planning and assisting individuals with creating retirement income plans. Lee has helped Salt Lake City residents for the past decade with financial strategies involving investments, taxes, life insurance, estate planning, and more. Lee is an investment advisor representative with Global Financial Private Capital and is also a licensed life and health insurance professional.

MONEY Financial Planning

POLL: Are You Better Off Now Financially Than You Were Last Year?

When it comes to your money, is 2014 shaping up to be a banner year—or one you'd rather forget?

MONEY retirement planning

Why Americans Can’t Answer the Most Basic Retirement Question

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marvinh—Getty Images/Vetta

Workers are confused by the unknowns of retirement planning. No wonder so few are trying to do it.

Planning for retirement is the most difficult part of managing your money—and it’s getting tougher, new research shows. The findings come even as rising markets have buoyed retirement savings accounts, and vast resources have been poured into things like financial education and simplified investment choices meant to ease the planning process.

Some 64% of households at least five years from retirement are having difficulty with retirement planning, according to a study from Hearts and Wallets, a financial research firm. That’s up from 54% of households two years ago and 50% in 2010. Americans rate retirement planning as the most difficult of 24 financial tasks presented in the study.

How can this be? Jobs and wages have been slowly improving. Stocks have doubled from their lows, even after the recent market tumble. The housing market is rebounding. Online tools and instruction through 401(k) plans have greatly improved. We have one-decision target-date mutual funds that make asset allocation a breeze. Yet retirement planning is perceived as more difficult.

The explanation lies at least partly in an increasingly evident quandary: few of us know exactly when we will retire and none of us know when we will die. But retirement planning is built around choosing some kind of reasonable estimate for those two variables. But that’s something few people are prepared to do. As the study found, 61% of households between the ages of 21 to 64 say they can’t answer the following basic retirement question: When will I stop full-time work?

Even the more straightforward retirement planning issues are challenging for many workers. Among the top sources of difficulty: estimating required minimum distributions from retirement accounts (57%), deciding where to keep their money (54%), and getting started saving (51%).

Those near or already in retirement have considerably less financial angst, the study found. Their most difficult task, cited by 33%, is estimating appropriate levels of spending, followed by choosing the right health insurance (31%) and a sustainable drawdown rate on their savings accounts (28%).

For younger generations, planning a precise retirement date has become far more difficult, in part because of the Great Recession. Undersaved Baby Boomers have been forced to work longer, and that has contributed to stalled careers among younger generations. The final date is now a moving target that depends on one’s health, the markets, how much you can save, and whether you will be downsized out of a job. Americans have moved a long way from the traditional goal of retirement at age 65, and the uncertainty can be crippling.

Nowhere does the study mention the difficulty of estimating how long we will live. Maybe the subject is simply one we don’t like to think about, but the fact is, many Americans are living longer and are at greater risk of running out of money in retirement. This is another critical input that individuals have trouble accounting for.

In the days of traditional pensions, many Americans could rely on professional money managers to grapple with these problems. Left on their own, without a reliable source of lifetime income (other than Social Security), workers don’t know where to start. The best response is to save as much as you can, work as long you can—and remember that retirees tend to be happy, however much they have saved.

Related:

How should I start saving for retirement?

How much of my income should I save for retirement?

Can I afford to retire?

Read next: 3 Little Mistakes That Can Sink Your Retirement

MONEY charitable giving

Give to Charity Like Bill Gates…Without Being Bill Gates

Bill Gates, co-founder of Microsoft, co-founder of Bill and Melinda Gates Foundation.
Chesnot—Getty Images

You don't have to be rich to set up the equivalent of a charitable foundation — one that can continue making donations even after your death.

One of my clients — I’ll call him Jonathan — came to me recently with concerns about his estate planning. Jonathan was a successful corporate manager who received a big payday when a major firm acquired the company he worked for. With no children of his own, he’d arranged for most of his wealth to be divided between two favorite charities: a local boys club and an organization that helped homeless people train for work and find jobs. Life had been good to Jonathan, and he wanted to give back.

But recently, there had been some management changes at the homeless support agency, and Jonathan was no longer confident that his gift would be well used. He was thinking about removing them from his trust.

We suggested something that sounded to him like a bold plan, but was really quite simple. Amend your trust, we told him, so that upon your death your funds go to a donor-advised fund — a type of investment that manages contributions made by individual donors.

Jonathan knew what a DAF was. He was already using one for his annual charitable giving because it let him donate appreciated securities, thus maximizing his annual tax deduction. Like many people, however, he’d never thought about donating all his wealth to a DAF after his death. He was under the impression that a donor needed to be alive to advise the fund.

Not so. Jonathan just needed to establish clear rules on who the future adviser or advisory team would be and how he would want them to honor his philanthropic wishes. With a DAF, he could arrange for a lasting legacy of continued giving beyond his own life. Another plus: Because no organization’s name is written into trust documents, changing your mind about what charities to give to is quick and simple. With a trust, changing a charitable beneficiary often requires a trip to your lawyer.

People tend to think that leaving an ongoing charitable legacy is exclusively for uber-wealthy people such as Bill and Melinda Gates, whose foundation gave away $3.6 billion in 2013. While there is no defined level under which a foundation is “too small,” Foundation Source, the largest provider of foundation services in the US, serves only foundations with assets of $250,000 and up. While foundations offer trustees greater control over investing and distribution of gifts, they are costly to set up and run, and have strict compliance rules.

DAFs offer an alternative. Their simplicity, relatively low cost, and built-in advisory board make them an ideal instrument for securing a financial legacy. Unlike foundations, there is no cost to set them up. And the tax advantages are better. The IRS allows greater tax deduction for gifts of cash, stock, or property to a DAF, compared with a foundation. Foundations have to give away 5% of their assets annually, but there are no distribution requirements for DAFs.

All DAFs have a board of directors as part of their structure. Many of them are willing to maintain the gifting goals of a donor after their death and insure that the recipient charities are eligible for the grants each year. At my firm, we have been asked to serve as part of clients’ DAF’s adviser team, to which we have agreed. Upon Jonathan’s death, we will continue to monitor his charitable recipients for quality of services, efficiency, and results — all very important goals of Jonathan’s.

You have many options to choose from. DAFs come in many shapes and sizes, from local community foundations to national organizations. Most of the independent brokerage firms have their own funds, with minimum initial contributions as low as $5,000.

With a little research, a family should be able to find a suitable home for their estate and leave a lasting legacy — whether they are rich, Bill-Gates-rich, or not wealthy at all. To learn about finding the DAF that fits you or your loved one’s vision and values, one way to get started is to check out the community foundation locator at the Council on Foundations.

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Scott Leonard, CFP, is the owner of Navigoe, a registered investment adviser with offices in Nevada and California. Author of The Liberated CEO, published by Wiley in 2014, Leonard was able to run his business, originally established in 1996, while taking his family on a two-year sailing trip from Florida to New Caledonia in the south Pacific Ocean. He is a speaker on investment and wealth management issues.

MONEY financial advisers

When It’s Time for the Adviser to Fire the Client

Pink Slip of termination
Tetra Images—Getty Images

The relationship between a financial adviser and a client can be like a marriage — sometimes a failing one.

Sometimes there’s a client relationship you sense is no longer as functional or effective as it once was.

Perhaps the client engagement was never ideal in the first place, but you took on the client even when your gut suggested it wasn’t an optimal fit. Or, in some cases, the client did once fit the ideal client description in your practice, but your own practice changed rather than the client. In other cases, the client chemistry changed just like it can between two spouses. Life circumstances sometimes prompt this shift, but other times you can’t even put your finger on why things aren’t quite like they used to be.

How do you decide if it would make more sense to discontinue the relationship? When do you make the change? And how do you do it? I have sometimes struggled with the ifs, whens and hows.

I think it is part of the DNA of advisers to want to serve our clients no matter what, and thus very difficult to see that it is not always best for each party, even if it seems obvious. I give a lot of credit to a financial coaching firm I worked with many years ago for encouraging us as advisers to try to recognize when it’s time to say goodbye. They told us if we could recognize that the relationship was not working for everyone, it might be time to consider parting ways. In the end, they said, it’s often better for the client, better for the adviser, and better for the other client relationships.

Years ago, I had a client who, at the beginning of the relationship, fit the description of my ideal client. This person even added services over the years to the point where he was one of my highest revenue clients. In time, he began making requests that I felt were unrealistic and unreasonable. But, for a time, I stretched and successfully responded to each request, even though I was stressed by them. He persisted and made the same request again and again, also saying he was going to reach out to other advisers to get other quotes.

The stress on my business grew as the demands continued, even though each time he apologized afterward. After four of these anxious experiences, I realized that if it happened again, I would need to let the client go. Remembering the coaching, I thought it through on all fronts.

It would be better for my client to find another adviser who might provide a better overall fit, and thus my client would be better served in the long run. But also, I’d be less stressed as a result of no longer attending to requests that seemed inappropriate. And I’d be that much more fully available to help out my clients who were still with me. Ultimately it would be a win, win, win for all.

If realizing the need for a break up is tough, working through the breakup can seem worse – but try to remember the end result of things getting better for everyone.

Such was the case when I informed this particular client — in an email followed by a phone call — that I was resigning from our work together and that I felt I wasn’t the financial adviser to take him through the next phase of his financial life. As could be expected, he was at first upset and unhappy. I don’t know what happened with that client and his next advisers, but I do know that I slept better the first night after that conversation and went into the office the next day feeling much more relaxed.

And despite having to make some adjustments when that client revenue ended, in time, the loss of that client actually propelled me to make some major changes to my practice that took me to new professional heights. In the end, the move helped me better serve my remaining clients, add more ideal clients, and pursue other professional and personal goals for myself.

How to end a client relationship depends on the client relationship. Sometimes a letter is sufficient. Other times a phone call is best. And from time to time, an in-person meeting is the way the go. The breakup can be awkward, no doubt, and I don’t think there’s a template to follow. But it’s best to formalize the end of the relationship so the client knows his or her next steps, your staff knows what is happening — when and why — and everyone can go forward with eyes wide open.

In the end, this is all about the client and making sure your client is well served…even if you have decided you no longer want to be the adviser serving him.

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Armstrong is a certified financial planner with Centinel Financial Group in Needham Heights, Mass. He has guided clients since 1986 in matters of financial planning, insurance, investments, and retirement. He currently serves on the national boards of the Financial Planning Association and PridePlanners. His website is www.stuartarmstrong.com.

MONEY Financial Planning

Here’s What Millennial Savers Still Haven’t Figured Out

Bank vault door
Lester Lefkowitz—Getty Images

Gen Y is taking saving seriously, a new survey shows. But they still don't know who to trust for financial advice.

The oldest millennials were toddlers in 1984, when a hit movie had even adults asking en masse “Who you gonna call?” Now this younger generation is asking the same question, though over a more real-world dilemma: where to get financial advice.

Millennials mistrust of financial institutions runs deep. One survey found they would rather go to the dentist than talk to a banker. They often turn to peers rather than a professional. One in four don’t trust anyone for sound money counseling, according to new research from Fidelity Investments.

Millennials’ most trusted source, Fidelity found, is their parents. A third look for financial advice at home, where at least they are confident that their own interests will be put first. Yet perhaps sensing that even Mom and Dad, to say nothing of peers, may have limited financial acumen, 39% of millennials say they worry about their financial future at least once a week.

Millennials aren’t necessarily looking for love in all the wrong places. Parents who have struggled with debt and budgets may have a lot of practical advice to offer. The school of hard knocks can be a valuable learning institution. And going it alone has gotten easier with things like auto enrollment and auto escalation of contributions, and defaulting to target-date funds in 401(k) plans.

Still, financial institutions increasingly understand that millennials are the next big wave of consumers and have their own views and needs as it relates to money. Bank branches are being re-envisioned as education centers. Mobile technology has surged front and center. There is a push to create the innovative investments millennials want to help change the world.

Eventually, millennials will build wealth and have to trust someone with their financial plan. They might start with the generally simple but competent information available at work through their 401(k) plan.

Clearly, today’s twentysomethings are taking this savings business seriously. Nearly half have begun saving, Fidelity found. Some 43% participate in a 401(k) plan and 23% have an IRA. Other surveys have found the generation to be even more committed to its financial future.

Transamerica Center for Retirement Studies found that 71% of millennials eligible for a 401(k) plan participate and that 70% of millennials began saving at an average age of 22. By way of comparison, Boomers started saving at an average age of 35. And more than half of millennials in the Fidelity survey said additional saving is a top priority. A lot of Boomers didn’t feel that way until they turned 50. They were too busy calling Ghostbusters.

MONEY Ask the Expert

Why This Estate Planning Tool Beats Just Having a Will

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Robert A. Di Ieso, Jr.

Q: “We established a living trust this past year and put our home and two rentals into it. Most of our investments are in IRAs, and I don’t want to put them into the trust. I am now thinking that I may not have really needed the living trust. Should I go back to just a will and cancel the trust?”—Mark Schmidt

A: A living trust has advantages that a will can’t offer, so you may want to keep both, says Greg Sellers, a certified public accountant and president of the National Association of Estate Planners and Councils.

A revocable living trust is similar to a will in that it indicates how you would like your assets to be distributed after your death and can be amended anytime. While you should always have a will, a living trust—which is simply a trust set up during your lifetime as opposed to one created after your death—can be a valuable addition to your estate plan. Here’s why.

1. Your estate can be settled more quickly. Unlike with a will, the assets in a trust do not have to go through the probate process. Your heirs can skip the expense (lawyers, executors, paperwork, and the like), potential publicity, and inconvenience of a court-supervised distribution of your estate. And there’s no delay while your heirs wait for creditors to come forward and file claims, even when you owe no one.

This probate escape hatch is more valuable in some states than others. Many states have an expedited form of probate for estates below a certain value, which varies by state. For example, in New York, you can use the simplified small estate process if the property, excluding real estate, is worth $20,000 or less. To see what probate shortcuts your state offers, check Nolo.com’s list.

If most of your estate is in the form of IRAs or life insurance, you will not need to worry about probate either. As long as you have named a beneficiary, those assets will bypass probate.

2. You have back-up investment help. Because you must name a trustee to manage the assets, pay the taxes, maintain good records, and make payment to the beneficiaries—or a successor trustee if you’re managing the trust yourself—you already have someone in place to take over if you become disabled or incapacitated and are no longer able to manage your money.

3. You can set things up for your children. Trusts can also be good if you have minor children or heirs with special needs. When you set up the trust, you can add provisions specifying when a child can receive the assets and how he or she can use the property. With a will, your assets pass straight to your heirs.

If you don’t find managing the trust too onerous, Sellers recommends keeping it since you’ve already gone through the effort and expense of establishing and funding it (you need to retitle the assets you put in a trust, for example). On a final note, you shouldn’t transfer an IRA to a trust. That’s counted as a withdrawal and could subject you to a penalty, depending on your age.

MONEY Financial Planning

How to Be Charitable…and Hold Onto Your Money

Bench in Yosemite Valley.
Bench in Yosemite Valley. Geri Lavrov—Getty Images

You can inexpensively plan for a donation from your 401(k) while retaining access to the account if you need it.

After they got married, I met with Luke and Jane, both 33, to think through how much they are going to spend and how much they are going to save. Luke is a gentle soul. It took him many years to find work that he could feel good about, and he currently has a good-paying job. He wants to keep working forever.

Part of him seemed shocked, although happily so, by his fortunate financial situation. He feels that he and his wife together make a lot more money than they need.

If he knew their finances were always going to be the way they are now, he’d give more money away. He gets a lot of satisfaction from financially supporting changes he feels are positive in the world.

One of the things that Jane loves about her husband is his philanthropic bent. But she’s also concerned they might give a lot of money away and then regret it. They plan to start a family within the next five years. How can they decide to give money away when they might need it later?

I left our meeting somewhat frustrated, because I didn’t have a great answer to their conundrum.

Meanwhile, I was working on a book about connecting all areas of finances with meaning. Previous authors have explored how to consciously spend or invest. But I wanted to write about not only spending and investing, but also taxes, estate planning, and insurance — all areas of personal finance.

The book idea sounded good. Then I had to write the thing. I know a lot about the subject, but when I got to the chapter about estate planning, I drew a blank.

After what I deemed an appropriate length of procrastination, I started writing the dreaded estate chapter. I found myself thinking about Luke. At the same time, I was reviewing everything I do when I talk to clients about estates, focusing on the angle of more meaning. More meaning.

Then some ideas started sparking.

Reviewing 401(k) beneficiaries, for instance, is something I talk about during estate planning meetings. Seems mundane, but wait, there could be something there. This is cool, I thought as I wrote.

What if Luke designated someof his 401(k) — or all, if he really wanted — to charity? Say, the National Parks?

It wouldn’t cost Luke a dime now. Plus, it’s totally revocable before he dies. If and when Jane and he have kids, he’ll revoke the designation. So during his critical period of family financial responsibility, he can leave his 401(k) to Jane and the family. But if it’s just Jane and him, setting aside some money in case of his untimely death is one answer to the conundrum — how to give more without regretting it.

Other details I uncovered when I wrote and researched this strategy: Larger, well-established charities are more likely able than smaller ones to handle a 401(k) donation. The theater company down the street generally won’t.

Setting up this designation doesn’t cost anything; Luke doesn’t have to talk to an attorney. Jane will have to sign off on it, but she’s fine with it.

Other perks? He might be able to designate what his 401(k) donation is used for, in the case of his death, and the charity might recognize him on a plaque at his favorite park. Charities vary on how they recognize these gifts. The recognition isn’t just for ego gratification; it encourages other people to give, too.

Luke doesn’t have to risk their retirement, and I’ve got a good idea for my estate chapter.

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Bridget Sullivan Mermel helps clients throughout the country with her comprehensive fee-only financial planning firm based in Chicago. She’s the author of the upcoming book More Money, More Meaning. Both a certified public accountant and a certified financial planner, she specializes in helping clients lower their tax burden with tax-smart investing.

MONEY Impact Investing

How to Change the World—and Make Some Money Too

Young adults flock to investments that promote social good. This was a hot topic at a big ideas festival over the weekend and is front and center with financial firms.

Social investing has come of age, driven by a new generation that is redefining the notion of acceptable returns. These new investors still want to make money, of course. But they are also insisting on measurable social good.

Millennials make up a big portion of this new breed, and their influence will only grow as they age and accumulate wealth. The total market for social investments is now around $500 billion and growing at 20% a year. As millennials’ earning power grows and they inherit $30 trillion over the next 30 years, investing for social good stands to attract trillions more.

So what began in the 1980s as a passive movement to avoid the stocks of companies that sell things like tobacco and firearms has broadened into what is known as impact investing, a proactive campaign to funnel money into green technologies and social endeavors that produce measurable good. Clean energy and climate change are popular issues. But so is, say, reducing the recidivist rate of lawbreakers leaving prison.

Impact investing was a hot topic this weekend at The Nantucket Project, an annual ideas festival that aims to change the world. Jackie VanderBrug, an analyst at U.S. Trust, noted that 79% of millennials would be willing to take higher risks with their portfolio if they knew it would drive positive social change. Based on data from Merrill Lynch, that compares to about half of boomers with a social investing screen and even fewer of the oldest generation. VanderBrug also noted that women of all ages, an increasing economic force, tend to favor these strategies.

Speaking at the conference, Randy Komisar, a partner at the venture capital powerhouse Kleiner Perkins Caufield Byers and author of The Monk and the Riddle, said, “This generation is the most different of any since the 1960s.” He believes millennials are chipping away at previous generations’ affinity for growth and profits at any cost. Young people embrace the idea that you work not just for money but also for experience, satisfaction and joy.

Komisar noted the rise of B corporations like Patagonia and Ben and Jerry’s. These are for-profit enterprises that number 1,115 in 35 countries and 121 industries. Since 2007, the nonprofit B Lab has been certifying the formal mission of companies like these to place environment, community and employees on equal footing with profits. There are many more uncertified “Benefit” corporations. Since 2010, 41 states have passed or begun working on legislation giving socially conscious Benefit corporations special standing. Legally, they are held to a higher standard of community good, but they have cover from certain types of shareholder lawsuits.

Both types of B corporations acknowledge that their social mission gives them an important advantage hiring young adults, who in surveys show they place especially high value on the chance to make a social impact through work. “If your company offers something that’s more purposeful than just a job, younger generations are going to choose that every time,” Blake Jones, chief executive of Namasté Solar, a Boulder, Colo., solar-technology installer and B Corp. told The Wall Street Journal.

Industries that do not address the wider concerns of millennials will increasingly become marginalized. The financial analyst Meredith Whitney, who rose to prominence calling the subprime mortgage disaster, told the gathering in Nantucket that financial services firms have been among the slowest to consider sustainability issues—“and that’s why I think they are in trouble.”

Yet banks may be starting to come along. Bank of America clients have about $8 billion invested along sustainability lines, the bank says. And its Merrill Lynch arm has been a leading explorer of “green” bonds, which raise money for specific causes and pay investors a rate of return based on whether the funded programs hit certain measures of achievement.

Late last year, Merrill raised $13.5 million for New York State and Social Finance for a program to help formerly incarcerated individuals adjust to life outside prison. How well the bonds perform depends on employment and recidivism rates and other measures taken over five and a half years. The firm is now looking into a similar bond issue to fund programs for returning war veterans.

For now, green bonds are aimed at institutional investors, especially those charitable foundations willing to risk losses in their effort to change the world. The J.P.Morgan 2014 Impact Investor Survey found that about half of institutions investing this way are okay with below-average returns.

Young people saving for retirement and faced with a crumbling pension system can’t really afford the tradeoff, at least not on a large scale. That’s partly why they want their job or company to have a higher purpose. But ultimately some version of green bonds, perhaps with a more certain return, will be open to individuals for the simple reason that four out of five young adults want it that way.

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