'Financial advisors are 100% talking to the wrong people': next gen investor Fernando Scodro
How does a 20-something newcomer to finance shift his family's entire investment strategy? Heated arguments may be inevitable, but investing 100% for impact shouldn't be a big deal, says Grupo Baobá's Fernando Scodro. Now, he says, advisors need to catch up.
The coming decades will see trillions of dollars of family wealth inherited by or transferred to the next generation. Often, these younger family members want their money to do more than just generate further wealth – but convincing older relatives to rethink their entire investment strategy isn’t always straightforward.
Fernando Scodro is among those finding ways to translate – in his case, literally – impact investing concepts into a language that the older generation can understand.
Now in his early 30s, Scodro tells us what sparked him to get involved with his family office, Grupo Baobá, what he’s learned, and where he thinks the so-called 'next gen' can play a key role.
A third-generation member of the Brazilian family behind confectionary business Grupo Mabel, Scodro is now on the board of the The ImPact, which helps families to be more effective in impact investing, and a fellow at the Center of Sustainable Finance and Private Wealth at the University of Zurich.
Pioneers Post interviewed Scodro from his home in Singapore, as part of the recent Fi21 Impact Investing Forum, hosted by Social Nest Foundation. Catch up on the highlights below.
Pioneers Post: Your family are quite recent converts to impact investing, and you've had a big part to play in that. Can you tell us how that happened?
Fernando Scodro: So we were ‘converted’ to impact investing. It's such a funny way of saying it, but I guess it's one of those things: you have to convert into it. When you become investors, and not just business operators, there's a funny thing that happens. You suddenly only care about total return of your portfolio... and you suddenly forget every other piece of value that you used to have in your company.
[Six years ago] I took a course at Harvard University, which today is given in conjunction with the University of Zurich, and the course is called ‘Impact Investing for the Next Generation’. And at that course I ‘saw the light’, let’s put it that way, let's keep with the metaphor. And we learned that there is a way to reflect the family values into the portfolio. So we operated our business with values, but now we can also do our investing with these same values.
PP: So you took that course in your late 20s, then brought the idea to your family and said, ‘we've got to do this’. How did they react?
FS: At first, they were very confused. Because it was a new concept for us, it's still a very new concept. One of the first things that I noticed was that they weren't really familiar with the language. I worked from Brazil, I took the course in English; there's a lot of things that don't necessarily translate. So the first thing I did was to translate the course into Portuguese, because that made it a lot easier for them to understand what impact investing was and what I wanted to do with the portfolio. I think that was a good first step, to get everybody [to] the same level of knowledge.
There were heated arguments... there's always friction to a new idea
PP: You've previously been quoted as saying that this process took a while, and as 'hot-blooded' Brazilians there was a lot of screaming... Is that still how you remember that phase?
FS: So, more heated arguments... heated arguments because there's always that level of friction to a new idea, right? And I think that when I stopped and understood what was required of me, [it] was not that they were questioning my decision. They just wanted me to have more basis on which to bring this idea. So I became a member of The ImPact, I learned with other families. I also had to do a lot of homework... Because there's a lot of things I didn't know – I also didn't know what was not possible, I had to find out. I don't have a finance background, so it was important for me to learn the possibilities and barriers of what I wanted to do.
PP: And what is the goal now at the family office?
FS: Our goal is to have everything that we own, somehow embedded with some values that we share as a family. We have selected five topics that we want to see reflected in the family office: access to healthcare, access to education, climate change, gender equality and better food. So all of the investments would have to be aligned to one of these topics – within the limitations of the asset class, within the limitations of the financial performance of that asset class. Because it's not a charity, we're running a business. But I hope that everything we have is aligned with those topics.
PP: Some family offices or investors make a big thing about going 100% for impact. Are you on the way towards that?
FS: That's the ultimate goal. I don't like to make a big deal out of it, because it's possible. It's not difficult. Different places in the world have different availability – if you're European-based or American, there's a wider product range. You have more advisors to help do that. In Brazil where our investments are, and here in Singapore, the range of products is more limited. But that doesn't mean that it can't be done, with the same level of financial return, if not better. So I want to have 100%, but I don't think that I should be lauded for it, because it's fairly easy these days to do it.
100% impact is the ultimate goal. I don't like to make a big deal out of it, because it's possible. It's not difficult
PP: When it comes to making changes, presumably there are financial advisors who have had to change their approach as well. How were those conversations for you?
FS: That was also a steep learning curve for me. We work with in-house and external advisers... I had to understand what drove them, what were their KPIs or motivations. The moment you understand those you can figure out a way to align those with what you want to do. If you don't manage to get them on board, it can be very difficult.
Six years ago when I first brought these concepts back to Brazil, they were very confused. And we went back to the University of Zurich to say, the same way that you are training next gens on impact investing, you should also train advisors. Because the moment that advisors and clients speak the same language, that's when something can happen... You need to start on the same basis of knowledge.
PP: Do you feel that as an impact investor, you have a role to influence things? And does that sometimes get a little bit tricky, or feel a little bit uncomfortable, to be stepping in as a wealthy family and influencing the way things go?
FS: It's always uncomfortable, but at the same time it's our capital. Ultimately, whatever decision that capital makes will reflect on us. If I don't make sure that I can stand by those investments, that's even more uncomfortable. I'd rather go to my advisor and say 'use that money to vote according to my beliefs' rather than find out later that I bought stocks in a company that encourages natural disasters or things like that. I think that’s more uncomfortable than asking.
PP: So it's choose your discomfort, and that's the discomfort you choose...
FS: Yeah, exactly.
PP: There's quite a lot of excitement about the next gen inheriting a lot of wealth and deciding to do something different with it. Do you think that's a bit overhyped? Or will they make a massive change?
FS: I think that's going to be a massive change. But it’s one of those slow-moving tides, because a generational shift doesn't happen overnight – it happens over eight years or 10 years. In my role with the University of Zurich and training these advisors, I usually ask them, think of your client book. How many of your current clients' children have you spoken to? And maybe 1% or 2% have talked to the children. And the children are 30, 35, so they’re not kids.
Back in the day when I started this, a lot of them said ‘oh, but none of my clients care about it’. You’re talking to the wrong people, you’re 100% talking to the wrong people. And if you want to keep those future clients, you better get your act together now. Because once they sit in the chair in front of you then they will start asking questions about what you are doing for them.
I've learned that I need to be patient... and that if I want to get something done, I also need to get credibility
PP: So what would your advice be to someone heading up a family office who is curious about impact investment, but a bit wary of handing over control to the younger generation?
FS: Tell them to talk to my Dad! Joking aside, I think that there's merit in listening to what this generation is trying to say. But I myself have learned that I need to be patient about what I want to accomplish, and when I want to accomplish it. And also, to be aware that if I want to get something done, I also need to get the credibility... once the next gen has that, acknowledge it and give them a bit of space.
PP: Are there other things that you've learned from the older generations that we need to make sure we bring into the new way of doing things?
RS: This is something that is important, because I also need to be cognisant of their accomplishments, and to be cognisant that they sacrificed a lot to get to where they are. But I also want to have a say in this. There’s an energy that comes with the younger generation... somebody who’s a chairman of something wants to be around that vigour of the younger generation. So it's a good way to strike a balance. And again because all of the topics revolve around family values, it's a constructive conversation instead of being destructive. How can we share all values in this – so it becomes a joint effort, rather than an opposing endeavour.
Interview edited for length and clarity. Watch the full conversation with Fernando Scodro.
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