Stephen Lewis | Future First Finance

Josh Hile: This is Josh Heil with AdvisorView Podcast. I’m the CIO and CEO of Citizen Mint. And today I have Steve Lewis of Future First Finance. And Steve, thank you so much for joining us. Maybe just to start out, you can give us your background and kind of your path into wealth management.

Stephen Lewis: Yeah, great question. Thank you for having me. Looking forward to this. I got into wealth Wealth Management about a year and a half ago. Been managing my own portfolio for roughly 20 years, focused on climate as part of the portfolio metrics, really since like back in the Al Gore days and Inconvenient Truth and thinking about this matters, what we invest in matters. And so I was talking to other people, trying to get them to kind of see things my way, thinking about how your portfolio has an impact outside of general financial metrics. A lot of people really thought it was an interesting presentation, but didn’t want to do the financial management I was doing and asked me to do it for them. I said, well, I can’t do that. I don’t have a license, et cetera.

Josh Hile: Yeah.

Stephen Lewis: Yeah. But then decided maybe I should do that. I really liked this stuff and I’m ready for a career change anyway. So that’s how I ended up here.

Josh Hile: Yeah. And so what was your career before, just so people understand kind of what that looked like?

Stephen Lewis: Mostly software consulting, project management. type stuff for software in the healthcare sphere.

Josh Hile: Yeah. So very different, but like, kind of like you managing those portfolios and trying to help others do that. And so how did you come up with the name for your firm? And maybe you can talk about like the demographics of maybe some of the people like, or of who is coming to you and wanting help.

Stephen Lewis: The name was 100% my wife.

Josh Hile: Okay.

Stephen Lewis: Came up with it, and I thought the alliteration was great. And also thinking about, you know, you’re investing for the future if you’re, you know, investing for your retirement or whatever, 10 or 15, 20 years out. It’s like thinking about what the future is going to look like in 20 years and investing for where trends are heading. And then also kind of the future that you want to retire in.

Josh Hile: Yeah. And how do you separate just thinking about like, your kind of impact focus, climate focus, how do you separate that from like ESG, or is it the same, or do you think about it differently?

Stephen Lewis: ESG really frustrates me. I think most people are frustrated by it, but also see it as a useful tool. There’s a couple of problems. One is that looping all these different concerns or problems all together into one overall metric and say, this company has a high ESG rating, this company has low rating. When you’re just mixing all this stuff together, one could be really good for social communities, one could be really good for climate impact and bad for social communities. How do you put one score to that? But people just want a very simple metric. And now it’s expanded where like everything was rated. This morning I was looking at a short-term government bond fund, basically Treasury bills with an ESG rating. I’m like, what does an ESG rating mean on government debt? That just doesn’t make any sense to me. So that’s part of the problem. And then also part of the problem is if you really want to have impact, you’ve got to look— this is kind of a key thesis of my firm, that if you want to have impact, you’ve got to look for where there’s capital needs and what is that investment driving. Are you investing in a growth company that’s trying to raise capital via debt or equity, public markets or private markets, all this type of stuff where your investment actually gets to that company and drives their their progress or their potential success forward? Or are you just swapping from some other investor in an already stable company that’s been paying back shareholders and dividends and sharebacks for decades that has no impact? And that’s so much of the ESG portfolio, right? Is that like, maybe it’s something that you can feel good about owning, but I’m not about feeling good. I’m about actually driving impact.

Josh Hile: Yeah.

Stephen Lewis: So, Becky, you’d asked previously what, what my clients are like, what’s my typical client.

Josh Hile: Yeah.

Stephen Lewis: Really, like any advisor, you have a huge range, right, from quite wealthy to, uh, to not as wealthy. Um, but all of them are obviously quite concerned about climate impact and see that I’m offering something that they haven’t heard from any other advisor.

Josh Hile: Yeah.

Stephen Lewis: And so then obviously depending on wealth, then I might propose a lot more private market stuff if that’s appropriate for them based on their timeline, all that stuff. But that’s really the only unifying thing is that is something when they come to me, get referred to me, hear about me, whatever, they are already quite concerned about climate and they’ve already drawn the connection between how you invest your money matters, how we invest for the future matters. And so they’re just looking for someone who has some more expertise in that.

Josh Hile: Yeah. And is there any specific geographic demographics of your clients? Like, are they near to you or are there any other defining features beyond climate? And maybe it’s not, maybe it’s just like they’re across the board, like from an age perspective, from a demographic or from a geography perspective. What does it look like there?

Stephen Lewis: They tilt older, near retirement, like kind of the average RIA. Yeah, but no, pretty geographic dispersed. Okay. Because again, I’m offering something like pretty niche. And so people who hear about that are interested.

Josh Hile: And how are they finding you? How does it, like, is it like, I would assume some level of referrals, but how are you also getting out there to understand that people should think about this or I’m the person to be helping you with this?

Stephen Lewis: My successful hit rate has been 100% word of mouth.

Josh Hile: Yeah.

Stephen Lewis: Word spreads through like climate activist communities, you know, people that are involved in Third Act or Sierra Club or all these types of clubs that are trying to lobby for climate stuff. Been trying to branch out of that, get in front of more people, because my kind of driving ethos too is that I want more people to think like me and invest like me, have my perspective, whether or not you’re paying me to manage your funds or not.

Josh Hile: Yeah.

Stephen Lewis: If I can give you some pointers and invest your own, you know, the DIYers that want to do that, I would be happy to give some free advice to people and say, you know, here’s what you could do if you want to have real impact. I’ve said for a long time, rather than putting all your money in some like Green Century Fund or Carbon Collective or all these different, you know, fund managers that are focused on that, that I think are mostly irrelevant from an impact perspective.

Josh Hile: Yeah.

Stephen Lewis: perspective, that put 5% of your portfolio in a few companies that are maybe growth stage or sustainable infrastructure type companies who have a need for access to capital markets, put 5% in that and you will have far more impact than 100% of your portfolio going in some Green Century Fund that’s mostly US large-cap tech.

Josh Hile: Yeah.

Stephen Lewis: Just for example. And then of course I have clients who want 50% of their portfolio in that and can withstand a high level of risk. And so then we can accommodate that too. But for just the average person, start at 5%, you’re already doing more than almost anyone out there.

Josh Hile: Yeah. And how does that— so I mean, it really feels like a bespoke model of what you’re trying to do for your clients. So how do you build those kind of customized portfolios? What does that actually look like? Does that involve more direct indexing kind of opportunities? like excluding certain companies? Like, how do you do that from like an actual like implementation perspective for the clients?

Stephen Lewis: So again, there’s huge variations on this, but the basic model, especially for like a smaller, simpler portfolio, is start with a basis of diversified index-like funds. I’m a big fan of Avantis and Dimensional Fund Advisors. ‘Cause they have funds that are very low fee, very low turnover, tax efficient, et cetera, and index-like. So they aren’t tied to adding huge new IPOs right on IPO date, for example, just to throw out one recently relevant point.

Josh Hile: Yeah.

Stephen Lewis: But they have sustainable funds. Dimensional underweights fossil fuels pretty significantly, meaning they have less than the benchmark. But then they look at carbon emissions across industries. And so they have much lower, something like 80% on average, lower emissions per dollar of revenue compared to a standard index fund. Because they focus on industrials, utilities, and kind of those high-emitting industries more than just the fossil fuels, which I think is, from that perspective, is probably more important. Avantis is fossil fuel-free, but otherwise a very similar strategy. So that’s going to build the basis of your equity exposure. And then on the debt side, I mostly want to be right now in short-term treasuries or short-term investment grade. I don’t want to take any duration risk with, I think, where the sort of debt metrics are heading.

Josh Hile: Yeah.

Stephen Lewis: And secondly too, is that’s partly to balance out a lot of my sustainable investments are infrastructure-like, which is kind of like a long-duration bond in many respects. So that’s why I would underweight normal long-term bond exposure because the infrastructure balances that out.

Josh Hile: Yeah.

Stephen Lewis: Yeah.

Josh Hile: And then just thinking about that from a client perspective, how do you think about the private market side of a client’s portfolio from an asset allocation sizing perspective? And how do you differentiate that across clients and maybe just your thought processes there?

Stephen Lewis: I approach private markets first and foremost as it’s probably the best place for real impact because cost of capital is even more relevant there and like access, can they get their offering fully subscribed, et cetera, that really matters.

Josh Hile: Yeah.

Stephen Lewis: And they’re smaller, et cetera. So that is for the clients who can take higher overall risk in their portfolio and really wanna lean into impact. private markets have to be in.

Josh Hile: Yep.

Stephen Lewis: So that’s my basis for analysis rather than thinking, oh, every client above $1 million should have 20% in private assets, or half in private equity and half in private credit, et cetera. It’s more thinking like, these are for people who want to drive impact, have a higher risk potential, longer timeframe, et cetera. And then what makes sense from that perspective and what is What is really effective impact? So then I’m less worried at having like a perfectly balanced portfolio because they can accept higher risk and want to put climate first, et cetera.

Josh Hile: Yeah. And what percentage of a portfolio would that look like for some of your clients?

Stephen Lewis: The highest percent of portfolio is probably only, right now is probably only 25%. Yeah. And I would be comfortable with going higher than that for some clients if there were enough good opportunities. Yeah. And maybe I could see conceivably up to like 50% in some situations. But generally for, I mean, you know, the average person, obviously if they’re not an accredited investor, then it’s irrelevant, right? If they are, then I, you know, say they have a million portfolio, like right at the cutoff line, even then, I don’t know, maybe 10%, but that’s kind of stretching it depending on what private method you’re talking about. So it’s just, there’s no one guideline that you can say, oh, privates should always be 20%. I’m not in that boat.

Josh Hile: So yeah, yeah, I 100% agree. It just depends on the specific client situation is really what it comes down to. And then what about just how you try and balance impact versus risk-adjusted returns over time. And like, how do your clients think about that? Like, do they want to be concessionary? Do they not want to be concessionary? How do you think about it as a fiduciary for your clients?

Stephen Lewis: That is the hardest question to answer. Because part of it is like even knowing if you’re concessionary, you know, I mean, the market purists, market fundamentalists, you know, of which Dimensional and Avantis are going to be kind of market fundamentalists. They say you can’t have impact unless you’re concessionary. By definition, that’s the only way you can have impact, because otherwise market efficiency will just drive it to whatever. So if you actually want to push impact forward, you have to accept concessionary returns. I’m not a market purist to that extreme, thinking that, oh yeah, markets are just always perfectly efficient. I think about too, on some of my riskier stuff, what’s helped me stay invested during heightened volatility periods, when things are crashing during COVID or whatever, is thinking, no, you know what? All these things that are very interest rate sensitive and are bombing, I bought them for impact, not because I was looking for a return over next year. And that helped me stay the course. And those obviously rebounded quite quickly and did well. So I think that’s one perspective because obviously staying the course is one of the most important things for investors when volatility spikes. So whether to take concessionary returns, I talk about some of my picks within the public market is I think I’m always shooting for at least a market return, but expect that there will be higher volatility and maybe higher risk, which is— Risk adjusted, maybe a potentially lower return, but that adjustment is mostly on the risk side.

Josh Hile: Especially when you’re looking for more like green tech companies or something that’s gonna like be more volatile over time based on their technology and like how the market perceives them.

Stephen Lewis: Yes. And, and just, you know, by the very nature, what I, what I preach is, you know, companies that need to raise some sort of growth capital or some sort of financing, they’re super interest rate sensitive, interest rate and overall liquidity environment sensitive, right? Um, and so many of them got hammered in ’22, ’23 when interest rates went from, you know, mostly zero to to 5%, that was horrible for them.

Josh Hile: Yeah.

Stephen Lewis: But like the very simple model that I explained to clients is, you know, when you’re financing solar and wind farms, there’s publicly traded vehicles for this and a lot of private infrastructure funds too that do similar stuff. You know, they need to raise $100 million for a solar farm and they get $60 million of bank debt, something like that, need to raise $40 million from markets. And Maybe they’ll issue some notes and some equity, but then they’re going to use all that, basically all the cash flow off that contracted farm. Maybe they’ll get $10 million a year in cash flow off a $100 million investment, and they’re going to pay out $9 million back to investors in dividends, distributions, whatever. That doesn’t leave any money over to buy the next solar farm. So then when they need to go out and do that again, they’re raising more equity. And There’s a lot of people in the market say you don’t want to buy companies that are always needing to issue shares. You want to buy companies that are buying shares back from you.

Josh Hile: Yeah.

Stephen Lewis: But that’s the model, business model. And maybe it looks riskier. It’s more volatile, right? Because then they have to issue shares at whatever the current share price is. But that long-term, it’s infrastructure, right? It’s a 30-year contracted asset that’s inflation protected. et cetera, et cetera. So yeah, that’s how you’re having that impact.

Josh Hile: Yeah. And then what about, do you, uh, do a lot of your clients have previous financial advisors or is it, are you their kind of first financial advisor?

Stephen Lewis: Um, almost all of them are coming from previous advisors. Uh, and some of them, you know, the ones sometimes, like if they’ve just met me through a referral, you know, yeah. Then they want to trial me and say, you know, I’m gonna stick to my other advisor, but he doesn’t really know anything about climate or tells me I shouldn’t do it or whatever, and I don’t buy it. I’m curious to see what you can do. And so then they use me and the other person for a period. That happens frequently too. But yeah, almost all of them come from other advisors. Yeah.

Josh Hile: And then that’s what I was curious about is like if you’re essentially like reweighting their portfolio and like that’s essentially happening because of this impact orientation that they want within their portfolio and essentially your views on like where the market’s going. And like, I, what I, what I think is really interesting, like from an impact perspective, we’re gonna say that is you’re really trying to solve some of the biggest issues in front of us, like whether it’s around energy transition or around like even like beyond like climate. Which this also goes into social and like the band of the whole world where most of the people are gonna be affected by extreme temperatures, and that’s most of the world’s population. But just the— I don’t think it needs to be concessionary to that point, like to your point earlier, like I think there actually is just a big opportunity in front of us. And that’s why we get excited about like those kind of infrastructure-focused opportunities, whether it’s within solar and interconnection or other places where we think like they’re just real, like additional to the grid where you’re getting positive risk-adjusted returns for clients.

Stephen Lewis: So. Yeah. Yep, I agree.

Josh Hile: What do you think from just thinking about, you know, your work, What do you think people should rethink about sustainable climate-focused investing? Is there anything else they should be thinking about when they’re going after this particular area of the market?

Stephen Lewis: I mean, the primary point is the one I sort of got into already is what impact does your investment have? And that’s my problem with the divestment movement of getting out of fossil fuels. Number one, fossil fuels are 2.5%, 3% of the index, like that’s not really changing your portfolio much. And that’s what the divestment campaign keeps going back to is like, you don’t have to give up your returns because it barely changes. But it also has no impact. Exxon and Chevron are going to be just fine whether you buy their shares or not. You know, that has no impact.

Josh Hile: Yeah.

Stephen Lewis: But a little bit into smaller companies, again, if you’re keeping it very small, it’s not going to change the overall like risk profile or return profile of your overall portfolio much.

Josh Hile: Yeah.

Stephen Lewis: So that’s what people need to be thinking about. And I really wish there was some fund that would like at least consider this or take it under consideration. And there’s nothing—

Josh Hile: You’re saying like a mutual fund or what?

Stephen Lewis: Yeah, ETF, something like that. Like a broadly diversified fund, you know, it’s even like, I don’t want to bash on like any specific fund manager, but there are some that even have names like, you know, climate solutions and things like that. I’m like, great. But you look in that and the the top holdings are GE Vernova, that’s a gas turbine manufacturer, or Waste Management, that’s basically a tip fee collector, a trash collector. And sure, they have a recycling business, but they’re not really a reusable materials business. They are driving around trash trucks and picking up your trash. That’s what their business is. But again, one fund manager, I talked to one of them saying, why is GE Vernova your number one holding when they basically make gas turbines. And like, well, more than 50% of the revenue comes from electrification because it’s also like wind turbine management.

Josh Hile: Yeah.

Stephen Lewis: And they make transformers, a lot of the like GE’s grid products. Like, well, it’s interesting that you’re okay with the 50% revenue cutoff because you tell me I shouldn’t invest in S&P 500 because it’s 3% oil and gas. So on a diversified fund, 3% oil and gas, nope, that’s too much. You should get out of that. But then on this impact fund, if they’re almost 50% gas turbines, that’s okay. But that goes back to my whole problem with the just ESG screens on portfolio funds, things like that.

Josh Hile: Yeah. So here’s a broader question for you now that you’re coming kind of from an outsider view and you’re kind of seeing what wealth management is, but like, where do you see wealth management heading over the next 3 to 5 years, especially with the implementation of like AI in a more general sense and how that will impact kind of like either your work or the— or how people get financial advice?

Stephen Lewis: I, I, I don’t think there’s going to be a massive change in the— in like the breakdown of the population that wants to be a DIYer versus wants, you know, to pay for advice, et cetera. I think that will probably stay steady because that’s more about people’s sort of comfort level, you know, with things like that. So I hope that AI brings down fees and sort of levels the playing field to some extent.

Josh Hile: Yeah.

Stephen Lewis: There’s some advisors that I think charge fees that are way too high. But so in 3 to 5 years, I, I don’t know. I don’t see a massive change other than sort of making firms more efficient in what they do, but it’s not gonna upend the whole industry in one way or another, I don’t think. Yeah.

Josh Hile: Yeah. Anything else you see from wealth management? Like, and here’s one, I’ll lead it a little bit with, like, I think there is this, like, which you’re essentially doing, this trend towards personalization of the individual investor and like their financial goals. Whereas previously it was like, okay, we’re just gonna put you in a 60/40 portfolio and like, talk a few times a year and call it good. Whereas more it’s like, okay, well, it’s around the estate planning, tax planning, like your specific values and where you want to be from a values perspective of your portfolio. Anything else like related to that and like what you see like for your clients?

Stephen Lewis: From an AI impact perspective, you mean?

Josh Hile: More just from like a wealth management perspective. It doesn’t have to be AI related.

Stephen Lewis: I mean, those trends you talked about, like you said, have been underway for at least a decade and will just continue becoming more that way. I think people should expect more out of their advisor for that 1%. Like you said, putting you in a robo fund, basically 60/40, and then charging 1%, I don’t know. Is that justified? Yes.

Josh Hile: What about, do you think that there will be an increase in like values, climate-focused clients in the future? And this goes to kind of like wealth transition, younger investors being more worried about climate potentially. That’s, there’s some statistics around that, but just curious what you see.

Stephen Lewis: I certainly hope so. I’ve seen a lot of data that points that way. Not all of it’s conclusive, but certainly, you know, that the baby boomer generation was like, just make me money, I don’t care. it’s burning down the world, you know. Um, but yeah, so I think it’s, I think it’s trending that way. I don’t think it’s going to be like a tsunami coming, but yes, I think there will be pressure just pushing it more and more that direction where people think about values and what they want to be investing in. Um, the one hesitation I have about that though is that just brings on sort of greenwashing, you know.

Josh Hile: Yeah.

Stephen Lewis: Like lots of different levels, because then all of a sudden everybody wants to be a values-based advisor when like, what does that even mean? What are your values? People have lots of different values, lots of things they value in different situations, and to put it all in your financial portfolio, I mean, it’s another thing I explain when I explain to clients why I’m so focused on climate. I say it’s a couple reasons. Number one, climate is the biggest long-term problem that affects everyone. It’s one of the only ones I see not generally trending in the right direction. A lot of other gender equity issues, racial equity, we go backwards sometimes, but we are making slow progress in the right direction. Whereas climate, we’re still increasing emissions every single year, number one. And number two, there are companies who their business model is focused on solving that problem. There’s no company focused on solving gender equity problems.

Josh Hile: Yeah.

Stephen Lewis: Oh, I, you know, want to invest in gender equity, then you get some fund like, well, all of these companies have at least 40% board representation from women. Like, okay, is that really like investing in gender equity? I don’t know. But then when you talk about investing your values, I’m like, yeah, but what values? And you can’t apply like everything you feel about the world on your financial portfolio. Like, that doesn’t, that doesn’t make sense to me. So. Yeah.

Josh Hile: Yeah. And then just one thing to close us out. So then this is a question I ask everybody, but like, what’s one thing that people don’t know about you or a hobby that you enjoy?

Stephen Lewis: I asked my wife this question ’cause again, she’s my sounding board for a lot of stuff. She came up with the firm name and she said, How about the fact that whenever we travel abroad, you always like to ask the taxi drivers about their politics or what they think about the political situation? And often have interesting conversations. Sometimes it’s a taxi driver or a tour bus driver or whatever. And, you know, the bad part about being in like developing countries is in India or in— sorry, in Argentina, our tour guide one day was a lawyer. And our tour guide in Costa Rica this past winter had a master’s in like political science. So you can sometimes get really, really good, educated, informed answers from these people. And it’s kind of an ear to the ground that I always appreciate. When I was, when I was living in Kenya in 2007, I was reading an article in The Economist about how the upcoming election in Kenya was going to be like a beacon for Africa. Democracy was really, really taking hold in a lot of these countries that have been rocky for decades. And no one I knew on the ground there was optimistic about the upcoming election. They were all terrified. And it ended up being very violent and like so violent that the US government had to come in and with private planes to evacuate all the citizens from Western Kenya.

Josh Hile: Yeah.

Stephen Lewis: And I’m like, come on, economists, are you like doing your research? And that’s kind of my approach. I like to have an ear to the ground on stuff, investments or otherwise, just get the local take. What doesn’t make it into media?

Josh Hile: Yeah. Yeah. No, I love that. Yeah. And it’s definitely getting that local flair is definitely a totally different thing from what you might see in the media. So, well, thank you so much for the time. Really appreciate it. really appreciate just all your thoughts around climate and climate impact. And we appreciate kind of the work you’re doing for those clients.

Stephen Lewis: I appreciate what you guys are doing too. You have offerings that are hard to find elsewhere.