Advisors Are Helping Clients Grow Greener
S
ustainable investing is showing more green shoots this year as advisors help grow the segment by exposing clients to the option. Although advisors say clients and prospects do not ordinarily ask about socially responsible investing, more advisors are telling clients they can put their money where their values are. A recent Morningstar report showed another record spike in environmental, social and governance fund inflows in the first quarter. “In the first three months of 2021, the U.S. sustainable fund landscape saw nearly $21.5 billion in net inflows,” according to Morningstar’s Alyssa Stankiewicz. “That’s more than the previous record for a quarter, $20.5 billion, set in the fourth quarter of 2020, and more than double the $10.4 billion seen one year ago in the first quarter of 2020. It was also about five times greater than first-quarter flows in 2019.” Asset managers added 11 funds with sustainability mandates in the first quarter, Morningstar reported. Of those, 10 were equity funds and eight were exchange-traded funds. Most of the new sustainable funds available in the U.S. are actively managed offerings. Besides the rising inflows, ESG is making news because in May, the Biden administration issued a wide-ranging executive order for multiple departments to focus on the “intensifying impacts of climate change that present physical risk to assets, publicly traded securities, private investments and companies.” Part of that vast order is for the Department of Labor to consider issuing a new rule by September that would 42
InsuranceNewsNet Magazine » July 2021
suspend, revise or rescind Trump-era rules requiring ERISA advisors to put fund performance above sustainability issues in client recommendations.
David N. Bizé, Certified Financial Planner with First Allied in Dallas, said the wall between financial advice and ESG is a good idea. Advisors are putting
Quarterly Flows (U.S.) 25
20
15 Billions
Planners and advisors say not many clients are asking about ESG investing, but clients are becoming interested the more they learn about them. • By Steven A. Morelli
10
5
0 Q2 18
Q3 18
Q4 18
Q1 19
Q2 19
Q3 19
Active
The DOL said in March that it would not enforce the ESG rule, but at least one law firm is warning fiduciaries to be cautious. Patrick S. Menasco and Bibek Pandey of Goodwin Law said that the DOL’s light touch does not extend to litigation. “While the nonenforcement policy offers real, welcome relief for investment fiduciaries (and, by extension, fund sponsors and others that provide those fiduciaries with investment products incorporating ESG strategies or considerations), it does not extend to private litigation risk,” the pair wrote. “Until the DOL formally changes the amended rule, it will remain the law and will govern fiduciary investment decisions under ERISA. As a practical matter, private litigation risk involving the amended rule will likely fall mostly on fiduciaries responsible for selecting investment options under participant-directed individual account plans.”
Q4 19 Passive
Q1 20
Q2 20 Q3 20 Q4 20 Q1 21 SOURCE: Morningstar
their own ideals first when they bring up ESG investing, he said. “For the baby boomer generation, ESG is a concept that is sold by the financial advisor, not bought by the customer,” Bizé said. “In 20-plus years, only one person out of more than 200 has ever asked me about ESG [or similar predecessors].” Bizé went on to distinguish advising from what he said were essentially consumer preferences. “ESG supports a moral/ethical/philosophical ‘cause’ similar to not purchasing products from a specific company because you don’t agree with the company’s processes, practices or policies,” he said. Other advisors did say clients and prospects don’t necessarily bring up ESG, although more are, but have no problem with making clients aware of these options. (Please note that in discussing clients and funds, the advisors in this article were not necessarily speaking specifically about ERISA-qualified funds.)
