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Advisors Are Helping Clients Grow Greener
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
Sustainable 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 suspend, revise or rescind Trump-era rules requiring ERISA advisors to put fund performance above sustainability issues in client recommendations.
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.”
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
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.)
25
Quarterly Flows (U.S.)
20
15
Billions 10
5
0
Q2 18 Q3 18 Q4 18 Q1 19 Q2 19 Q3 19 Q4 19 Q1 20 Q2 20 Q3 20 Q4 20 Q1 21 Active Passive SOURCE: Morningstar
Clients Welcome The Ideas
Mackenzie “Mac” Richards, Certified Financial Planner with SK Wealth in Providence, R.I., said his firm has significant interest in ESG investing, and he finds clients welcome the ideas.
“If clients aren’t specifically asking for it, when we explain what it is and that it’s an option, they almost always select this,” Richards said, adding that performance is becoming less of an issue. “We have begun to see ESG-focused investments doing so well on our screens that we are incorporating them into non-ESG portfolios. This is an exciting time for investors because you don’t have to choose between feeling good about where your money is and great investment performance. We only expect this trend to continue and will continue to make ESG/socially responsible investing a priority at our firm.”
Amber Miller, Certified Financial Planner with The Planning Center in Minneapolis, said not many of her current clients are asking about ESG, but her prospects certainly are.
“About 10% of my clients are asking about values-based investing, and about 75% of new prospects are asking about it,” Miller said, adding that her clients are becoming intrigued. “As a fiduciary, I also ask my clients if they are interested in values-based investing and about 95% of them want to learn more and eventually switch investments into the ESG/values-based investing strategies.”
Miller added that she believes she would be failing her fiduciary duty if she did not bring up ESG investing.
“It is a strategy with its own pros and cons. It is not my role to decide for a client if they want to employ such a strategy,” Miller said. “Additionally, values-based investing can mean so many things — to some it can be lowering carbon emissions, to others it’s increasing the number of women or people of color on executive boards. It can also include religious filters for those who want to include or exclude particular industries or companies based on their faith. The client gets to decide what and by how much of any of these filters to include in their portfolio, including doing nothing.”
Speaking of filters, Arthur J.W. Ebersole, Certified Financial Planner with Ebersole Financial, Wellesley Hills, Mass., also said clients can add “screens” to their portfolios to ensure their funds align with their values.
“With advances in technology, investors are now able to customize portfolios in line with their goals and values in ways that were not possible in the past,” Ebersole said. “ESG information still remains difficult to interpret and many data providers and businesses have quite different definitions of ESG, but these
will hopefully be resolved through greater transparency as the market for ESG products continues to grow in the coming years and decades.”
Mitchell Kraus, Certified Financial Planner with Capital Intelligence Associates, Santa Monica, Calif., said clients are warming up to ESG investing as they become more concerned about their own impact.
“I have my CSRIC designation, so maybe that attracts clients who are interested in ESG,” Kraus said. “I make it a point to ask every new client about ESG investing and many are not interested, but I have found many are coming back to me now to find out more. While they did not want ESG funds in their initial portfolio, they are now curious about how they could increase returns, reduce risk or help make the world a better place.”
The Effect On Returns
Christopher Lyman, Certified Financial Planner with Allied Financial Advisors, Newtown, Pa., makes a point of talking about ESG to help clients recognize their impact.
“While it is still somewhat rare for clients to proactively ask us about it, I usually bring this option up with clients and I would say about 40% are all for it, 20% are not quite sure and 40% don’t rate it as important enough to act,” Lyman said. “I will also admit that I am a very big environmentalist, so I am making the effort to proactively bring this up with clients. I doubt many other advisors do the same.”
Although Lyman was not speaking about the current DOL specifically, he said in discussing clients’ array of options, he makes it clear that ESG investing can affect their returns.
“I do explain that you need to be OK with these funds having a return of 2% less a year than regular funds, which can easily amount to a difference in wealth of hundreds of thousands of dollars later in life,” Lyman said. “I also would discourage anyone who has a low probability of a successful retirement from investing in these funds because of the possibility to underperform.”
Lyman did add that ESG funds are not lagging so much anymore, with his financial analyst showing that the difference in returns is “very, very close at this point.”
Lyman sees his role as more than the dollars-and-cents guy as consumers consider their impact and how they can be the change they want to see.
“Nothing speaks louder to companies than the almighty dollar, and if 40% of the public made it clear that none of their money would go to a company that does not at least make an effort to live up to these higher standards, things would change very quickly,” Lyman said. “While capitalism is the best system we have for innovation, it does place innovation and profit above all else. So, it is up to us as investors and customers to make it known what we want and since profit will follow, so will these corporations’ actions.”
Steven A. Morelli is a contributing editor for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at stevenamorelli@gmail.com.
This One Thing Will Help You Live Longer
What one simple thing can you incorporate into your daily routine to live a longer life? Harvard University scientists and the American Heart Association said the answer is in your own two feet. Walking every day will lead to a longer and healthier life.
You’ve probably heard that you need to walk 10,000 steps every day, but scientists said at least 4,500 will yield benefits. They found that each initial increase of 1,000 daily steps was linked to a 28% decrease in death over a six-year period.
Women who walked more in short spurts tended to live longer, regardless of how often they went for long uninterrupted walks. Among women taking 2,000 uninterrupted steps daily, a 32% decrease in death was recorded.
TAKE A PICTURE!
Does this ever happen to you? You’re away from the house — maybe at work or even on vacation — and you wonder whether the stove is still on, or the garage door is closed, or if the thermostat is off.
You can obsess about this and imagine a dire situation like the house burning down. Or you can take a simple step to put your mind at ease — take out your phone and snap a photo before you leave the house.
Having a photo of the stove dials, or the curling iron unplugged, or the garage door down can ease your mind. This life hack
also works when your car is parked in
the airport parking lot and you’ll need to remember where it is when it’s time for the trip home.
TOP 3 HERBS FOR HEART HEALTH
Herbs can play an important supporting role in a heart-healthy diet. Certified nutritionist Anne Louise Gittleman listed her top three choices for cardiac health.
Garlic tops the list. The pungent herb
garlic has been shown to help prevent blood clots and is linked to lowering
cholesterol. Next up is cayenne, which is high in vitamin E and capsicum, a sub-
stance that boosts circulation.
Also on the list is an herb that isn’t usually found in the pantry – hawthorn. Hawthorn was first used in
the first century for treating cardiac diseases and for strengthening
the heart muscle. The herb is most easily consumed as a tea.
THE SURPRISING CAUSE OF HIGH CHOLESTEROL
A person with high cholesterol levels often has no signs or symptoms, which is why it
QUOTABLE
More research is indicating that any type of movement is better than remaining sedentary.
— Christopher Moore, University of North Carolina
is sometimes referred to as a silent danger. High cholesterol can be caused by a diet high in saturated fats, but there is one reason for high cholesterol that you might not have considered.
Hypothyroidism — or an underactive thyroid gland — means the body is not making sufficient thyroid hormones, and that can have a significant effect on cholesterol levels. Thyroid hormones help regulate LDL or "bad" cholesterol clearance from your blood. Too few thyroid hormones mean not enough cholesterol clearance, which can lead to an increase in your “bad” cholesterol levels. Also, too few thyroid hormones might cause greater intestinal cholesterol absorption, which can also lead to elevated cholesterol levels.
Data suggests that 1 in 300 people in the United States is living with hypothyroidism, and as many as 13 million
Americans have undiagnosed hypo-
thyroidism, according to the American Family Physician Foundation. Prevalence increases with age, and the condition is more common among females. To add to this, many doctors are not on the lookout for subclinical hypothyroidism.
DID YOU KNOW
? High blood pressure is the world’s leading killer. Source: European Heart Journal
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