Financial Advisor Interest Lags Client Enthusiasm In Socially Responsible Investing

 

Financial advisors can expect more inquiries from their clients about socially responsible investing now that Morningstar started its sustainability rating system of all mutual funds on environmental, social and governance (ESG) issues.

“As people start reading their quarterly reports, they will begin to see this other data point and many will be coming to their financial advisor, if they work with one, to ask what it’s about and what it means,” said Amy O’Brien, managing director and head of TIAA Global Asset Management’s Responsible Investment team.

In March, Morningstar introduced its new rating system to enable investors to evaluate mutual funds and exchange traded funds based on how well the companies held in their funds are managing their ESG risks and opportunities.

“There’s a growing number of retirement program participants looking for socially responsible investments and asking questions,” said Jill Popovich, who manages 200 financial advisors in the New York tri-state area as managing director of Individual Advisory Services with TIAA.

O’Brien and Popovich along with Stephen Liberatore, managing director and fixed income portfolio manager with TIAA Global Asset Management, were featured speakers during a press breakfast in May where results of a TIAA Global Asset Management survey were released at TIAA offices on Third Avenue in Manhattan.

“Too many investors still question how to define responsible investments,” O’Brien said. “And whether they can produce comparable returns to broad benchmarks and how advisors and investors can distinguish between what is and is not a responsible investment.”

Since socially responsible investing has gone more mainstream in recent years, there has been more investor attention to ESG performance.

“As this next generation of investors and others come to the advisors and are seeking information, they are moving beyond just thinking about it and want to put some of these strategies into action in their portfolios,” said O’Brien.

According to a TIAA Global Asset Management survey of investors and advisors that was released in May, millennials are leading the trend.

Some 69 percent are interested in ESG compared to only 19 percent of the rest of the investor population and 87 percent say they will stay with a financial advisor who is communicating with them about socially responsible investing.

“Millennials are getting into their 30s and more established in their careers and we are seeing more of them coming in with questions,” Popovich said. “Social criteria is really critical to them.”

Advisors however are not expressing the same level of client interest, according to the study.

Some 61 percent of clients indicated that their advisor had not brought up the topic of responsible investing in the past 12 months.

“As an industry, we need to do a better job of helping investors understand how these strategies work and what role they can play in a diversified portfolio,” said Popovich.

Along with tobacco and energy, among the issues millennials inquire about include the morning-after pill and pharmaceutical testing on animals.

“The most challenging part of socially responsible investing is that everybody’s criteria can be different,” Popovich said.

For example, TIAA does not invest its fund’s assets in JP Morgan Chase or Bank of America.

“Lending practices is the primary reasoning,” said Jim Campagna, managing director with TIAA Global Asset Management, who was also a speaker on the panel.

Now that the October 2015 Department of Labor ruling replaced some chilling guidance that was in place since 2008 with more positive language, access is expected to increase on the retirement plan level.

“The new DOL guidance was positive and the DOL went even further by saying that consideration of ESG factors may even be required for certain types of investments going forward because of this evolution, professionalization and maturation of the field.”

Juliette Fairley is a business and finance journalist who has written four personal finance books for John Wiley & Sons and has written for major news organizations, such as The New York Times and The Wall Street Journal. She is a member of the American Society of Journalists and the New York Financial Writers Association and a graduate of Columbia University's Graduate School of Journalism. Juliette can be reached at [email protected].

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