Some advisors wade, others jump, into ESG

Assets and interest are growing, but education gap persists as holdouts cite concerns

Some advisors wade, others jump, into ESG

While the appeal of responsible investing has been growing clearer, it will still take a while for people to fully embrace the ESG movement as advisors continue to show signs of hesitation.

“As more financial advisers around the country consider whether to discuss more ESG investing with their clients, they do have some concerns,” reported the Wall Street Journal.

One such advisor is Mike Windle of Michigan-based Custom Wealth Solutions, who told the Journal that he believes sustainable investing will be familiar to many more wealth managers in the coming years. He began offering a portfolio of socially responsible and environmentally friendly ETFs in February; the same month, he gave his first presentation to clients on sustainable investing.

Windle reported that most clients were less concerned with the “moral standings” of their investments than with high fees and decreased financial returns. Citing research from global intelligence firm ETFGI, the Journal said that U.S.-listed ESG ETFs had an average asset-weighted expense ratio of 0.31%, compared to 0.21% for their non-ESG peers.

He also had misgivings about the performance records of sustainable funds, particularly the majority that launched in just the past five years. “If you average 2% or 3% or 4% less a year for the next 20 years, that’s make or break,” he said, emphasizing the need to satisfy clients’ retirement-planning needs.

Like many other non-believers, Windle expressed doubts over whether sustainable funds delivered the social impact they promise investors. The “highly competitive” corporate world, he argued, would push likely push fund companies to offer funds whose underlying holdings don’t align perfectly with unitholders’ values.

Despite that, other firms and advisors are rushing in. Kaplan Inc.’s College for Financial Planning and US SIF developed the chartered socially responsible investing counselor (CSRIC) designation and introduced it in the U.S. in late 2018. Bank of America, which first provided its advisors with ESG training in 2015, introduced them to the CSRIC training course last year; as of September, a reported 63% of them were incorporating sustainable and impact investing in their practice.

Deutsche Bank is making similar moves in its wealth management arm. Aside from including more sustainable investments in its shelf of recommended funds, it’s putting its advisors through a basic online ESG course, with a certification for more-advanced topics — a necessary credential for clients who need reassurance through conversations on green investing.

“The main reason to have these conversations with clients is honestly that clients who are not informed or educated will get left behind,” said Lavanya Chari, head of global products and solutions at Deutsche Bank Wealth Management. “I genuinely believe that clients who do not jump on the bandwagon in the next five years will actually suffer in terms of financial returns.”

According to figures from Morningstar, 30% of large-cap sustainable funds in the U.S. outdid the S&P 500 last year, compared to 22% for large-cap funds in general.