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Practice Management

Here is how to catch up to clients who may be well versed in socially responsible investing.

This Practice Management article is intended for financial advisors only (registered representatives of broker/dealers or associated persons of Registered Investment Advisors).
 

Surveys repeatedly show that advisors risk being out of step, particularly with their millennial clients who want to know more about socially responsible or environmental, social, and governance (ESG) investing.

In a recent TIAA Global Asset Management survey, for example, some 36% of the advisors who participated said that they can’t adequately evaluate the performance of socially responsible investments.

At the same time, investors, particularly millennials and women, expressed a growing interest in adding socially responsible investments to their portfolios.

Recent studies by Morgan Stanley have shown that more than 70% of women, when asked, want socially responsible investments in their portfolios, and 85% of millennial survey respondents seek to achieve sustainability with their investments.

So, are advisors who concede that they don’t yet speak fluently the language of ESG criteria doomed? Not at all.

Plenty of avenues exist for advisors to bolster their knowledge, the vernacular, the abbreviations/acronyms, and the significant milestones of the ESG world.

“It is a tremendous opportunity to get ahead of the curve,” says Marlo Stil, an advisor and managing partner in the Rancho Mirage, California, office of Wealth Consulting Group, which is based in Las Vegas.

She focuses on helping other advisors and clients learn more about socially responsible investing.

Stil starts by helping advisors and clients understand that additional screening is another way of speaking about socially conscious investing.

“I don’t talk about social responsibility. I talk about the best ways to screen investments and putting possible investments through one more hoop,” Stil says.

One easy way for advisors to jumpstart such screening is to add Sustainalytics Sector Reports to their analysis when helping clients choose specific assets for their portfolios, or peruse the online investor tools of the Sustainability Accounting Standards Board.

Jackie VanderBrug, a senior vice president and investment strategist at U.S. Trust in the portfolio analytics, consulting and institutional group, Bank of America Private Wealth Management in Boston, who is responsible for developing the firm’s value-based investing strategy, ticks off the milestones that advisors should keep in mind to help clients understand how far ESG has moved into the mainstream.

In October 2015, the Department of Labor said that it would remove barriers to investments that promote the public good in its rules for retirement accounts.

Also last year, the United Nations Principles for Responsible Investment unveiled a three-year program to engage asset owners, asset managers, and policymakers across national and international jurisdictions to harmonize a global understanding of fiduciary duty that incorporates sustainability factors.

Then in January, Morningstar started scoring mutual funds based on ESG metrics.

“There is so much cynicism now,” Stil says. “People are hungry for some good news, something positive in their life. This gives us hope.”

—by Miriam Rozen

Miriam Rozen, a Financial Planning contributing writer, is a staff reporter at Texas Lawyer in Dallas.

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