ESG platforms now target RIAs
Pensions, endowments, foundations and other institutions have mainly driven the huge growth in ESG investing, according to the US SIF Foundation. Now independents have gotten in on the action.
Advisor tech firms are increasingly launching products targeting RIAs — giving smaller advisors a way to cash in on the growing trend.
The Toronto-based Act Analytics is the latest to join the increasingly crowded ESG space. Using data from leading financial data providers — like Refinitiv and Lipper — advisors can compare 20,000 publicly traded equities and 10,000 ETFs and mutual funds on value-based investing metrics, according to the firm.
“We're not here to tell people right from wrong,” says Mike Unwin, Act Analytics co-founder and CEO. “We want to let [advisors] look at individual companies and portfolios and funds in a manner that's relevant to them and to their investors.”
The platform screens stocks and index funds based on ESG criteria of the underlying companies, such as emissions, gender equality and corporate responsibility, according to a release. Advisors can then use the information to build custom, values-based portfolios for clients.
Firms, including Betterment for Advisors and First Affirmative, have also launched tools to help advisors screen companies. A handful of large broker-dealers and wirehouses have their own sustainable options, as well. Morgan Stanley’s Investing With Impact, for example, is an advisor-facing tool that generates sustainability and impact reports for wirehouse clients.
"I used to think about sustainable investing as a strategy for people to exclude stocks of companies that they don’t find fits within their values system," says Wally Okby, a senior analyst at the Boston-based consultancy firm Aite Group. "It’s evolved so quickly over the past couple of years it’s so much more than exclusionary — it’s including stocks, bonds and securities that make an impact."
Of the estimated $12 trillion ESG investments in the U.S. as of year-end of 2018, some $3 trillion of those assets are managed directly by wealth managers, according to an Aite Group report. That’s 6% to 7% of all investment assets under professional management, according to the report.
"Advisors need analytics to grow their business," Okby says. "Without them they’re operating at a disadvantage — especially the smaller scale ones."
Skeptics remain, however. Some detractors believe inflows are inflated because ESG funds are often miscategortized, according to Aite. Because of its growing popularity, investment managers may add the ESG description to funds to make them more appealing to the public, Okby says.
"In order for [ESG ETFs] to really take hold and stick, you need to have standardization," Okby says.
For Unwin, socially conscious investing remains a largely untapped opportunity. “People are still really acute — they're myopic and unable to see that incorporating these things is beneficial to the shareholder and the company,” Unwin says.
ESG is still perceived as “nascent and risky” within the wealth management industry, according to the Aite report.
Moving forward, ESG will continue to grow as millennial investors come of age, according to the report. The demographic has clear expectations about how they wish to engage with wealth managers around socially responsible investing, and until recently, haven’t had adequate products hit the market to meet the demand.
“This'll be a leap for some [advisors],” Unwin says, “and old hat for others.”