Estimated reading time: 2 minutes, 58 seconds

SRI Portfolios: For the Fringe or Worth Your Attention?

At first blush, it is easy to dismiss the merits of offering socially responsible portfolios. After all, limiting portfolios can potentially limit returns and individual clients may have different criteria for applying socially responsible screens, which can increase the need for advisors to customize their services.

Yet, offering socially responsible portfolios can be a powerful strategy for differentiating services from competitors. At the same time, offering socially responsible portfolios allows advisors to broaden the scope of their services and better court millennial investors, who are increasingly demonstrating a demand for the niche style of investing.

Socially responsible investing can be difficult to define as different investors have different views regarding which business activities are offensive. For example, some Christian investors may seek to screen out companies involved in abortion, tobacco, alcohol, and nuclear weapons. Other investors may put a stronger emphasis on avoiding investments in companies with poor environmental track records. Some investors may also seek to avoid companies that treat their employees poorly or have weak corporate governance policies.

In a similar manner, investors may not be content to simply screen out companies that aren’t socially responsible. These "impact investors" seek to invest in companies that are actively working to make positive social changes with products that may help the environment, for example, or with services that can benefit humanity.

Given the confusion defining the category, it can be difficult to assess the overall performance of SRI programs. Yet, SRI advocates say that the existence of responsible business policies can be an indicator of strong corporate management. They also maintain that responsible businesses are less like to run afoul of environmental and labor regulations.

Different studies, of course, have reached different conclusions on the impact of social screening on investment performance. In November, however, Harvard University professor Allen Ferrell and two colleagues at Tilburg University in the Netherlands received an industry award for their research that shows that good governance results in high levels of corporate responsibility, which can enhance returns.

Even with the confusion over defining the style of investing, offering socially responsible portfolios can be appealing for advisors seeking to grow their business by pursuing a rapidly expanding market segment. Overall assets in sustainable, socially responsible, and impact investments grew 76% from $3.74 trillion at the start of 2012 to $6.57 trillion at the start of 2014, according to the Forum for Sustainable and Responsible Investment. During that time, the number of mutual funds that conduct screens for environmental, social, and governance concerns grew from 333 to 456 and their collective assets increased from $641 billion to $1.93 trillion, a more than 200% increase.

Numerous broker-dealers, meanwhile, have expanded their SRI programs in response to growing demand from investors for the services. In September, Morgan Stanley Wealth Management announced that it had launched a set of sustainable portfolios consisting of separate accounts and mutual funds. UBS, Envestnet, and Merrill Lynch have also expanded their SRI offerings. 

Advisor seeking to offer SRI portfolios have many resources available. Most fund research organizations, including Morningstar, provide data on SRI funds, while custodians and broker-dealer home offices may also provide support for advisors seeking to work with the products. At the same time, a variety of industry organizations exist. In addition to the Forum for Sustainable and Responsible Investment, advisors may want to turn to the Social Funds website.

In addition to getting up to speed on the products, advisors should also tweak their marketing messages to convey that they can provide SRI portfolios. By doing so, advisors may be able to secure new clients who would have otherwise turned to other firms for SRI portfolios.

Read 6582 times
Rate this item
(0 votes)

Visit other PMG Sites:

PMG360 is committed to protecting the privacy of the personal data we collect from our subscribers/agents/customers/exhibitors and sponsors. On May 25th, the European's GDPR policy will be enforced. Nothing is changing about your current settings or how your information is processed, however, we have made a few changes. We have updated our Privacy Policy and Cookie Policy to make it easier for you to understand what information we collect, how and why we collect it.