Recent Fiduciary Development
It’s only been since late 2015 that the Department of Labor granted permission for fiduciaries to use ESG factors when making investment decisions. MSCI’s Kuh said not only did the DoL grant permission, but if the ESG factors are material, there’s a fiduciary duty to take account of them.
Joey Fishman, investment advisor representative and unofficial director of ESG at Ritholtz Wealth Management, says the firm just started using these types of ETFs in January after researching them for a year. He said having much more data available and seeing how analysts arrived at their conclusions was instrumental to its process.
Its models are weighted heavier on the environmental and governance factors and less on the social, he says, because it believes there’s stronger data supporting the E and the G, and less the S. There’s less of a business case for social, he notes.
“It’s a moralistic assumption of what you feel should be included, and we’re trying to move away from that. Our whole schtick is we’re evidence-based investors. As long as we follow the evidence and stay on the right side of the data, we’ll be in a good place and our clients will be in a good place,” Fishman said.
Another reason to debut the model now is that costs are in line. “We’re priced 30 basis points for the portfolio. Five years ago, it would be three-quarters or seven-eighths of a percent,” he said.
Early client interest is strong, Fishman notes. Although he didn’t say which ETFs are in their model, Fishman said Ritholtz looks for pragmatic ETFs such as ones offered by iShares.
Komson Silapachai, senior investment analyst at Sage Advisory, said it launched its ESG strategies last year, and that being able to use the Morningstar sustainability ratings allowed his firm to build core portfolios to express which characteristics it wants. Interest around climate change has been big.
Greater demand from clients and being able to use more research tools was part of the motivation to move into the space. While there’s some client demand for ESG, Silapachai said there’s still a learning curve for many.
“With our presentations, we start with how we define it, where we stand, how we manage money,” he added.