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Wednesday, December 05, 2018

What Do FAs Want In an ESG Fund?

Reported by Neil Anderson, Managing Editor

New research sheds light on financial advisors' perspectives on ESG and SRI investing.
Robert Huebscher
Advisor Perspectives
When financial advisors pick an ESG or SRI fund, performance and price are not the top factors they consider.

That's one finding from Advisor Perspectives' new ESG/SRI Investing Research report, the findings of which will be presented next week. 810 FAs (nearly half of them from RIAs) responded to the survey, which was conducted in September.

The most important criterion for picking ESG and SRI funds, according to nearly 43 percent of FAs who answered the question, is the funds' ESG/SRI methodology. The next highest response (other than "not applicable" for FAs who don't use ESG/SRI investments), fund performance, was cited by only 15 percent of FAs. Manager tenure and track record, manager pedigree and reputation, and expense ratio each had fewer than 10 percent of FAs pointing to them as the top criteria.

When it came to the least important criterion for picking ESG and SRI funds, FAs' responses were more varied, with manager pedigree and reputation, expense ratio, and manager tenure and track record topping the list.

Bob Huebscher, CEO of Advisor Perspctives, notes that other industry research has already shown that many retail investors "admit that they're willing to compromise performance in order to get the benefits of SRI." And that, in turn, could be driving ESG-using FAs' interest in methodology over performance.

The research also showed that FAs' ESG brand familiarity is somewhat spread out, though Eaton Vance's Calvert still leads. When asked about fund companies with the best ESG/SRI reputation, each FA could list up to three companies. About 16 percent of FAs named Calvert, more than any other fund firm, about 14 percent named Parnassus, and about 10 percent name Impax or Pax (part of Impax); each other fund firm was named by fewer than five percent of responding FAs. Calvert also topped responses to a similar question about fund firms educating FAs about ESG/SRI.

"Calvert really had what seemed to be a significant edge over everyone else," Huebscher tells MFWire.

The reports covers a variety of other topics, including: what percentage of client assets FAs allocate to ESG/SRI; FAs' understanding of the difference between ESG, SRI, and impact investing; whether FAs prefer active, smart beta, or passive ESG products; FAs ESG performance expectations; and demographic differences in investor interest (across all ages, ESG demand is higher among women than among men ... and the demand among women is inversely correlated with age, not concentrated in millennials).

"It's not a case where younger people are dominating this push for ESG/SRI," Huebscher says. 

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