Robos jumping into socially responsible investing space

Several digital platforms are filling a void left by advisers by offering clients the opportunity to back their values with their investments

Jan 11, 2017 @ 3:51 pm

By Liz Skinner

Financial advisers who don't offer socially responsible investing choices are giving clients and prospects another reason to go robo.

Several automated advice platforms have been created recently to pair ones' values with their investments, and it's likely only a matter of time before many of the largest digital advice platforms include an SRI component as well.

“We're constantly meeting people who asked their adviser about socially responsible investing, but they didn't know about it or said they don't recommend it,” said Joshua Levin, co-founder of OpenInvest, one of the young digital platforms for SRI.

A small number of advisory businesses focus on offering clients access to investments that take environmental, social and governance considerations into account, and a somewhat larger group of independent advisers and wirehouse advisers have access to limited investments that can take into consideration the impact companies have on society.

However, more than one third of financial advisers say they don't know how to adequately evaluate the sustainability performance of investments, according to a TIAA survey of 275 advisers released in May 2016.

At the same time, client demand for SRI is strong.

(More: Advisers help find donor advised funds for clients charitable dollars)

About 77% of affluent investors said they want their assets to positively impact society, a TIAA survey, also released in May 2016, found. That study of 1,103 investors, as well as multiple other surveys, show women and millennials especially prioritize SRI.

OpenInvest and at least two other firms, Earthfolio and Grow Invest, are looking to meet client demand for sustainable investing with digital platforms that integrate clients' interests to positively impact society with their other investment risk characteristics.

Each started up within the past 18 months and have investment minimums ranging from $1 to $25,000. They vary in terms of the investments they make available to clients and each report to be growing, though none disclosed how many investors they've attracted to their digital platforms thus far.

Three robo platforms offering clients values-based investing
Launched October 2015 April 2016 September 2016
Investments Portfolios of mutual funds that screen for ESG factors ETFs and other index-based products with high Grow Analytics' scores, which are based on environmental, social and governance characteristics Portfolio of S&P 500 stocks screened for environmental, social and governance factors, plus diversified bond ETF
Minimum Investment $25,000 $1 $3,000
Fees 0.5% plus underlying mutual fund costs (which average 0.65%) 0.25% 0.5%
“The robo demographic tends to be millennials and there's an enormous appetite there for sustainable investing,” said Art Tabuenca, founder of EarthFolio.

(More: Few financial advisers pitch ESG funds to clients. Missed opportunity?)

EarthFolio is managed by a 16-year-old investment advisory firm, Blue Marble Investments, an early adopter of SRI.

Today EarthFolio invests clients in portfolios of mutual funds that screen for ESG factors, but its owners hope to one day offer more personalized portfolios that give investors the ability to specifically back firms that support efforts like renewable energy, water resources, or women's issues, Mr. Tabuenca said.

Robo adviser Grow Invest, which started in April 2016, has had about 17,000 downloads of its iOS app, said Doug Heske, chief executive of the firm. It's converted about 10% of those to clients and expects even more interest when it releases the Android version of the app in the coming weeks.

Grow Invest is affiliated with Grow Analytics, which scores companies or portfolios based on ESG characteristics, and it uses those ratings to help decide which exchange-traded-funds become part of client portfolios, he said.

Clients with more advanced investment preferences, such as seeking to build portfolios that are solely based on whether those companies support women, are referred to a portfolio manager at Grow Capital Management, which was started in August 2016 as a full-service wealth management firm.

“The robo platform is democratizing access to values-based investing,” Mr. Heske said.

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