Demand for socially responsible investing options in 401(k)s on the rise

Money managers say more participants want to link retirement savings to values

Nov 14, 2014 @ 10:19 am

By Liz Skinner

Retirement plan advisers may need to learn more about socially responsible investing to meet an increasing demand for such options in 401(k) plans.

Just as individual clients are increasingly asking their financial advisers to help them devise investing strategies that align their money with their values, more retirement plan participants are seeking such options, industry professionals said.

“We're seeing tremendous interest by participants to have socially responsible investment options available in 401(k) plans,” said Ingrid Dyott, managing director at Neuberger Berman, which manages a $2.4 billion socially responsive fund.

(More: Ingrid Dyott discusses how offering sustainable investing options can build adviser businesses.)

About 15% to 20% of 401(k) plans today offer investments that provide a social return as well as financial results, she said.

Ms. Dyott expects to see that penetration level jump in the next few years as plan sponsors are increasingly being questioned by participants about the opportunity of linking their investments and their values.

Without revealing any names, Ms. Dyott said her firm has seen some large Fortune 500 companies recently commit to adding SRI in their 401(k) plans.

Hewlett Packard is one firm that reportedly has offered SRI in its retirement plan since 1998.

Christine Teske, senior retirement strategy vice president at Calvert Investments, said her firm is getting more inquiries from companies seeking information about investment options for retirement plans and recently added two people to work with advisers doing defined-contribution business. Calvert has focused on SRI for 38 years and has had its investments included in retirement vehicles for 20 years.

(More: Calvert launches diversified green-bond fund.)

“We are getting more inquiries from advisers in general, whether they are doing a lot of DC business or those who have a plan or two,” Ms. Teske said.

Part of the reason for this may be more millennials entering the workforce, and their interest in sustainable investing in general extending to their retirement investments, she said.

Much of the interest Calvert sees is for their large cap growth investments, though demand has grown for its balanced portfolio, which can be eligible as a qualified default investment alternative, she said.

Financial adviser A.J. Sohn, founder of Antaeus Wealth Advisors, said he hears from retirement plan providers that more people are asking for socially responsible options in their 401(k) plan menus, but he hasn't seen that demand firsthand. He does expect it's coming, though.

His firm already has noticed an increased interest in the last six to nine months from individuals seeking to align their value systems and investments. But the popularity of SRI seems to come in waves, he said.

“People get more interested when times are good and they feel confident,” he said. “They feel at that point that they can put more constraints on their investments.”


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