TD Ameritrade adds socially aware portfolios to retail robo adviser

The firm expects to provide ESG investing without sacrificing performance

Sep 7, 2018 @ 2:57 pm

By Ryan W. Neal

TD Ameritrade is adding five new "socially aware" portfolios to Essential Portfolios, the company's retail robo-adviser.

The portfolios will offer ETFs with environmental, social and governance (ESG) factors, as assessed by the Morgan Stanley Capital International index.

Driving the decision to include these strategies is increased consumer demand, especially among millennial investors, said Lule Demmissie, TD Ameritrade's managing director of investment products and guidance.

A TD Ameritrade survey of clients found 45% of investors of all ages consider socially responsible investing important. The number jumps to 60% among millennials.

The survey found that these investors care more social and environmental factors than rate of return, but Ms. Demmissie said investors don't need to leave money on the table to align investments with their personal values.

(More: Is ESG investing going mainstream?)

She cites data showing that from 2008 to 2017, an index of ESG leaders outperformed its parent index eight out of 10 years. The thought is that ESG practices can lead to better operational performance, which could in turn positively influence a company's stock and bond prices.

"There's a convergence of consumer desires around investing in this area and how well companies who are doing this are [performing]," Ms. Demmissie said.

Though the ETF may cost more than those used in existing Essential Portfolios accounts (Ms. Demmissie didn't specify how much), she said customers won't have to choose between cost and performance versus ESG investing.

"The maturity of this space has made it possible to not choose one or the other," she said.

TD Ameritrade's robo is just the latest digital advice platform to feature ESG or SRI investing.

Personal Capital, TIAA, Betterment and Wealthfront all offer their own versions of a socially conscious portfolio.

In the past, access to ESG investing relied on asset managers creating new products, but research from Cerulli Associates finds the proliferation of these platforms is driving broad adoption of the strategies.

(More: As ESG investments boom, asset managers seek out fixed-income option)

"Products and strategies that purport to invest more ethically have long been a part of the industry," Cerulli managing director Bing Waldert said in a statement. "However, growing awareness of client change and social issues has revived interest in ESG and socially responsible investing."

What sets Essential Portfolios apart is the ease of selecting the portfolios, the education TD Ameritrade provides to investors, and the lower total cost and depth of ESG exposure, Ms. Demmissie said.

"I think that the importance of giving everyday investors access to these things that sometimes only wealthy people have available, at the quality we are providing, is very important," she added. "It's a mission we take very seriously."


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