Fidelity, Dynasty back new tech-powered ESG asset manager

Called Ethic, the technology platform allows advisers to analyze existing portfolios to help clients meet ESG goals

Jul 18, 2019 @ 3:00 pm

By Ryan W. Neal

Ethic, an asset manager that uses technology to build custom sustainable investing portfolios for advisers, now has the backing of Fidelity Investments and Dynasty Financial Partners.

Fidelity was part of $13 million round of funding, led by venture capital firm Nyca Partners, which four-year-old Ethic closed Thursday.

The funding comes a week after Dynasty said it will make Ethic's environmental, social and governance (ESG) strategies available on Dynasty's turnkey asset management platform.

Advisers can use Ethic's technology platform to either select existing ESG models built around certain themes, or to create a custom allocation using direct indexing. Ethic aggregates several data sources to analyze and predict sustainability issues, and to build a "clean version" of advisers' existing allocations.

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"What we do is enable the adviser to more confidently have that conversation and build solutions and investment products that align with their brand," said Jay Lipman, Ethic co-founder and president. "It's ultimately a new way for the adviser to win new business."

Using Ethic's technology platform, advisers can analyze a client's existing portfolio to identify areas of improvement relative to a client's sustainability goals.

Ethic also features a unique reporting feature that helps advisers communicate how moving to an ESG portfolio translates into real-world impact, said Nick Gerace, Dynasty senior vice president of investments. For example, Ethic will show how many metric tons of coal the adviser was able to remove from a client's portfolio.

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The customization Ethic offers is key for advisers hoping to offer ESG investing, Mr. Gerace said. But it's the asset manager's digital component that made it particularly interesting to Dynasty.

"They have the technology platform that really differentiates them from other solutions on the market," he said. "Rather than being a binary screening tool, they have more dimensional capabilities."

In other words, it's not just about flipping a switch to remove something like tobacco from a portfolio, Mr. Gerace added. Advisers can drill down as far as they want and remove any company that generates any revenue from tobacco sales.

Two advisory firms affiliated with Dynasty already moved client assets onto Ethic's strategies, but Mr. Gerace predicts it's only the beginning of what will be a much larger engagement.

"It's a space where advisers who are doing the work now to understand [ESG] and get ahead of the curve, will be well situated for the future," he said.

Ethic's approach does require more work by advisers than just selecting an ESG model from an asset manager, Mr. Lipman said. The technology handles some of the work, but Ethic does a "huge amount of education" with advisers through the onboarding process so they can communicate the strategies with clients, he said.

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Fidelity declined to comment on its investment in Ethic. Mr. Lipman wouldn't comment on how Fidelity plans to use the technology, but said he hopes a relationship with the custodian will enable Ethic to work with RIAs that are looking to offer ESG investing solutions.

"What we've seen with advisers across the country is advisers turning around and saying they've got clients coming to ask about sustainable investments," Mr. Lipman said. "Fidelity can enable us to come in and assist those advisers."

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