Pacific Life shutters ESG robo-adviser Swell Investing

Investors have until August 30 to log in to their account to either withdraw funds, rollover them to an IRA or transfer funds

Jul 25, 2019 @ 2:36 pm

By Ryan W. Neal

Pacific Life Insurance is pulling the plug on Swell Investing, a digital advice platform offering sustainable investing-themed portfolios for retail clients and for advisers to offer their clients.

Swell's homepage has been replaced with a message informing investors that it had stopped accepting new clients and new deposits as of Wednesday. It also said any accounts with a $0 balance will be closed.

Investors have until August 30 to log in to their account to either withdraw funds, roll them over into an individual retirement account or transfer the funds to a new investment platform.

After August 30, Swell's custodian, Folio Investments, will sell off remaining positions and disburse the balances to users' bank accounts.

Swell for Advisors, a platform for advisers that custody with Folio to access Swell's thematic portfolios, also will close.

"Although Swell still passionately believes in sustainable impact investing, the company was not able to achieve the necessary scale in the current market to sustain operations," a spokesman for Swell said in an email. The company's most recent ADV indicated that it had assets of $33 million.

Swell originally launched in 2015 as a partnership between Pacific Life and Motif Investing, another sustainable digital advice platform offering thematic investing, as part of an effort to reach millennial investors.

For as little as $50, Swell invested clients in a portfolio of companies working towards at least one of the United Nation's 17 goals for sustainability. Themes included green technology, renewable energy, clean water and disease eradication.

Swell introduced IRAs in 2017 and launched its for-advisers product in 2018.

"Pacific Life is proud of Swell's accomplishments and is grateful to all those who contributed to its mission," said Jesse Page, Pacific Life manager of corporate communications. "Although we believe in the value of sustainable impact investing, the Swell model is not a longterm fit for our core business strategy."

Yet Morningstar data shows ESG funds are hitting record high inflows, attracting $8.9 billion in the first six months of 2019 alone. That compares to $5.5 billion for all of 2018. Combined with a continued bull market, it's unclear how market conditions could be more favorable to a platform like Swell.

(More: ESG funds hitting their stride with record-level inflows)

The robo-advice platform declined to comment further, as did Pacific Life.

Victor Orozco, partner and director of operations at Bair Financial Planning, had been following Swell and wanted to look into using its for-advisers platform.

"I thought they were an amazing combination of sustainable investing and self-indexing. They were able to be a solution for the conscious investor but have a targeted impact versus a broad ESG stroke," Mr. Orozco said. "Them closing down is tough."

Mr. Orozco wondered if Swell could have survived by attracting more advisers to its platform, but SS&C Technologies' Black Diamond strategist Kyle Van Pelt said its difficult to get people to both change their behavior and start using a standalone product.

"Lots of people may be happy to use ESG/SRI products, but will just buy them where they already transact," Mr. Van Pelt said on Twitter.

Robo-advice platforms aren't turning out to be the millennial silver bullet many traditional financial services firms had hoped for. According to a D.A. Davidson study of 1,000 investors, only 8% of millennials are using a robo-adviser. Only about half of millennials said they would trust a robo-adviser with the bulk of their investments.


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