The firms are offering values-based options long sought by investors
The ethical investing space is set to become more crowded as robo-advisor firms announce plans to offer socially responsible investments.
US-based firms Betterment LLC and Wealthfront are going to offer investors the chance to invest in companies with favourable environmental, social, and governance (ESG) records using different approaches, the Wall Street Journal reported.
New York-based Betterment is providing access to ETFs that follow socially responsible indexes. In the West, Wealthfront of California is looking to provide clients with the flexibility to invest in stocks and avoid names that don’t fit their ethical and moral standards.
The two robo outfits aren’t the first to announce forays into ESG investment. Big names like TIAA and Morgan Stanley have previously stated their intentions, as well as other smaller outfits like Wealthsimple, and OpenInvest.
According to Jon Hale, Morningstar’s director of sustainability-investing research, sustainable investing is an area of interest for millennials — the target market robo firms are most interested in capturing.
“We have been hearing requests for years both from existing customers and prospective clients,” Dan Egan, Betterment’s vice president of behavioural finance and investing, told the Journal.
According to Egan, improved trading volumes in two socially responsible ETFs have improved enough to drive down their associated transaction costs, making it a great opportunity for Betterment. The firm is using the iShares MSCI KLD 400 Social Fund, which tracks the MSCI KLD 400 Social Index and has large-cap stock exposure. Companies involved in tobacco, military weapons, nuclear power, adult entertainment, and genetically modified crops are screened out.
When the iShares MSCI KLD 400 Social Fund goes down in price, Betterment may sell it off and purchase the iShares MSCI USA ESG Select Fund, which effectively lets the firm benefit from tax-loss harvesting. Both ETFs are relatively expensive, as each has a 0.50% fee compared to the 0.09% average for Betterment’s core portfolio.
Meanwhile, Wealthfront has plans to let investors access its direct indexing platform, which lets them hold specific names within the Dow Jones US Total Stock Market Index instead of holding the whole ETF.
With that feature open, clients will have the choice to screen out four sectors: fossil fuels, deforestation, weapons, and tobacco. Clients will also be able to drop other specific stocks they want to avoid; if portfolio diversification starts to suffer from the stock-dropping a client does, the impact will be communicated to the client.
“Rather than tell our clients what we think is socially responsible, we want them to be able to personalize their own [portfolio],” said Wealthfront spokesperson Kate Wauck.
For more of Wealth Professional's latest industry news, click here.
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US-based firms Betterment LLC and Wealthfront are going to offer investors the chance to invest in companies with favourable environmental, social, and governance (ESG) records using different approaches, the Wall Street Journal reported.
New York-based Betterment is providing access to ETFs that follow socially responsible indexes. In the West, Wealthfront of California is looking to provide clients with the flexibility to invest in stocks and avoid names that don’t fit their ethical and moral standards.
The two robo outfits aren’t the first to announce forays into ESG investment. Big names like TIAA and Morgan Stanley have previously stated their intentions, as well as other smaller outfits like Wealthsimple, and OpenInvest.
According to Jon Hale, Morningstar’s director of sustainability-investing research, sustainable investing is an area of interest for millennials — the target market robo firms are most interested in capturing.
“We have been hearing requests for years both from existing customers and prospective clients,” Dan Egan, Betterment’s vice president of behavioural finance and investing, told the Journal.
According to Egan, improved trading volumes in two socially responsible ETFs have improved enough to drive down their associated transaction costs, making it a great opportunity for Betterment. The firm is using the iShares MSCI KLD 400 Social Fund, which tracks the MSCI KLD 400 Social Index and has large-cap stock exposure. Companies involved in tobacco, military weapons, nuclear power, adult entertainment, and genetically modified crops are screened out.
When the iShares MSCI KLD 400 Social Fund goes down in price, Betterment may sell it off and purchase the iShares MSCI USA ESG Select Fund, which effectively lets the firm benefit from tax-loss harvesting. Both ETFs are relatively expensive, as each has a 0.50% fee compared to the 0.09% average for Betterment’s core portfolio.
Meanwhile, Wealthfront has plans to let investors access its direct indexing platform, which lets them hold specific names within the Dow Jones US Total Stock Market Index instead of holding the whole ETF.
With that feature open, clients will have the choice to screen out four sectors: fossil fuels, deforestation, weapons, and tobacco. Clients will also be able to drop other specific stocks they want to avoid; if portfolio diversification starts to suffer from the stock-dropping a client does, the impact will be communicated to the client.
“Rather than tell our clients what we think is socially responsible, we want them to be able to personalize their own [portfolio],” said Wealthfront spokesperson Kate Wauck.
For more of Wealth Professional's latest industry news, click here.
Related stories:
Evolve Funds to launch new innovative funds
To win the robo wars, advisors should go beyond the numbers
