3 questions to ask your financial adviser if you really want to invest sustainably

A financial adviser can help you find a fund that uses environmental, social, and governance metrics consistent with your clients “values. The client must go beyond the usual questions about fees and qualifications and deal with what the financial advisor understands about the subject.    

What are your ESG investing options?

In a token of increasing investment in ESG, Sustainable Investing Group and CFA Institute offer courses for financial advisors. They obtain an ESG certificate via the College of Financial Planning Charter and the SRI Counselor Designation Program. But not everyone uses ESG, and it is often misunderstood.    

With the influx of dollars, the style grows. According to Morningstar, 440 ESG-focused exchange-traded funds and mutual funds are available, adding more every day. Finding an adviser who knows how to analyze offers is another matter.    

How do you approach ESG?  

In any case, you don’t have to pay a financial adviser for ESG advice, and you probably won’t know much about sustainable investments. Here are three questions to determine if your adviser knows what ESG is and one to ask you. Your ESG investment opportunities should be there for all. With ESG Investing entering the mainstream, many advisors point to the few ETFs and mutual funds that offer their companies as part of a portfolio rather than providing a complete portfolio of options.   

Sustainability-oriented consultants use traditional economic and fundamental analytical metrics such as price-to-earnings ratios and debt levels and include sustainability metrics such as corporate governance, product safety, environmental performance, and other sustainability metrics that are important for a company’s operations. It is recommended that a sustainability-oriented financial advisor explains with ESG how to build a sustainable investment portfolio, says Peter Krull, CEO of Earth Equity Advisors. Traditional sustainable research can help customers engage in conversation, he says. You can also contact the ESG directly.    

Advisers who consider using third-party ESG metrics to complement traditional financial analysis are unlikely to provide a holistic, sustainable investment portfolio. They pollute the Everglades, “he said. ‘They’ve got a significant wind component; they’ve got a more substantial coal component.  

Funds need to ask advisers who have looked carefully at the fund’s holdings. Krull reviews fund holdings and weighs up whether a particular stock makes sense. I think that’s one of the most important things you can ask of a fund manager who calls a fund by its name, and I do, “Krull said.    

He is also critical of popular sector-neutral index ETFs, representing a range of asset allocation schemes for ESG investors. These funds try to mimic broad market exposure through a few screens and exclude companies, but they also seek out companies in market sectors, including traditional energy.   

Not only do nine of the 10 most significant holdings in the same SPDR S & P 500 and 500 ETF trusts and ISHARE funds hold fossil fuel producers such as Exxon Mobil and Chevron, but some of the holdings may also surprise investors who do not close their eyes on the assets.  

 How to choose funds?

With the proliferation of new ESG funds in the US, particularly large-cap funds, ESG’s financial advisers should consider the cost of investments, not just fund calls, said Andrew Poreda, ESG analyst at Sage Advisory. The cost of the fund is another issue. Managed investment funds cost more than passive index funds and niche funds much more than base funds. Pushing a passively managed fund that charges a fee of 75 to 80 basis points is not only good, but a better product that achieves the same for less money, he said.   

Sage views ESG differently from BlackRock’s, Poreda says. You cannot put ESG in a one-size-fits-all box, which is one of the challenges because it has a lot to do with asset managers’ views. 

The ESG needs to be involved in an initial, detailed conversation about customers “overall objectives, such as risk tolerance and time horizon, and how these are linked, he says. 

If you say you don’t want different sectors in your portfolio, that’s great. But diversification is a challenge that affects the overall portfolio, you say, adding that financial advisers often don’t ask this question because they impose ESG products on them that you think are problematic. This leads to a give and takes between investment objectives and social values that coincide.   

 The reality is that when you work with someone to help you make value-based investments, it is essential that their values match yours and that you can connect with them.

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