Robos Grow a Social Conscience

Industry surveys indicate many traditional wealth managers are late to join America’s socially-responsible investing party.

But not robo advisors. A host of startups are offering computer-driven portfolios sensitive to environmental, social and governance issues. And each aims to deliver services online at lower costs than most brick-and-mortar investment advisors.

The question, say experts, is whether they can compete if bigger robos and asset managers opt to start pursuing ESG investors in earnest.

The average socially responsible mutual fund charges an expense ratio of 1.1% in the U.S., according to Morningstar. A much smaller group of SRI-themed ETFs typically come with fees of 0.54%.

“The robo space is extremely crowded at this point, so it’s a natural evolution to see some startups try to move into new territory,” says Sean McDermott, an analyst with Corporate Insight in New York.

An early mover is EarthFolio, which launched in 2014. Art Tabuenca, a former Bank of America investments executive and founder of the San Francisco-based ESG-focused robo, declined to provide assets under management to FA-IQ. But its form ADV, filed last year, lists assets under management of about $30 million.

EarthFolio only invests in mutual funds since “just a handful of well-diversified ETFs” concentrating on ESG issues are on the market today, Tabuenca says. Its management fee is 0.50% per year with a $25,000 minimum investment. EarthFolio is offered through a platform for advisors by investment outsourcer Envestnet.

When it comes to attracting assets, Tabuenca characterizes his service as still in a very “nascent” stage. “The vast majority of ESG assets is sold through institutional networks,” he says. “But as far as retail ESG investing, we’ve never had a huge retail distribution channel to tap into — that’s what we’re trying to start now through this direct-to-client robo model.”

Tabuenca says recent industry surveys show 60% to 70% of traditional advisors aren’t involved with sustainable investing. He adds that the latest research also indicates that most high-net worth investors and affluent young professionals are very interested in learning more about values-based strategies.

“We’re seeing a changing of the guard in traditional investment advising — a lot of evolving types of clients, including Millennials and women, are vastly underserved in this area,” Tabuenca says.

Read the full article:
https://financialadvisoriq.com/c/1489433/171183