Advisors may believe that their clients prefer that they manage investments in-house, but recent research from Adhesion Wealth states that only 17% of clients feel this way.  In fact, more than half of the clients “had no preferences ‘as long as my investments are secure and performance is satisfactory’.”[1]

So, why outsource, and especially why outsource ESG options?

Costs and Efficiency

We’re stating the obvious here, but it’s worth reiterating.  As fees compress while competition increases, advisory firms are under pressure to provide value-added services without compromising the overall cost base.

Investment management, including time input, costs for technology, staying on top of market trends, and attracting and retaining top talent, is expensive, and can divert valuable resources from other services.  ESG integration, for reasons further described below, is even more expensive.

Outsourcing, on the other hand, can be very cost effective and less time consuming. Alongside the handling of the investments themselves, advisors may also gain access to value-added research, education, and thought leadership that would be challenging to produce in-house.

Providing Clients with Choice and Quality

The ongoing digitization of the advisory business has led to numerous marketplaces where advisors can find investment choices for their clients. For advisory firms that don’t specialize in ESG integration, but are serving clients with individual values, preferences and sourcing investments externally can help an advisor meet the needs of their client in a scalable way.  The flipside is ending up with a multitude of bespoke investments that are increasingly challenging to manage unless you have sophisticated technology and operational support.

Our growing suite of SMART Investing Solutions are available through multiple custodians, with some models also available on Envestnet and other retirement platforms.  Our SMART Unified Managed Accounts (UMAs) are also customizable, enabling individual clients to exclude companies or entire industries and sectors.  Rebalancing is taken care of, and our custom solutions are supported by powerful overlay management technology provided by our partner, Natixis.  This also includes tax management functionality that can be very valuable for higher net worth clients.

Maintaining a Market Leadership Position

Unsurprisingly, this is the most important one from our perspective.

The rate of change in the sustainable investing space is incredible, including the global growth of assets invested according to ESG principles, the rapid expansion of data providers, indexes, and other tools, as well as the expanding and deepening of topics and themes under scrutiny.  In short, ESG requires dedication.

Yes, it’s possible to make ESG models out of passive ETFs, but we believe that ESG necessitates rigorous active management. As such, manager diligence is more complicated than it is for traditional investment strategies. To effectively understand a manager’s sustainability philosophy, portfolio construction, and management, it’s imperative to also understand the underlying issues and data sets.  Otherwise, you run the risk of providing greenwashed investments to your clients.

Over the last several years, we have invested heavily in our in-house ESG capabilities and investment platform.  We’ve tested and acquired data sets, nurtured relationships with managers large and small, built out our team, including the recent hire of Jessica Skolnick, CFA, as our Director of Investments, and developed a robust research and product development approach. It’s a significant undertaking and there’s no room for complacency.  We’re committed for the long haul.