Throughout the Dynasty Network of fifty elite RIAs, whether they are new firms who have just broken away from a Wirehouse or RIAs who have been at the forefront of Independence, our partners seek to grow their businesses and provide superior service to their clients. As Senior Vice President of Investments at Dynasty Financial Partners, Nick Gerace has a prime vantage point on Environmental, Social, and Governance (ESG) investing in the wealth management industry. Drawing on his experience working with the hundreds of advisors in the Dynasty Network, as well as all of our technology and distribution partners, Gerace shares the three powerful ways ESG can be leveraged by advisors to better serve their clients and help grow their business.

Not Just a Product Anymore

According to Gerace, “The biggest misconception is that ESG has to be confined to an off-the-shelf product.” In the past, asset management companies have manufactured products that integrate their institutional views on sustainability. However, these products do not always align with the aspects of ESG that are most important to the advisors or the clients whose assets they are investing.

An impactful development in ESG investing is the development of direct indexing technologies, which have made it possible for advisors to fully customize a portfolio based on exactly the aspects of ESG that their clients care about most. This functionality serves a valuable purpose to both the client and the advisor. For clients who care deeply about sustainable investing, the ability to customize a portfolio directly in line with their beliefs and values constitutes the entire purpose of ESG investment; they can use their wealth to own companies that are doing the work that they believe in most, rather than having to settle for a pre-packaged portfolio that might have no relation to their convictions.

For advisors focused on ESG, the ability to sit with their clients and have conversations around non-financial topics and causes that matter most to them is a major differentiator and has two key benefits. First, they are able to position themselves for future success in the industry due to the fact that young people and women are the two demographics that prioritize ESG most in their investment strategy. With the flow of wealth transfer headed directly for those same demographics, getting ahead of the trend will only help advisors down the road. Furthermore, and perhaps more importantly, being able to have those conversations with clients, and learning what matters most to them, allows advisors to get to know their clients on a personal level and continue to build trust. Deepening the client-advisor interaction in this way makes the relationship more meaningful, more valuable and stickier.

More Data, More Security

Another misconception about ESG is that an investor is likely to sacrifice returns with an ESG portfolio. This topic has become more prevalent and it comprised a major portion of a panel discussion that Gerace recently hosted at Dynasty’s 2019 Investments Forum. “What ESG is,” he says, “is another level of data. Who wouldn’t want to invest with as much data as possible being incorporated into the decision making process?”

In fact, ESG can actually deliver higher long-term returns than non-ESG because many of the idiosyncrasies in individual stocks that lead to major drawdowns are detected and screened out beforehand by many ESG strategies when the companies flag some aspect of E, S, or G. Recent empirical data backs this up; the recent crashes in the stock prices of Equifax and Boeing were largely avoided by ESG strategies, which had screened out those stocks from portfolios due to their now crystal clear issues with firm governance. As Gerace puts it: “Think about an advisor that you think makes very intelligent decisions, then consider them operating with even more data available to them.” 

ESG to the Core

One of the most powerful trends that Gerace has observed in the ESG space, and in the Dynasty Network in particular, is the integration of ESG into the very core of an RIA. Any advisor can have a conversation with their clients about the issues that they care about and any advisor can offer their clients an ESG strategy. However, for advisors who are passionate about sustainable investing, their individual efforts to build ESG portfolios with their clients can be offset by the actions of the larger institutions of which they are affiliated with. 

The idea is that running an ESG-centered practice within a non-ESG-focused firm can have a low net impact. However, in the independent space, it is possible to build ESG into the very DNA of a firm’s brand. Not only can firms prioritize ESG in practice, but they can build a brand-level ESG portfolio, so that every incoming client starts out with a starting block portfolio which is automatically ESG-focused, fine tuned to the RIAs views on what is most important to them, their communities and their clients. As Gerace says, “If ESG is really important to you, as an independent advisor you can talk the talk and walk the walk, and that’s powerful.”

About Dynasty Investments

The Dynasty Investments team helps firms in the Dynasty Network realize that building ESG either into their practice or the core of their firm is not only achievable, but can help grow their business and serve their clients better. Through Dynasty’s partnerships with premiere firms in the FinTech and asset management space, our Network Partners can leverage the latest direct indexing technology in order to build best-in-class ESG portfolios for their clients. Our team can also help advisors build ESG into the core of their brand by helping to build a brand-level ESG portfolio. With guidance and assistance throughout the transition process and onward into independence, Dynasty powers our Partners to achieve their ESG goals.

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