Ross Gerber, the CEO of Santa Monica, Calif.-based Gerber Kawasaki Wealth and Investment Management, has no doubts about climate change, a trend corroborated by the hot weather and wildfires in his home state in recent years, he says.
Like-minded are the vast majority of the California-residing clients and prospects of his RIA, which has more than $770 million in assets under management, Gerber says.
Their concerns about the urgency of climate change has led them to reevaluate their own investments and their consequences on the environment, Gerber says.
But Gerber is not advising them to rush into the growing selection of funds based on a company’s ESG ratings, which are delivered by such providers as Morningstar and its Sustainalytics unit, MSCI and, more recently, Lipper.
Instead, he plans to launch of a marketing campaign for customized impact investment portfolios, not based at all on those ratings. He expects the marketing to help him to take not necessarily big bites but nibbles from the ultra-high-net-worth AUMs by the major wirehouses and big banks.
What’s the logic behind Gerber’s plans? When clients seek to shape at least part of their investments around climate change and other social impact concerns, those institutions’ FAs fail to have the drilled-down morality discussions with them and instead rely on ESG ratings, he argues.
"ESG is just a joke," he says. “Do they have women on their boards?” That’s what the rating agencies are asking, he says, and that “isn’t going to be the basis of if our clients’ investment is or isn’t going to have an impact,” he says.
His California-residing clients and prospects ask: “What is my money doing for the world?” They want the answer to be renewable energy companies, electric vehicles, and sustainable diets, he says. Not necessarily tech companies with more women on their boards, Gerber adds.
He doesn’t expect clients to invest 100% of their investable assets in his customized portfolios; the clients and prospects who cotton to his idea will address their concerns about wealth preservation in the assets they leave with the larger institutions, Gerber says. But they also know: “Life isn’t just about money,” particularly when they have a surfeit, he says.
The larger institutions have left this opening because they want to avoid deep discussions with clients about their morality, Gerber says. It takes time for advisors to get clients’ answers to such questions do they care more about a solar energy company’s market reach or employment practices. Those discussions risk putting a financial advisor in the position of exposing values that stand apart from a clients, Gerber recognizes.
"Every day, I talk about morality and I get love and I get hate,” he says, “But we’re perfectly fine talking about those things because in our industry, most of the major firms, they could care less about anything but money,” he says.
Although Gerber’s proposed campaign is not guaranteed to succeed, new data shows he has identified correctly one trend: investors are committing only a fraction of their assets tied to impact investing or socially responsible investment.
“The number of advisors using ESG funds and ratings when building client portfolios has soared over the past two years, but the amount they allocate to such products suggests that most still need help explaining the products to clients,” according to a report published recently by FA-IQ’s sister publication Ignites.
New data from Ignites Research shows that in the past two years, adoption of ESG products or ratings climbed 28 percentage points, Ignites reports. In fact, results of a survey of 168 RIAs from the Financial Times 300 Top RIAs and 395 broker-dealer-affiliated reps listed in the FT 400 conducted earlier this year showed that 69% reported using either ESG products or ratings in their practices, Ignites reports.
That figure is up from 41% in a similar survey fielded in 2017.
But the Ignites Research results also show that despite increased use of ESG-linked products and ratings, advisors (and therefore their clients) are still just toe-dipping, the publication reports. For both FT 300 and FT 400 advisors who used ESG products or ratings, such products amounted to just 5.1% of their total client assets, according to Ignites Research.