Wealth Management Pitfall: ESG

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Your wealth manager should act as your fiduciary, plain and simple. Sounds easy. But in reality it’s not. Today, I want to help you overcome one of the more absurd obstacles you may face. It’s called environmental, social and governance investing, or ESG.

Thousands of investment managers have pledged to follow ESG—a pledge to abide by a U.N.-sponsored statement of ESG principles. Investing in fossil fuel stocks, for example, would likely be on the “no go” list of companies available for investment. You can forget those juicy pipeline yields.

“It isn’t only student activists but the United Nations and even BlackRock CEO Larry Fink who argue that environmental, social and governance investing, or ESG, will do good for the world while improving returns for beneficiaries,” explain Max M. Schanzenbach, a professor at Northwestern Pritzker School of Law, and Robert H. Sitkoff, a professor at Harvard Law School, here.

The problem with this approach has nothing to do with fossil fuels, per se, but everything to do with your investment manager acting as your family’s fiduciary.

“By law, a trustee must abide by fiduciary duties of loyalty and prudence, and therefore act for the ‘exclusive’ benefit of the beneficiaries, considering ‘solely’ their interests, without regard for collateral benefits, such as advancing social or environmental causes,” point out Schanzenbach and Sitkoff.

Your family’s wealth should not be fighting your investment manager’s environmental battles or supporting his beliefs.

Let him use his own money. Not yours.

Your job as your family’s fiduciary is to act like one and to make sure your investment manager does too.

Ask your advisor about ESG, and be sure that he is guided by the Fiduciary Rule rather than the opaque “Suitability” rule. This is going to be a huge movement in wealth management. Make sure you know how your manager invests your money, and be sure it’s to the benefit of your family and not one if his pet projects.

E.J. Smith - Your Survival Guy

Preparing your investments and family for when disaster strikes.

E.J. Smith is the Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH, where he completed course-work in Practical and Defensive Handgun, Conceal Carry Pistol, Shotguns, Precision Scope Rifle and Kidnapping Prevention. E.J. plays a Yamaha Recording Custom drum set with Zilldjian cymbals. His first drum set was a 5-piece Slingerland with Zilldjians. He grew-up worshiping Neil Peart of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@youngresearch.com. Sign up here to receive all the best content from Richardcyoung.com each week.