the Long View continued from page 28
Yet the performance of MSCI stock is another powerful indicator of how lucrative the ESG and overall indexing business is . Between May 1 , 2017 , and April 13 of this year , MSCI shares climbed from $ 102 a share to $ 493 .
There is a flip side to the herd mentality building around the popular concept . When too much money chases too few stocks , the resulting imbalances can create value . It shouldn ’ t be a surprise that value stocks , including those from old industrial smokestack America , are staging a comeback .
In the five quarters since January 1 , 2021 , energy has been the best-performing of 11 industry groups within the S & P 500 . After the oil and gas industry faced a near-death experience following the fracking bust of 2015 , Wall Street has demanded capital discipline from these companies , which have been shunned as dogs by most investors and treated as toxic by many politicians .
As Envestnet ’ s D ’ Auria noted in an article in Financial Advisor ’ s September 2021 issue , ESG has yet to be tested over a full market cycle . That ’ s one reason Northern Trust ’ s Hunstad has merged his firm ’ s ESG strategy with a quality , or profitability , component , that has been tested “ to outperform over 30 to 50 years .”
In the meantime , as ESG strategies continue to evolve , disputes and intrinsic contradictions are likely to proliferate in ways Friedman and the original Earth Day activists could not have imagined . “ It is our fiduciary duty to control ESG [ factors ], even if you don ’ t care about morality in investing ,” Hunstad says .
Investing continued from page 50
process provides the framework for achieving various goals across family accounts and developing the appropriate solutions for each account . Family goals are typically geared toward life events like transferring wealth , college funding , and charitable giving , each of which requires a dedicated focus to achieve the desired outcome . Affluent families are increasingly considering sustainable investing , aligning their portfolios and purpose , and wealth advisors need to understand and respond to this growing trend .
Wealth advisors need to engage all HNW family members and develop relationships with children , siblings , and other trusted advisors . A few tactics to engage wealthy families include engaging the children , educating the family , conducting family meetings , developing personal relationships and developing a family mission statement .
In this article , I examined the limitations of traditional finance , including MPT , and discussed behavioral finance and the inherent biases that we all exhibit . MPT assumes that investors are rational and will select optimal portfolios ; it assumes that the future will be like the past . Not all investors seek to maximize returns or minimize risk . Most investors are solving for multiple goals with different time frames to achieve those goals . Goals-based investing is a more appropriate way of solving for cli- ent needs , marrying attributes of MPT and behavioral finance .
In this article , I suggested framing the investment discussion in terms of the role that the various investments play — growth , income , defense , and inflation hedging . A HNW family may use similar investments across their various accounts , but the weighting of the investments will vary based on their respective goals , cash flow needs , risk-tolerance , and time horizon , among other issues .
This article is an excerpt from Goals-Based Investing : A Visionary Framework for Wealth Management by Tony davidow , pp . 169-188 , ( mcgraw Hill , december 2021 ).
tony DaVIDow , cima is president and founder of T . davidow consulting , llc an independent advisory firm focused on the needs and challenges facing the financial services industry .
Parting Shot continued from page 64
of this can have a significant impact . “ I hear what you are saying . I have also felt a lot of anxiety , and I don ’ t know if you know , but there are these options available to you .” Was that so hard ? It does not need to be uncomfortable . And we certainly don ’ t need to end meetings if the tears do come .
Advisors need to be willing to guide a deep conversation and ask their clients to reflect on their earlier experiences with money . Often , this will unlock answers about where the clients ’ current feelings toward money came from .
With all of that said , it is important that the advisor engages in the conversation with the client , while recognizing where the boundary for their ability to help lies . If they are not , in fact , a licensed therapist and sensitive issues begin to come up , that is the time it is important to offer support but also be able to make a referral to get your client the services they need , the same way you would refer a client to an attorney or a certified public accountant if they needed financial assistance beyond your abilities . We are here to help in the capacity we can , and to lean in to the vast network of resources at our disposal when we don ’ t have the answer right in front of us .
Dr . Sonya Lutter is the director of institutional research and education at Herbers & company .
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