‘Responsible’ investing can pose big challenges

For about a year, Peri Ann Aptaker, director of tax services with Kahn, Litwin, Renza & Co., researched socially responsible investment funds for a client with more than $1 million in investments.
That client wanted to shift into “greener” funds, but, in the end, moved only $2,500 that way.
“What we found is that there really isn’t that much out there,” Aptaker said, adding that many of the companies involved with those few funds are in their early stages and haven’t yet created profits for investors.
“From a pure investment point of view, these may not be great investments,” she said.
Many Rhode Island financial planners are relating similar results – such funds are now a niche investment, and most clients aren’t jumping in headlong.
“We proactively bring it up, and for most people, they don’t want us to make it a priority. But some do want us to delve further into it,” said Oliver Tutt, managing director with Randall Financial Group.
There has been a national increase in companies providing greener products – wind-turbine manufacturers, water purifiers – but the effects of their presence haven’t yet spread to the asset-management level where many financial planners operate, said adviser Michael Moretti of Blue Chip Financial Advisors.
“There are some mutual funds out there that are socially conscious, green funds that do invest in those types of companies” Moretti said. But there aren’t many yet; he cited three: Citizens Funds, Calvert Group and Parnassus Investments. “It’s obviously becoming more of an issue these days, so I can see where there will be an increased demand for it down the road.”
Also, the gauge of social responsibility is dependent on the investor, said Robin Lovely, president of Lovely and Co. One of her investors won’t buy funds involved with chain retailers, tobacco or alcohol. Another won’t invest in any fund that includes companies practicing animal testing.
That’s when choosing the right mutual fund can get tricky – most only offer quarterly or half-year reports. A fund that wasn’t involved with an undesirable company at its reporting might be invested in one now, Tutt said.
“Very few funds meet our screening criteria as it is,” he said. “When you throw in very specific screening criteria – like a certain company that you don’t like – then it really becomes a challenge.”
Other planners, such as Marvin William Lax, owner of Lax & Co., said requests for socially responsible investment are very rare – he’s only been queried about them once during his 37 years in business.
“We did it, but it’s not common. People want something very, very safe that will make them 20 percent,” he said.
For most of Lax’s investors, diversification is the most important factor in planning a portfolio.
Stephanie Nichols, a certified planner with Raymond James Financial Services, agreed that socially responsible funds aren’t yet the way to accomplish a diversification goal. Investing too much into socially responsible funds could be like putting all your capital in tech funds in the late 1990s, she said.
“I believe in modern portfolio theory and having a well-balanced, well-diversified, asset-allocated portfolio,” Nichols said. “And to put something so narrow-based, sector-driven into someone’s portfolio is not something we’d even recommend.”
For many investors, the absence of socially responsible funds from their portfolio isn’t an issue that weighs on their conscience, Tutt said. Many don’t connect their home lives – where they might recycle and strive for a greener existence – with the principles of funds in which they’ve invested. “They don’t make that link over to what they’re doing with their investments. And I would say that would be the majority of people.”
There are, too, alternatives to socially responsible funds, he said. Some clients choose to use a portion of their gain to support charities or nonprofits, which, he said, makes it “a lot easier to actually execute their philosophy.” •