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Retirement plan advisers expect Labor Department rules to boost ESG options

Keith Lewis, CQ-Roll Call on

Published in Business News

Other panelists included Karen DiStasio, head of retirement consulting services at Commonwealth Financial Network, and Donald MacQuattie, co-head of institutional fiduciary solutions at Raymond James.

MacQuattie said he’s not seeing a huge demand for ESG right now, but he said the Labor Department rules might give advisers more comfort offering these options.

DiStasio noted the quality of data could be improved and said investors can’t simply take third-party data at “face value.”

“You’ve got to do the homework, like we do on any investment,” she said.

Nelson, from Voya Financial, agreed and said that vague terminology remains a challenge for ESG-minded investing in retirement plans.

“I think for many recordkeepers, most of us will use a source or two to determine if a fund is ESG certified or not,” Nelson said. “We have the capabilities, so we can do a lot of those types of things, but the broader challenge that I think we have with it is that it’s not necessarily a litmus test, it’s not either yes or no, because many investment managers and fund managers will apply and utilize ESG principles in their investment philosophy and their processes.”

The panelists pushed back on ESG skeptics who claim that this investment philosophy requires a sacrifice in financial performance.

 

“I don’t think that just because you choose an ESG fund, that you’re not going to get good performance,” Stout said. “The funds we found are meeting the criteria. … I think there’s enough out there that you can still provide good performance, but also be more relatable to the people that are going to be the major labor force in the next few years.”

While ESG proponents and retirement plan advisers alike continue to await the updated framework from the Labor Department, experts said ESG questions are becoming almost standard practice in public sector funds’ requests for proposals. DeNoiyer said HUB International is seeing an increase in questions about ESG topics, particularly among larger plans.

“It wasn’t just to check a box in their RFP; they actually cared about those issues when it came to our investment due diligence process,” he said.

One notion shared by all the panelists: ESG investing is here to stay.

“Look, you can run your practice how you want, and you all should, but there’s a reason investors and shareholders are asking about this around the world and increasingly in the U.S,” said Nelson. “And I really believe it’s going to continue to build here in the U.S., and those advisers that lean into it and can find a way to engage with their customers in a different way on this will find some new growth as well.”

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