Broader adoption of retail environmental, social and governance investing will be driven by wealth management firms building platforms for these investments, rather than relying on asset managers to create new products, according to Cerulli Associates.
Cerulli believes that the recent revival of interest in ESG investing is different from other product launches.
As with other product trends, asset managers are inventing and adapting products. However, unlike past product introductions, wealth management firms are creating platforms and asset allocation models for investors to allocate to ESG investments.
The September issue of The Cerulli Edge–U.S. Asset and Wealth Management Edition looks at how wealth management firms are building ESG options for their investors and advisors.
According to Bing Waldert, managing director at Cerulli, the theme of ESG investing is not a new one for the asset management industry.
"Products and strategies that purport to invest more ethically have long been a part of the industry," he explained in a statement. "Early products were relatively simplistic, screening out 'sin stocks,' such as tobacco or gun stocks. However, growing awareness of client change and social issues has revived interest in ESG and socially responsible investing."
The report finds that numerous examples exist of wealth management firms building ESG platforms in recent years rather than rely on asset managers' new products.
For example, Merrill Lynch launched a series of socially conscious models on its Merrill One platform in 2015. These products mixed mutual funds and exchange-traded funds.
Then in 2018, Merill added passive ETF-only models with its Impact Portfolios, which include five portfolio models, containing between 10 and 12 ETFs. In addition to being available through Merrill Lynch advisors, these portfolios are also offered through Merrill Edge, Merrill Lynch's direct-to-consumer platform.
"Merrill Lynch, along with other broker-dealers (BDs), is trimming the number of products and managers it offers on its platforms," the report states. "However, Merrill Lynch left the door open for potentially interesting strategies, such as ESG, to be added to its platform."
