New federal investing guideline draws fire
People who want to invest according to their personal beliefs must be told by their brokers or financial planners if it will cost them money because of new federal guidelines that have drawn some opposition.
Money managers considering environmental, social and governance issues in investment decisions should not give them too much economic weight, the Department of Labor said in a regulatory memo last month.
The new rules are a change from the Obama administration, which said advisers could consider a company’s ESG stances in weighing its economic future, such as how those issues might affect profits.
A Christian-focused investment group, Timothy Partners LTD of Maitland, is among those criticizing the new approach, saying in a statement Monday that Labor Secretary Alex Acosta is making it “much more difficult” for millions of Americans who want to invest according to their conscience or faith.
“The idea that fiduciaries should ignore the desires of their clients, if there is an investment vehicle that is deemed more ‘prudent’ by [Acosta’s] standards, is a real concern,” Timothy Partners, which distributes Timothy Plan, said in the statement. “To be a fiduciary, one must maintain an intimate knowledge of the priorities clients desire to employ, not what a bureaucrat decides is best for them.”
ESG can, however, be a useful perspective for investment managers, certified financial planner Cary Carbonaro said Monday.
“As an investor, if somebody is saying that they don’t want [a particular company] in their portfolio, and it’s the No. 1 stock of the last decade, obviously the investor is going have a lower return,” said Carbonaro, who has a Clermont office. “That’s when I say, ‘Are you willing to put your money where your mouth is?’
“I have to be a fiduciary, not just say, ‘This is what they asked me for.’ ”
Carbonaro and Timothy Plan pointed to studies about investments that look at options based on various social priorities.
“Timothy Plan, Ave Maria, Eventide and other mutual funds provide Christians and other principled investors with a safe haven to earn competitive returns without compromising their most dearly held values,” Timothy Plan said in the statement. “Approximately threefourths of Americans self-identify with a Christian faith, many of whom may now be subjected to unnecessary and, in their minds, irrelevant questions concerning their investment portfolio selections, should they choose to reflect their beliefs in their investment strategies.”
Newer indexes can look at companies’ stances on gender issues or other socially conscious aspects affecting business while measuring their performance, Carbonaro said, though some have yet to establish a long-term track record.
“Let’s say guns are popular in Florida, but you don’t want them in your portfolio,” Carbonaro said. “You can always make your values match your portfolio, and it’s pretty cool to do that. But again, will you suffer? It might affect you; it might not.”