Sustainable Advice – The Business Opportunity of ESG

Marginal Becomes Mainstream

Sustainable investing is an investment approach that considers environmental, social and governance (ESG) factors in portfolio selection and management.  Variants of ESG have been around for years on the fringes, but now the movement has entered the mainstream. Interest in this approach is growing more quickly than ever.  Supported by demographic trends such as heightened interest among millennials and women, both of whom are gaining more investment decision-making authority, this growth is likely to continue.  Regulators worldwide are encouraging, and in many cases mandating, ESG as an investing consideration. Institutional/Pension money along with retail guidance is driving a surge in ESG interest and creating a strategic business opportunity for forward looking advisors.

Not your Daddy’s SRI

There was a time when Socially Responsible Investing (SRI a more narrowly defined precursor to ESG) was considered noble but impractical. It began essentially focused on excluding “sin” stocks, those companies in the business of tobacco, alcohol and gambling and later added other social factors as well.  You traded the good feeling of not supporting vice in exchange for often subpar investment returns. ESG on the other hand encompasses not only the negative/exclusionary screening of SRI but adds screens for positive/best-in-class business elements as well as important community impact and corporate governance factors. A more modern, sophisticated approach can often yield better investment performance, resulting in growing popularity.

The Numbers are Real

According to the Global Sustainable Investment Association (GSIA) the global sustainable investment market grew from $13.3T at the outset of 2012 to $21.4T at the start of 2014.  Not only did ESG strategies see this absolute growth, but their share of institutionally managed assets grew as well, rising from 21.5% to 30.2%(1). Over that two-year period, the fastest growing region was the US, followed by Canada and the Eurozone.  With $14.4T in assets, the largest sustainable investment strategy globally is negative screening/exclusions.  Following closely is ESG integration at $12.9T, with corporate engagement/shareholder action the third largest at $7.0T. While negative screening is the largest strategy in Europe, in asset weighted terms ESG integration is now the largest strategy in the US, Australia and Asia. The largest strategy in Canada is corporate engagement and shareholder action.


Performance Not Poor Anymore

A 2015 study from the Institute for Sustainable Investing shows that sustainable investing met, and often exceeded, the performance of comparable traditional investment approaches (2).  In terms of broad measures, the study noted that the annual returns of the MSCI KLD 400 Social Index, which is an index of 400 US listed companies with high ESG ratings and excludes companies whose products have negative social or environmental impacts, outperformed the S&P 500 by 45 basis points a year since its inception in 1990. At a more granular level the study examined the performance of 10,228 open-end mutual funds and 2,874 separately managed accounts over the last seven years and found that on both an absolute and a risk-adjusted basis, across asset classes and over time a sustainable approach had equal or better returns. Sustainable equity mutual funds met or exceeded the median return of traditional equity funds for 64% of the time periods examined.

Digital Overlays to Simplify your ESG Offering

One unique factor about ESG investing is how personal and automated it can be. Objective financial factors including the client’s social values are now easily integrated into client automation, client management, and client communication tools. Before the arrival of digital tools, capturing and managing such client priorities were rudimentary, like being limited to an asset allocation model with only 3 buckets; stocks, bonds, and cash. That has all changed. Sophisticated tools like InvestCloud’s MQMA (Multi-Question, Multi-Answer) Sustainability Applet make it easy to capture and align client preferences with an array of ESG research factors, all controlled by the advisor or institution managing the assets. InvestCloud’s Sustainability Applet is built on InvestCloud’s fully integrated digital advice platform so tracking and reporting on those assets becomes more manageable as well.  ESG was once a significant compliance and operational hurdle for advisors to incorporate into their advisory practice.  InvestCloud’s Digital Advice Platform partners with advisors to quickly scale all types of client automation capabilities so ESG is now a scalable competitive advantage instead of cost burden.

For more information about InvestCloud and how we help firms navigate the digital divide, visit us at or call us at 888.800.0188.




InvestCloud Solves DOL Issues with Digital Advice Platform

By Colin Close, President InvestCloud

Is your broker-dealer ready for the Department of Labor’s new Fiduciary Standard?

You Can Be With InvestCloud’s Digital Advice Platform  

  • New DOL ruling requires that many retirement accounts now be managed using a fiduciary standard.
  • Millions of clients and trillions in retirement assets will be affected.
  • Firms need a cost effective way to align advice and client service to meet fiduciary standards.
  • InvestCloud allows firms to replicate the low-cost brokerage experience with a modern digital advice platform.

Millions of brokerage retirement accounts must now be advised using the fiduciary standard. Short-term impact to registered representatives and broker-dealers will be the migration of these assets into a fee-for-advice model.  The Best-Interest-Contract Exemption (BICE) is the alternative which requires additional client disclosures and heightened compliance oversight. InvestCloud’s Digital Advice Platform is used by hundreds of financial institutions across $1.5 Trillion in assets to automate your client advice, communication, and portfolio management capabilities.

InvestCloud’s Digital Advice Platform is the most customizable, cost-effective, fully integrated digital platform available today.  Our Applet based approach allows firms to scale the delivery of client advice, regardless of service model and account size.  Our proprietary MQMA (Multi-Question, Multi-Answer) risk profiling technology intelligently automates your custom KYC questionnaires, client onboarding, and investment policy statement by intuitively stepping your client through their own custom digital onboarding experience. The result: Client’s self-direct themselves to your own investment strategies and asset allocation models. Your own digital platform, your own service model, your own investment strategies, your own brand…all powered by InvestCloud. Going digital doesn’t mean you can’t be different.


Old Think
Smaller accounts are charged trading commissions or higher annual fee % due to low profitability and the increased maintenance/education required to service a mass-affluent client.  One service model forced onto all client types and sizes.

Singular Service Model
New Think
Clients individually choose their own level of service based on personal needs and portfolio requirements. Smaller accounts and digital-first clients operationally scale with client on-boarding and model portfolio automation applets with InvestCloud. High net worth clients choose the high-touch service model they demand with digital-first, full-service, and hybrid service models readily available for all types of clients.

Hybrid Service Model.png


Clients are demanding digital services and cheaper advice models. High performance firms are leveraging InvestCloud’s Digital Advice Platform to quickly scale custom service models and meet the service demands for clients of all types and sizes.  The market is quickly responding and digital innovators are surfacing as competitive leaders. Grow your AUM by offering the service model your clients are asking for.

Cross the digital divide with InvestCloud’s fully integrated Digital Advice Platform.