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Your wealth manager should act as your fiduciary, plain and simple. Sounds easy. But in reality it’s not. Today, I want to help you overcome one of the more absurd obstacles you may face. It’s called environmental, social and governance investing, or ESG.
Thousands of investment managers have pledged to follow ESG—a pledge to abide by a U.N.-sponsored statement of ESG principles. Investing in fossil fuel stocks, for example, would likely be on the “no go” list of companies available for investment. You can forget those juicy pipeline yields.
“It isn’t only student activists but the United Nations and even BlackRock CEO Larry Fink who argue that environmental, social and governance investing, or ESG, will do good for the world while improving returns for beneficiaries,” explain Max M. Schanzenbach, a professor at Northwestern Pritzker School of Law, and Robert H. Sitkoff, a professor at Harvard Law School, here.
The problem with this approach has nothing to do with fossil fuels, per se, but everything to do with your investment manager acting as your family’s fiduciary.
“By law, a trustee must abide by fiduciary duties of loyalty and prudence, and therefore act for the ‘exclusive’ benefit of the beneficiaries, considering ‘solely’ their interests, without regard for collateral benefits, such as advancing social or environmental causes,” point out Schanzenbach and Sitkoff.
Your family’s wealth should not be fighting your investment manager’s environmental battles or supporting his beliefs.
Let him use his own money. Not yours.
Your job as your family’s fiduciary is to act like one and to make sure your investment manager does too.
Ask your advisor about ESG, and be sure that he is guided by the Fiduciary Rule rather than the opaque “Suitability” rule. This is going to be a huge movement in wealth management. Make sure you know how your manager invests your money, and be sure it’s to the benefit of your family and not one if his pet projects.
Read more about the importance of working with a fiduciary here:
- Do You Understand the Fiduciary Rule?
- Is Your Wealth Manager Held to this Higher Standard?
- Brokers Happy to Avoid Looming New Rules
- Advisors Should Help You Reach Investment Goals for Real, Not only in Theory
- One Easy Solution to the Fiduciary Problem
- Failed Fiduciary Rule Spells Caution for You
- Cheeseburgers in Newport, RI and the Fiduciary Rule
- Annuities Hammered by Conflict of Interest Rules (Finally)
Originally posted on Your Survival Guy.
