Marshalling Resources to Bring About Change

Partner Content What is Partner Content? Investopedia hosts articles from other investing and financial information publishers across the industry. While we do not have editorial control over their content, we do vet their articles to make sure they are suitable for our visitors. By James Lumberg | April 18, 2018 — 2:00 AM EDT

The Parkland, Florida school shooting and strong turnouts at the March For Our Lives and other demonstrations nationwide have further mobilized the growing group of investors intent on aligning their portfolios with their social convictions, values, and personal preferences surrounding sensitive topics. Investors have taken on a more activist role by insisting their portfolios exclude companies engaged in the manufacture and sale of firearms intended for civilian use, or those with ties to organizations that support these activities.

Some companies, such as Dick’s Sporting Goods, Kroger, and Walmart, have chosen either not to sell assault weapons or to raise the purchase age to 21. Others have responded in a different way: MetLife severed its discount program with the NRA, as did major rental car companies like Avis Budget Group, Hertz, and Enterprise. Investment consulting firms, including BlackRock, Calvert, and Parametric, are joining the effort to foster responsible gun sales by proactively addressing client concerns and being part of the force that creates positive change.

In recent weeks, I’ve heard from more advisors seeking ways to respond to their clients’ concerns about firearms exposure in their portfolio. Here a few scenarios advisors have broached and the ways they can respond to clients interested in navigating this important issue:

My client is comfortable with her investment portfolio but wants to remove all exposure to gun manufacturers and distributors. What can I do?

Investment overlays allow advisors to apply their client’s personal convictions and environmental, social, and governance (ESG) priorities to an existing portfolio strategy. Advisors are essentially able to customize portfolios to avoid controversial products, including firearms, alcohol, and adult entertainment, and at the same time, embrace companies that adhere to responsible workplace ethics. Advisors may also be able to restrict specific securities from stock portfolios if their clients are opposed to particular holdings.

My client is concerned about ESG issues, but needs a fully allocated, comprehensive portfolio solution. She also has a low risk tolerance. Is there a solution to satisfy all these requirements?

A large segment of the impact marketplace today consists of professionally managed portfolios that combine mutual fund and/or exchange-trade fund (ETF) investment managers. Also known as fund strategist portfolios, these feature models variations based on investor risk tolerance and are constructed with socially responsible investment managers.

My client wants to directly invest in companies that advocate for positive outcomes across a broad range of sectors and/or industries. He is also concerned about tax implications. What can I recommend?

Some of the most innovative investment products today involve smart beta and direct indexing, which allow advisors to customize managed accounts based on market indexes and tax management goals. Investors can benefit from owning the underlying stocks, automatic rebalancing, and lower transaction costs. These vehicles that are designed with a pure impact focus may incorporate a quantitative evaluation process so that only companies that meet specific ESG scores are considered for the portfolio.   

My client is a Millennial and has limited dollars to commit to impact investing. Do low-cost alternatives exist?

Millennials in large part have driven the growth of impact investing in recent years. Today, it’s much easier for newcomers to the market or those with limited assets to invest in a way that mirrors their social convictions, as more accessible options are becoming available. Low-cost, fully diversified impact portfolios are accessible to investors with as little as $2,000 to invest whether they are conservative, aggressive, or anywhere in between.

As hundreds of thousands of citizens nationwide have responded to the Parkland tragedy by bringing pressure on our country’s leaders to improve gun safety, many concerned investors are looking to the capital markets and their portfolios with a critical eye. Advisors can help their clients extend their personal values and priorities to their investment strategies. Whether gun control or another hot-button social issue, the universe of impact investing options offers solutions that may meet even the most principled investor.


The information, analysis, and opinions expressed herein are for general and educational purposes only. Nothing contained in this piece is intended to constitute legal, tax, accounting, securities, or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. All opinions and views constitute our judgments as of the date of writing and are subject to change at any time without notice.