Transcript

Hi, Everyone. Welcome to the Wiser Financial Advisor with Josh Nelson, where we get real, we get honest, and we get clear about the financial world and your money. This is Josh Nelson, Certified Financial Planner and founder and CEO of Keystone Financial Services. Let the financial fun begin! 

 Thanks for joining me today on the Wiser Financial Advisor. What we do here is to seek after wisdom because in the book of proverbs in the Bible, it says that that’s the wisest thing that we can do is seek after wisdom. And so that’s exactly what we do here, whether it be the topics we cover, the areas we explore, or the guests we have. 

I’m particularly interested in helping people be a success. That doesn’t always mean money. Sometimes money does not buy happiness. Not having money also does not buy happiness, by the way. A lot of people say that money does not buy happiness. And I would tend to agree up to a point, that money alone does not buy happiness. However, not having money, not having wealth, not making good financial decisions, does not buy happiness either. So we’re looking for wisdom out there, not just from our own research but from other people as well, successful people who have gone before us. We can learn from their mistakes. We can learn from their successes. We can make good decisions about our money. 

Today we’re talking about a topic that’s getting thrown around out there in the media these days. It isn’t a new one, but it’s a hot topic now. Many politicians are throwing this around as well. What is it? ESG investing. ESG stands for Environmental, Social and Governance investing. This used to be called something different, back when I got to be in the industry as a financial advisor in the late 90s. This used to be called SRI or Socially Responsible Investing. And I like that term better because the idea is instead of just analyzing a portfolio based on financial metrics and where we think securities are going to go over time, we’re adding an extra layer of something related to the clients’ values. 

This could mean a lot of different things. That’s why I don’t like the term ESG, because some people have values very different from somebody else. For some people, environmental factors like carbon footprints and things like that might be very important and they want their portfolio to reflect those values. Other people might say, “I don’t care about that at all, but I do want my religious values to be taken into account.” A third person might say, “You know what, I don’t care about any of it. I just want to make as much money as possible.” 

Socially responsible investing or ESG investing works to apply some different layers and filters. It looks at the individual companies or the securities in the portfolio to match a client’s values. As a financial advisor, it’s important that I understand your goals, your values and whatever you’re doing right now—whether you’re doing your own thing investing your own money, or you’re working with a different planner. Maybe you’re just not a client of ours yet. I can tell you that whoever you’re working with and even if you’re doing it on your own, it’s really important to clarify your goals and values and make sure your investment strategy lines up with them.

Some people may not want any kind of filters put on the portfolio. They just want their advisor to make money. That’s fine too, but there are more options than ever before out there, if somebody does want certain filters to be placed with regard to environmental factors, social governance factors, religious values, or other things that might be looked at rather than a traditional broad investment portfolio.

There are many types of investment vehicles, and it’s important to pinpoint what’s meaningful to you. If you just throw out a broad term such as “socially responsible investing” or “better environmental, social and governance investing,” that may not match up exactly for one person versus another. It can be a little challenging because if you buy a broad index fund or a mutual fund, even if it has a label on it like “Socially Responsible Investing,” it might not filter the way you want. 

For example, some mutual funds that do ESG investing might take out things that are broadly objectionable like tobacco stocks or alcohol. Or they try to take out companies that are particularly invested in fossil fuels. But you might buy that fund and say, “Well, I just want to make sure there’s no tobacco companies in there.” But it’s difficult to do that in a mutual fund or an exchange traded fund. We can attempt it if that’s important to you.

Another way of doing it is through a separately managed account, but there are much higher minimums there as far as dollar amounts. But a separately managed individual account would allow you to pinpoint and have certain companies filtered out. We’ve had that happen before. We’ve had some clients who maybe worked for a company and got laid off or something like that and just weren’t happy with the company. They said, “I never would want to have my money invested in that company.” Or maybe just don’t want their money invested in another company because they hate the CEO or what the company stands for. 

So make sure you don’t think of it as one size fits all. It’s individual how people feel and what values they hold. And as a financial planner that’s important information for us to know. We’re fiduciary. We are being paid. You’re paying us as your fiduciary to put your needs first, to put your values first and to make sure that we’re doing whatever we can with regard to all the tools and strategies, all the investments that are out there in the financial world as we invest your money. For that reason, it’s important that I know you really well. My team and I do know our clients really well. We take pride in that. We get to know you on a financial level and on a personal level to get all the details right. We make sure we’ve got a plan that fits your needs. It’s a situation in which we almost get to be friends. It’s a business relationship, but we get to be friends. It really is a different level of trust. With all our clients and business relationships, we’re looking to build a high trust relationship. 

So ESG investing is not for everybody. It may not even be something you’re looking at. We’ve had some clients that come to us and say, “I want to make sure I’m not invested in the G type Investments; I want those filters put on my portfolio.” I have no idea because we don’t ask, but I think about half of our clients are probably Democrats and half Republicans. Probably a lot of Independents too. We are Switzerland when it comes to this topic, just so you know before you start firing emails off to me asking why I covered this topic and telling me you’re a liberal or a conservative. (Yes, sometimes we get that, by the way.) And sometimes people try to guess political party or they say, “You’re trying to put this filter on my stuff for your own values.” We are not at all. We do have clients that want ESG in their portfolio. We want to be aware of that. 

There are lots of different ways of getting to the same place. From an investment standpoint, there are broad categories of investment. Asset allocation is the most important investment decision, making sure the broad categories of investments like stocks, bonds, real estate, alternative investments are getting allocated in the right areas. Which broad areas and then what proportions your money is invested in will determine most of your results over time. So allocation is absolutely the most important investment decision. Other decisions such as ESG happen after that. 

We need to know if you own things that are sacred cows you inherited, e.g. stock that your great grandfather owned because he started a bank or something like that. We need to know your values so we can make good decisions for you. You’re hiring us on a discretionary basis to manage your portfolio in between your reviews and conversations with us. The whole idea is that you’re paying us to worry about this stuff instead of you having to worry about it. 

We take pride in knowing our clients really well and we want to make sure that if this is important to you, let us know your values. Communicate with us on anything that you need from us. I just really appreciate you being here. I appreciate you supporting us and sharing this with friends, family, coworkers. 

Please click subscribe to the Wiser Financial Advisor on your favorite podcast service. Thanks for listening as always. Have a wonderful week and God bless. 

We love feedback and we’d love it if you would pass it on to me directly at josh@keystonefinancial.com Also, please stay plugged in with us. Get updates on episodes and help us promote the podcast by rating us and subscribing.

This episode has been prepared for informational purposes only and is not intended to provide and should not be relied upon for tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors. Investment advisory services offered through Keystone Financial Services, an SEC registered investment advisor.