PLANADVISER - September/October 2017 - 21

DC Plans
Embrace
ESG Funds
DOL guidance has
paved the way
TWO experts with Northern Trust
Asset Management, Sabrina Bailey,
global head of retirement solutions,
and Mamadou-Abou Sarr, global head
of environmental, social and governance
(ESG) investing, recently penned
a helpful analysis examining the
proper role of ESG in defined contribution
(DC) retirement plans.
Roughly two years after the Obama
administration moved to open up the
use of ESG investing factors under the
Employee Retirement
Average
Age of
Advisers
Ticks Down
... But succession plans
are still needed
THE financial advisory industry is
getting younger as more firms hire
recent college graduates to fill clientfacing
and revenue-generating roles,
according to TD Ameritrade Institutional's
latest Financial Adviser
Insights research report.
" People and Pay " reports that
nearly one-third of firms are proactively
targeting recent college graduates
to fill such roles, and, as a result,
Income Security
Act (ERISA), the pair say they see
tremendous interest from defined
contribution plan clients to use ESG
to " mitigate risk, seek opportunities
and offer more options to their participants. "
ESG can help a sponsor meet all
of these goals, Bailey and Sarr agree,
but there are some considerations that
must be taken into account to ensure
ESG themes do not conflict with the
strict tenets of ERISA.
" First and foremost, are there
organizational
strong
values
that
should be reflected in the retirement
plan investment menu? " Bailey says.
" This is the beginning of defining the
potential role of ESG in a DC plan.
Women and Millennials, in particular,
are creating demand for investments
that align with the corporate values of
their employers. "
Of course, under ERISA, there are
limits on the extent to which plans can
consider social values when picking
investments, Sarr advises. Even with
the Obama-era expansion of ESG in
DC plans, the sponsor must carefully
consider the risk-return profile. If an
investment can reasonably be expected
to underperform because of its
commitment to a certain set of values,
it is probably not a good fit for the DC
world. This was more of an issue in the
past because ESG funds were typically
designed to simply " screen out " certain
stocks-say, alcohol, tobacco or firearms
companies. Today the product
set is far more sophisticated and takes
a more positivist approach, leveraging
ESG analysis to improve decisionmaking,
rather than simply relying on
negative screens.
" ESG analytics and ratings have
improved dramatically over the years, "
Sarr observes. " ESG ratings can now be
used as a risk mitigation technique or
an opportunity-seeking technique. "
The idea is that the highest-rated
companies from the ESG perspective
should stand out against their competitors
and should have lower resourcescarcity
risk. -John Manganaro
the median age of lead advisers has
slipped by three years to 47 since 2015.
There is evidence that these graduates
emerge licensed and credentialed,
but naturally " they are less
productive than experienced investment
advisers with an existing client
base, " at least during their early years
in the firm, the report says.
Vanessa Oligino, director of business
performance solutions at the
company, suggests that the big challenge
for firms interested in recruiting
a new generation of advisers is to
" communicate the benefits they can
offer, promote the growth prospects
of a financial planning career and
structure an organization that can
help these new advisers develop and
contribute to long-term growth. "
The research shows that the
median firm expects to have seven
full-time-equivalent
employees
by
the end of this year, up from five just
two years ago. And while advisers
report that the pace of client growth
has slipped to 6.4%, " that growth rate
is still slightly above average for the
nine-year history of the study.
Still, finding qualified advisers to
work with clients is increasingly challenging,
as over two-thirds of firms
reported.
" As a result of this scarcity, more
firms are outsourcing, forming strategic
partner relationships and casting
a wider net for talent, " TD Ameritrade
notes. " Indeed, six out of 10 firms have
realized labor savings as a result of
some form of outsourcing. "
Besides
outsourcing
compliance
and back-office functions, many firms
now use third parties to offer additional
services such as tax preparation
and insurance, even if they
advertise these services as client
offerings, TD Ameritrade found. The
study also shows that firms are incorporating
a range of benefits and noncash
compensation such as flexible
work schedules.
" A key offering for younger advisers
is a clear career path and the availability
of mentoring " from seasoned
professionals, Oligino says.
-John Manganaro
planadviser.com september-october 2017 | 21
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PLANADVISER - September/October 2017

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