Are your 403(b) investments hurting your cause? I first became aware of this issue when I read a scathing report by Forbes magazine and Mother Jones regarding, Hobby Lobby. The owners of Hobby lobby have anti-abortion feelings that they have expressed publicly. These magazines uncovered that the investments inside of their 401(k) did not align with these expressed beliefs. That made me think whether non-profits were considering the alignment of their 403(b) investment with their mission. I recently found a plan were approximately 10% of the investments or 3 ½ million dollars of plan assets ran counter to the beliefs of management.
Aligning 403(b) investments to mission
Is your mission pro or anti-:
- Consumer Health & Safety
- Human Rights, such as, no child pornography, human trafficking, etc.
- Military Weapons
Do you screen your 403(b) investments to see if the companies your employees invest in for retirement align with your mission? Even better, do you offer choices that actually promote what your organization represents, such as sustainability? If you have a single employer plan for your 403(b) you may be working with a record-keeping firm that makes this hard by limiting your 403(b) investment options. Many recordkeepers or retirement plan brokers tout the number of options that you can choose from. However unless the record-keeping firm is actually open architecture your choices are limited. Beware that some firms have a limited platform in a less limited platform. I have had their representatives call their less limited, open architecture. Most firms that recordkeeper plans don’t think of providing an array socially responsible or ESG investing options when determining their lineups. Their decisions are based on their business needs.
Recordkeepers that are open architecture generally are more explicit in their fees. They do not as a business decision rely upon investments with revenue-sharing to offset the record-keeping fees. You may have heard from some brokers or investment advisor representatives that most of those socially responsible or ESG investing options don’t perform well. In fact, when many people hear the phrase Environmental, Social and Governance Investing (ESG investing) they fear making no money. If I said what do you think about investing in Google or Microsoft and many would think making money. If I said has your portfolio averaged 7% over the last 5 years many would say I’ll take it. If I then said, it fits with your values, they would say that is even better. Using research from DALBAR, the average investor over the last 20 years would have been better off investing in the Calvert social index fund.
Screening your 403(b) investments
Few people read the details about what they are investing in. I don’t blame the average investor for not doing so. Most people typically look at the returns of their investment choices when making their decision. However, what is the decision-making process behind the numbers? If your investments do not specifically state that they limit their investments in companies aligned with your mission than on any given day they can support the company’s that your nonprofit was founded to combat. There are several companies who that have some kind of investment strategy that align with various environmental, social or governance causes. There are companies that specialize in screening investments for various social concerns that are not investment managers.
Support for investment policy statements from Center for Fiduciary Studies
The Center for Fiduciary Studies actually provides guidance for employer-sponsored retirement plans to guide you and evaluating the addition of socially responsible investments. It is considered a fiduciary best practice to adopt and follow an investment policy statement. If you, the Steward, has elected to implement a socially responsible investment strategy, you need to take measures to assure that it is structured, implemented and monitored properly. The Steward has appropriate language in the investment policy statement authorizing socially responsible investing and providing guidelines for how the strategy is to be implemented.
It’s important to work with an advisor that understands socially responsible investing and has access to resources to support it. If you would like help screening your investments and adapting your investment policy statement to align with your mission please contact us.
(1) The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
(2) Securities and Advisory services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.
(3) The LPL Financial Registered Representatives associated with this site may only discuss and/or transact securities business with residents of the following states: AZ, IN, IL, MI.