Do Good and Build Wealth with Impact Investing Robo-Advisors
“80% of the 200 studies reviewed showed that stock price performance is positively correlated with good sustainability practices” ~Study by the University of Oxford
Socially responsible robo-advisor investing is more than a fad, it’s a full-blown movement. The premise of socially responsible investing or impact investing robo-advisors is that consumers hunger to invest their money in line with their personal values. A recent Investment News article claims that financial advisors without socially responsible investing choices will sacrifice clients.
Robo-advisors recognize the cry for SRI investing (sustainable, responsible, impact) options and are filling that need.
There are at least 40 socially conscious ETFs with $3.1 billion AUM, according to Sumit Roy in a recent ETF.com article. ETF.com’s top 10 socially responsible ETFs (also known as ESG – environmental, social, governance funds) come in several varieties from iShares MSCI ACWI Low Carbon Target ETF (CRBN) and iShares MSCI Global Impact ETF (MPCT) to the broader focused iShares MSCI EM ESG Optimized ETF (ESGE).
If you’re seeking the simplest way to tap into the impact investing trend, you might buy a socially responsible ETF.
Although, an impact investing robo-advisor might be for you if you prefer:
- Proffessional investment management
- Low investment management fees
- The opportunity to mix DIY investing and investment management
A few digital investment advisors focus solely on socially responsible investing, while others include impact investing within their menu of available funds.
6 Best Socially Responsible Investing Companies
1. M1 Finance Socially Responsible Investing
The M1 finance app is a perfect solution if you’re seeking to craft your own portfolio and leave the management to the pros. M1 uses a “pie” portfolio model, with each fund, stock, or specific type of asset as one piece of the pie. You choose the percentage to invest in each asset and M1 Finance does the rest. If you’re a socially conscious investor, then populate one piece or more of your investment pie with socially responsible ETFs or socially conscious companies.
As and added bonus, M1 Finance is free. Yes, that’s right, no management fees!
M1 Finance also manages and rebalances your investments to keep them aligned with your preferred investment percentages.
Impact investing benefits of investing with M1 Finance robo-advisor:
- Design your own portfolio and select the pre-made socially conscious funds.
- Create your socially conscious robo-advisor portfolio and more.
- Add in other types of investments to your M1 Finance portfolio such as bond funds, real estate funds or even a target date or hedge fund allocation.
The beauty of M1 Finance is the ability to perfectly customize your investments to align with your goals and values. And the socially responsible portfolios make it that much more accessible to do good and make money.
- Investors who want to choose a mix of socially responsible funds.
- Investors who want to include socially responsible ETFs.
- Investors who want free investment management.
2. Wealthsimple Socially Responsible Investing
Wealthsimple offers brilliant impact investing choices plus free financial advisors. The Wealthsimple SRI strategy invests in exchange traded funds (ETFs) that track the global economy. The investments are weighted according to environmental and social impact along with performance factors.
The SRI Portfolio focuses on investing in companies with low carbon admissions, those that support gender diversity, and those that support affordable housing. It gives investors a chance to invest in companies that are consistent with their personal values. The portfolio provides allocations based on Conservative, Balanced and Growth profiles. It uses the following six funds – four stocks funds and two fixed-income – to create those portfolios:
- iShares MSCI ACWI Low Carbon Target (CRBN) – Low Carbon, comprised of global stocks with a lower carbon exposure than the broader market.
- PowerShares Cleantech Portfolio (PZD) – Cleantech, comprised of cleantech innovators in the developed world.
- iShares MSCI KLD 400 Social Index Fund (DSI) – Socially Responsible, comprised of American companies that are socially responsible.
- SPDR Gender Diversity (SHE) – Gender Diversity, comprised of companies with more gender diversity among their leadership.
- PowerShares Build America Bond Portfolio (BAB) – Local Initiatives, comprised of bonds issued by municipalities to support local initiatives.
- iShares GNMA BD ETF (GNMA) – Affordable Housing, comprised of government issued securities that promote affordable housing.
- Canadian investors (also available for US investors).
- Investors who are seeking financial advisors and invetment management.
3. Betterment SRI Portfolio
Betterment is one of the first robo-advisors and continues to innovate. After adding access to human advisors, Betterment now offers socially responsible, impact investing options to its investors.
Sticking with its low-fee diversified approach, the Betterment SRI (socially responsible investing) portfolio elected to replace the U.S. large-capitalization stock allocation with an SRI alternative, for interested investors. By replacing the U.S. large-cap fund with iShares DSI, an ETF that tracks socially responsible companies, Betterment customers can participate in socially conscious investing.
Unlike other impact investing robo-advisors, Betterment replaces their typical funds with socially responsible investments to these segments of your portfolio:
- U.S. Stocks – Large Cap
- Emerging Market Stocks
- Developed Market Stocks
To maintain its low fees and high liquidity, Betterment maintains the existing funds in its other asset classes, such as value, small-cap, and international stocks and bonds.
Betterment elected this SRI strategy to avoid other pitfalls of impact investing:
- High fees and lack of tax optimization
- Lack of proper diversification
- An unsystematic approach to choosing individual SRI funds or companies
Despite Betterment’s limited SRI approach, they acknowledge that they may expand impact investing options in the future. Betterments socially responsible investing underscores why Betterment remains one of our favorite robo-advisors. This robo’s low cost, broad diversification and access to human financial advisors makes it tough to beat.
- Investors seeking robo advisor with no minimum investment amount.
- Investors who would like to text with financial advisors.
- Investors who also want cash management and high yield savings.
The Sustainfolio robo-advisor focuses only on socially responsible investing. This robo investor only invests in funds that own shares in companies that have passed socially responsible investment criteria. The company hand-picks the investment funds based upon their adherence to SRI criteria as well as a low fund management fee structure.
Sustainfolio is among the small group of robo-advisors that are committed to socially responsigle investing. SRI is not an afterthought with Sustainfolio.
Charles Schwab is the custodian for the Sustainfolio robo-advisor. The account is protected by SchwabSafe, a collection of security tools that keep your personal and financial information safe.
- Anyone who wants an SRI-only robo-advisor.
- Younger investors who want to support clean air, clean water and low carbon emissions.
- Experienced investors who prefer not to DIY their sustainable, socially-conscious investing.
Earthfolio is an online investment advisor for investors who only want ESG companies in their portfolios.
According to the company website, “Every portfolio we build invests exclusively in a broad spectrum of sustainable mutual funds that screen on up to ten environmental, social, and governance, criteria.”
Like other robo-advisors, Earthfolio begins with a brief questionnaire. The investor’s answers guide the asset allocation which aligns the user’s goals and risk tolerance with her asset allocation (percent invested in each type of fund). The company also rebalances and manages the investments. This is where the similarity with other robo-advisors ends.
In general, Earthfolio’s available investment funds, most of which lean towards the socially conscious realm, are not low fee index funds, but higher cost professionally managed offerings. This leads to greater underlying costs. It also creates a challenge for this robo to beat the indexes.
Unlike many of Earthfolio’s robo-advisory peers, this company offers an impact investing menu of both stock and bond funds by a variety of providers. A sample of the available Eartfolio funds includes; Calvert Green Bond (CGAFX), TIAA-CREF Social Choice Bond (TSBRX), CRA Qualified Investment (CRATX), Access Capital Community (ACASX) and more.
Earthfolio’s bond and stock funds cover the socially conscious investing landscape and invest in firms committed to these socially responsible sphere
- Clean Tech
- Equality & Diversity
- Human Rights
- Fair Labor
- Animal Welfare
- Corporate Governance
- Healthy Living
- Community Development
- Fossil-Fuel Free
- Shareholder Advocacy
Earthfolio is a viable choice for the diehard socially conscious robo-advisor investor, who wants her entire portfolio to be invested in line with her values. Earthfolio’s management fee is 0.50%, like other robo-advisors, yet the underlying fund management fees are a bit pricey. Finally, there may be lower cost impact investing robo-advisory alternatives to meet a similar end.
- Wealthier investors – reguires a $25,000 minimum investment amount.
- Investors seeking broad SRI investing strategies.
- Committed investors to SRI, willing to pay a bit higher management fee – 0.50% fee.
In another twist to the standard robo-advisor, OpenInvest is structured as a Public Benefit Corporation (PBC), as opposed to an LLC, C Corp or other legal structure. A PBC writes the corporation’s social and environmental mission into their legal charter. Recognized in 30 states, the PBC status hones in on a company’s impact on the wider public. OpenInvest follows in the footsteps of Patagonia, Kickstarter and other socially conscious firms.
Like its robo-investing peers, OpenInvest aligns your asset allocation with your risk level and goals, offers tax loss harvesting, a variety of account types and charges a single 0.50% of AUM fee.
OpenInvest also follows a passive investing approach, but only includes impact investing firms. OpenInvest chooses the investment companies after screening the S&P 500 universe for companies that meet their socially conscious investment criteria. These diversified impact investing companies make up the investors equity or stock holdings. The company plans on adding small-cap and international firms as well.
The investor can choose a low fee, diversified bond ETF (BND) for the fixed portion of their portfolio. Or, there’s the option to invest in a “Green Bond” fund (CGAFX), with a higher underlying management fee.
Investors with OpenInvest either directly or indirectly own 70-80% of U.S. publicly traded companies. These are several of the impact investing categories the firm supports:
- Invest in ethical supply chains
- Divest from big tobacco
- Invest in companies that support LGBTQ employees
- Divest from fossil fuel producers
- Divest from companies driving deforestation
- Invest in women leaders
- Invest in companies supporting refugees
- Divest from gun violence
- Divest and defund the Dakota access pipeline
- Divest from carbon emissions pollution
- Stand up to Donald Trump
- Sustainable investor who exclusively wants to fund firms that align with his values.
- Investors who want a company that directly invests in individual impact investing firms
- Investors seeking customized SRI investing.
Betterment, M1 Finance, and most investment firms offer an IRA account. This type of account can be invested in socially responsible funds either at the robo advisory firm or within a standard investment account.
Betterment’s socially responsible portfolio returns have beaten those of their standard investments. In fact, research has shown that socially responsible investing returns are comparable with those of regular investment portfolios. Just be aware that whenever you invest, you have a chance of losing money.
Socially responsible investing is as old as the investment markets. Islam, Methodist, and Quaker – to name a few – religious groups informed how their members could invest. The area was formalized during the 1960’s in concert with the environmental and civil rights movements.
SRI Investing Wrap Up
There is a socially conscious investing robo-advisor platform for every type of investor. From the woman who invests solely in stock and bond funds that align with her values to the man who wants the opportunity to include ESG investing as a part of his investment mix. That’s the beauty of the competitive environment. There’s an investment management service tailored to each type of investor.
In the end, sum up your own values and the features you’re seeking in a digital investment manager. Then, do your own due diligence. As demand grows, it’s likely that more impact investing robo-advisors will emerge.
Disclosure: Please note that this article may contain affiliate links which means that – at zero cost to you – I might earn a commission if you sign up or buy through the affiliate link. That said, I never recommend anything I don’t believe is valuable.