Case Study – Ethos Managed Portfolios
Financial advice firm Kearney Group has launched a series of responsible investment options, called the Ethos Managed Portfolios.
The portfolios are the result of an extensive research and consultive process and are an expression of the firm’s long-held belief that good investment is responsible investment.
There are five managed investment options across the range of risk preferences - from defensive to high growth.
The attraction of sustainable managed portfolios
Kearney Group chief executive officer, Paul Kearney, says it is almost a moral obligation of a financial planner to consider ethical social and governance (ESG) investment factors.
“There is a school of thought and perhaps maybe even the way advisers have been trained is to get the best return for clients as possible,” he says.
“But that relies on a very narrow definition of wealth and a very narrow definition of what is best for the community. Clearly one of the ways we can have impact …is trying to understand what’s going to happen as a result of the decisions being made.”
The manager selection process
The process was overseen by the Ethos Investment Committee, which is currently chaired by David Wright, founder and CEO of Australia’s research house Zenith Investment Partners.
As there is limited supply of some kinds of ESG and socially responsible investment options – such as impact investing, which involves investing in a program or institution which provides a societal return as well as an investment return – Kearney needed to apply some pressure to ensure these options were included in the managed portfolios.
“I was surprised at how we needed to lean personally into the people we work with,” Kearney says.
“I needed to insist, people were happy to look, but it requires advocacy to move in the direction you want to go in,” he says.
Client demand and pricing model
“We think in a lot of cases this will be a satellite option for a lot of clients,” Kearney said.
“We think there will be appetite for it but … we’ve deliberately not attached our pricing to this portfolio. We want it to be quite clear that we are not paid any differently depending on the product,” he says.
The weighted average fees (excluding performance fees) for the portfolios range from 0.8 per cent for the defensive option, up to 1.02 per cent for the high-growth option.
The managed portfolios will help the group broaden out the discussion around ESG investing with their clients.
On how the firm charges for advice, Kearney says they have recently reviewed their pricing model and want to move away from time-based remuneration.
“[We’re looking at] service-based contracts as opposed to time-based contracts,” he says.
This involves being quite clear about what service is being provided – such as a investment review – and telling the client the cost of that service. Kearney wants to distance the group from a model that might charge a monthly fee but then only sees the client once or twice a year.
“[It’s] getting away from this ongoing arrangement that is stuck,” he says.