Peter Krull rejoiced when he returned home on Tuesday. While he was out, a new meter was installed that will enable him to charge his all-electric Chevrolet Bolt EV using the solar panels on his roof. It was one more step he could take to lower his carbon footprint. Krull was, of course, already recycling, composting, buying locally sourced food when he can, and investing with the world in mind, not just himself.
“We do walk the walk,” he said.
Krull, the CEO and director of investments at Earth Equity Advisors, an RIA in Asheville, N.C., founded the firm 16 years ago to help people build sustainable, responsible and impact investment portfolios. It now manages $135 million and has its own Green Sage Sustainability Portfolio, a basket of 50 stocks from companies that have a “sustainable product, service or corporate ethic.”
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But the RIA was disappointed in itself, as it turned away people interested in its investment philosophy but without enough assets to become clients. (Earth Equity Advisors generally only accepts clients with at least $250,000 to invest.)
“That sort of bugged me because our mission, as a firm, is to bring sustainable, responsible investing to everybody,” Krull said.
To make its investment strategy more accessible, it decided to create a so-called robo advisor called Align Digital, which it launched Tuesday. The digital investment platform uses a pool of 500 stocks screened for environmental, social, and governance, or SRI, factors. Investors then use a questionnaire developed by Earth Equity Advisors to customize their portfolio. Depending on what an investor wants to include or exclude, or if they choose to overweight certain factors, their portfolio could end up similar to the Green Sage Sustainability Portfolio. The portfolios also include exchange-traded funds with SRI bonds.
Sixteen years of experience evaluating investments with an SRI lens is what separates Earth Equity Advisors and Align from others, Krull said. Investing like his firm does has gotten easier, but companies have also become more conscious and sought to fool investors on their level of positive impact. For example, a company that might fail to meet certain carbon footprint standards could improve its stature by funding the preservation of carbon-absorbing forests that are already well-protected — and then make its way into certain funds or models. Krull said he evaluates every holding of every fund.
But it’s not just about excluding some stocks. Krull says he narrows the scope of his portfolios to what companies he wants to invest in and believes will succeed in the future. It’s worked out so far — the Green Sage Sustainability Portfolio is up more than 250% since it was created in 2012 and has delivered annualized returns of 15.89%, exceeding returns of the MSCI All Cap World Index and the S&P 500 in that period.
A minimum investment of $5,000 is required to open an account with Align and it charges a fee of 0.75%, both higher than the minimums and fees at some other robo advisors. Investors can also transfer a 401(k) or 403(b) into a sustainable rollover IRA using the platform but they will not have traditional relationships with Earth Equity Advisors or receive financial plans.
The robo advisor will be a profit center for Earth Equity Advisors but its fee will bring it close to a breakeven point, Krull said. The $5,000 minimum to open an account was decided so that the platform would attract serious investors and to help it scale, a challenge other digital investment platforms have faced.
Swell Investing, a Santa Monica, Calif.-based robo advisor backed by Pacific Life with a focus on SRI, closed in August of 2019 because it was unable to achieve the scale needed to be a viable business, the company said on its website. It has more than 14,100 accounts but manages just $33 million, according to its last regulatory filing.
Motif, a portfolio management software company that enabled retail investors and financial advisors to invest in thematic portfolios — stock and ETFs grouped based on specific themes and investing styles — suddenly closed in April. The company, which raised a total of $126 million in funding from investors, was troubled before the market volatility related to Covid-19 pandemic.
Folio Financial absorbed the clients of Swell and Motif when they closed, and has done the same for other robo advisors in the past. Earth Equity Advisors partnered with Folio more than two years ago to create Align.
Partnering with Folio meant creating a trustworthy, powerful robo advisor, in a relatively short amount of time, without the need to raise funding from investors. Earth Equity's separately managed account portfolios were available on Folio's Model Manager Exchange. “I also want advisors to feel comfortable sending people here,” Krull said about Align. “In a way, it’s an easy way to do an SMA.”
For those reasons, the wealth manager isn’t worried about scaling Align or whether it will be a success. “We would not have made the investment in this if we didn’t think we were going to have the best solution out there.”
“I have no doubt that this is something that we’re going to be able to grow. I can’t tell you where we're going to be in five years from now. But do know it's needed...I think that the results are going to speak for themselves,” Krull said.
Every wealth manager is getting questions about investment strategies that consider the environmental, social, and governance impact of companies, he said. “If you’re an advisor and you haven’t had a client ask you about ESG, then you're an aberration at this point.”
Michael Thrasher (@Mike_Thrasher) is a reporter at RIA Intel based in New York City.