Client Service November 9, 2021

The Role of Pro Bono Services in Financial Advisers’ Practices

Pro bono advisory work is helping to serve those who have been traditionally under and poorly served by the financial advisory industry—while giving some advisers a renewed sense of purpose and a broader set of planning skills.
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Millions of Americans are financially struggling, and inflation, supply chain and other economic challenges stemming from pandemic have only made the problem worse. Recognizing a clear and growing need, financial advisers who do pro bono volunteer work are seeking to help bridge the wealth gap for those who earn low to moderate incomes.

There is a big appetite among financial advisers to be able to give back and help, says Matt Iverson-Comelo, executive director of an organization called Advisers Give Back. When people in the advisory industry think of volunteering, they often think of working at food pantries or building houses. However, financial planners and advisers have a unique skill set that is being underutilized in that space and can help people get on a better financial path.

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Iverson-Comelo explains that Advisers Give Back is a fintech platform dedicated to making pro bono financial planning easier and more impactful for both financial advisers and pro bono clients. In October, the organization announced partnerships with two established fintech companies, Steady and EarnUp, which collectively serve more than 3 million low- and moderate-income individuals. These fintech partnerships will provide a steady stream of pro bono clients as Advisers Give Back begins to scale up, Iverson-Comelo says.

Iverson-Comelo says he wants to build out a platform to help people act and follow through with plans to do better with their money. He says pro bono advisory work is helping to support those who have been traditionally under and poorly served by the industry.

“More and more firms are waking up to the reality that we should be doing more to help people in our community who are underserved, who have structural barriers to building wealth, building assets,” Iverson-Comelo says. “Being able to provide pro bono financial planning is one way to help with that, by giving people access to somebody who is skilled in translating their challenges into a clear plan of action and who can then help coach them to success.”

Giving and Getting

Those seeking help are not the only ones who benefit from pro bono advisory work. It has also helped advisers build empathy and understanding of a wider range of issues faced by those dealing with unique challenges, Iverson-Comelo says.

There can be a sense of immediacy when helping families that have very little margin for error with their finances, adds Jon Dauphiné, CEO of the Foundation for Financial Planning. In contrast to high-net-worth clients, the stakes for those who benefit the most from pro bono work are much higher, such as for a family facing evection.

Volunteers often advise on topics such as building an emergency fund, household budgets or how to prioritize credit card debt, which are things they normally would not deal with, Dauphiné says. It can be very meaningful for advisers to see the impact they have on those clients who often do not have access to trusted objective advice.

One challenge in this space of volunteer work has been reaching those in need of assistance, Dauphiné notes. Advisers associated with his organization have held an average of 20,000 pro bono sessions a year, but there are millions of people who need help. To help fill appointments, he says partnering with fintech firms and working with retirement plan advisers to build a better infrastructure has been vital.

To this end, Iverson-Comelo again emphasizes the importance of collaboration.

“Our new fintech partnerships represent the missing piece of the puzzle. We know that there is a strong demand from financial advisers to give back, and up until now the main issue has been providing advisers with a consistent stream of pro bono clients,” he says. “Mature fintech companies, such as Steady and EarnUp, can reliably deliver over 500 pro bono clients each month, and we’re excited to build more partnerships like these. By this time next year, we anticipate having over 1,000 financial advisers volunteering through the platform, as we scale to prove that financial planning isn’t just for wealthy individuals.”

Compliance November 1, 2021

Op-Ed: ERISA Prudence Demands Healthy ESG Skepticism

Neal Shikes agrees that ESG factors can be an important part of institutional investors’ methodologies, but he also says retirement plan fiduciaries should be skeptical of some claims about what todays’ ESG investments can actually deliver when it comes to confronting climate change.
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There is nothing wrong with injecting environmental, social and governance (ESG) factors into an investment methodology. However, if the outcome of doing so is lower returns, higher volatility, ineffective benchmarking and higher expenses, then prudence is not being exercised.

As is always the case for fiduciaries charged with stewarding participant assets in accordance with the Employee Retirement Income Security Act (ERISA), investment methodologies that produce outcomes that demonstrate prudence and loyalty—while remaining free of conflicts of interest—are the goal. Methodologies that produce these outcomes will not favor making quantitative, pre-determined exceptions for any variable.

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There is no doubt that we should be concerned about climate change. Similarly, there is no doubt that fiduciaries and money managers must make security selection decisions based on market dislocations, future likelihoods, past outcomes, investment mandates, correlations, volatility data, costs and the interrelated technical patterns of all of these things. All things considered, fiduciaries may use ESG factors, but they must also be wary of the possibility of political or profit agendas when it comes to the flourishing of ESG investing among U.S. institutional investors.

Whatever their personal views are about the causes and effects of climate change, fiduciaries are at risk when they have insufficient expertise to identify and incorporate any factor that is included into their methodology, whether or not it is ESG related. Despite the nobility of the effort, plan fiduciaries must remain cautious when it comes to telling participants they have successfully incorporated “climate change considerations” instead of “ESG considerations” into their investment methodologies.

To be clear, weighing ESG considerations in one’s investment methodology—such as the potential impact of one’s investment choices on global biodiversity and ecological health—is a very worthy endeavor. So are quantifying behaviors that impact equality in the workplace and the health and safety of workers. It is also about time that ethical behavior, board diversity, conflicts of interests, executive compensation and shareholder’s rights are looked at closely.

What is difficult today, and what will remain difficult, is incorporating new investment decision processes with little historical data in an attempt to address extremely broad and complicated issues that are so wide in scope as to make the likelihood of positive outcomes highly difficult to quantify. Case in point, can a single investment fund really claim to address the issue of climate change?

At this juncture, it seems unrealistic and potentially misleading—and beyond the scope of retirement plan fiduciaries’ duties and the data available to them—to claim to be assessing such a vast and evolving issue within a single investment review. For now, at least, addressing these macro issues is an important task arguably better suited for local and global civic engagement—by voting in elections where political and social agendas are debated, refined and pursued on their own terms, not as investment factors.

A final point to make is that, up until recently, investments considered to be ESG focused were rather opportunistic and more suitable for the private markets. As such, it is worth considering to what extent the new push for ESG investments in the retirement plan marketplace represents an opportunity for active investment managers to secure more assets in the public markets.

In the end, Department of Labor (DOL) enforcement and ERISA class action proceedings will continue to focus not on any specific outcomes, but on the prudence of fiduciaries’ behaviors and the plausibility that they have caused damages via poor methodologies.

 

About the author:

Neal Shikes is managing partner of MJN Fiduciary LLC (The Trusted Fiduciary), based in New York City, which provides employer-sponsored retirement plan and fiduciary consulting.

Editor’s note:

This feature is to provide general information only, does not constitute legal or tax advice, and cannot be used or substituted for legal or tax advice. Any opinions of the author do not necessarily reflect the stance of Institutional Shareholder Services or its affiliates.

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