MEDIQUS: Helping Clients Align Their Investments with Their Values

Ronald J. Paprocki, JD, CFP®

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A common issue arising with organizations and individuals is the rethinking of their investment strategies. Specifically, they’re asking questions like:

  • Should I/we be investing in companies that harm the environment? 
  • What about industries that exploit their workers…or companies that turn a blind eye to human rights violations in the countries where they operate?
  • What about the conflict of, say, a medical nonprofit investing in companies whose business may conflict with the goals of the nonprofit (e.g., alcohol and tobacco companies, or firearm manufacturers)?
  • Is it possible for a person or group to be more values-conscious or even mission-minded in their investing–and still achieve their financial goals?

In this case study we’ll show what happened when two clients, a medical non-profit and a single physician, approached MEDIQUS for help in addressing such questions in the same month.*

The Clients

Dr. Ellen Cartwright (not her real name) is an adolescent psychiatrist in her early 40s. Much of her work has centered around the negative effects of technology and the Internet on teenagers. During the pandemic, she reached out with an explicit request. “I don’t want any social media stocks in my portfolio. Can you help?”

Only two weeks later, we were contacted by a board member of a medical society in the Midwest. “Our group is interested in ESG investing**. Can we set up a meeting to discuss this?” 

The Issue

People speak of ESG (environmental, social, and governance) investing, values-based investing, ethical investing, socially-conscious investing, and impact investing. 

While there are technical differences between these various terms, often they are used interchangeably. Generally speaking, people use these terms to convey the idea of “We want our investments to: (1) help achieve financial goals; but also (2) make the world a better place.***

This approach is about making sure investments are aligned with the values of that individual or group. Some would say, “It’s my/our way of distancing ourselves from objectionable products or services.” Others would describe it as “an effort to support the causes and/or principles I/we believe in.”

The Solution

We began consulting with Dr. Cartwright, and separately had meetings with a couple of board members from the medical society.

In each case we followed this process: 

  1. We listened to their concerns and objectives. We believe a critical first step in this process is identifying which issues an investor wishes to address. If this is not clearly defined, an investor risks failing to accomplish anything because they are pulled in every direction by every possible issue. Equally important for an organization is to identify which issues the organization should address as opposed to what issues are important to individual board/committee/etc. members.
  1. We assessed their current approach to investing. Both were following a strategy of Asset Class Investing. The primary objective was to capture broad market performance through well-diversified mutual funds and ETFs.
  1. We gave the parties a concise overview of socially conscious investing. Almost always, this ends up being a complex conversation as this topic involves a host of considerations.

This was the case with Dr. Cartwright and the medical society. We explained that one can approach the topic of socially-conscious investing in a variety of ways:

  •  Negative screening. This is where you exclude certain companies (or industries) because of an objectionable mission, product line, or service. 
  • Positive screening. This is where you proactively search for companies with certain values and priorities…companies engaged in activities you view as having a positive impact. 
  • ESG investing. This is where you favor companies that score well on metrics that are more subjective and not explicitly financial: Is the company environmentally friendly (that’s the “E”)? Does it work for the betterment of society (that’s the “S”? Are these companies governed (that’s the “G”) in a way that enhances life for their employees and communities?
  • Thematic investing. This is where you invest in companies that are not merely profit-driven, but purpose-driven. These companies are typically at the forefront of positive trends and potential breakthroughs.
      1. We reiterated the importance of maintaining financial stability–and not making any investments that would threaten existing financial commitments. In the organization’s case, this meant safeguarding, for example, the organization’s reserves and money earmarked for special awards.

      2. We explored the tricky nuances of socially conscious investing. We asked questions like, “Are you concerned solely about direct exposure to the issue of ___? Or is indirect exposure also problematic for you?” (Direct exposure is where you discover you own stock in a company that produces a product you find objectionable. If you’re opposed to alcohol stocks, an example might be Anheuser-Busch which makes Budweiser beer. Indirect exposure is realizing you own stock in a company–say, Amazon, which owns Whole Foods–that sells alcohol. If your desire is to avoid companies that profit from beer sales, you have to decide “Do I also want to exclude Amazon from my investment portfolio?”)

        There’s no right or wrong answer to questions like this. It’s more a matter of thinking through what you hope to accomplish and the tradeoffs that can come with a values-driven investing approach.

      1. We explained the benefits and risks of values-based investing. While socially conscious investing can align with your values, it also can come with different costs and risks.

        The internal costs of ESG investing are sometimes higher. That’s because this approach requires more research. There’s a more intensive screening process.

        And, with less diversification–investing, say, in only 50 companies, rather than 500–there can be a much different risk profile. Poor performance by two or three companies can have a much larger impact than in a more diversified portfolio.

      1. We showed them examples of how they could invest in this manner. It could include funds from well-known investment companies. However, it’s important to consider how particular one’s parameters for socially conscious investing are. Funds do not allow customization or may only underweight, rather than completely exclude, companies in given industries.

      1. We provided them with data of companies under consideration. Data included performance of traditional funds and the socially conscious funds under consideration. It’s noble to want to invest in well-meaning companies with good missions. However, the historical track record – or lack thereof in some cases – of the investments is one of many important considerations for whether the alternative strategy is a prudent one.

      The process was eye-opening for both Dr. Cartwright and the board members of the medical society. Each client was able to screen and evaluate their current investments. Each was able to see various options for achieving their objectives and what exactly went into their pursuit of ‘excluding_______ investments from the portfolio’.

      The Outcome

      Dr. Cartwright asked for our help in finding funds that excluded several prominent tech companies. 

      The medical society board members took everything they discovered to their membership and said, “We’ve done our due diligence. Here’s what we learned. Here’s what we recommend.” 

      When the group reached a consensus on next steps, we helped them make  changes to the organization’s portfolio and overall investment strategy.

      In each case, the clients were able to say, “We had this concern. With the help of MEDIQUS, we gathered the facts we needed so that we could make an informed decision. Today, we have peace of mind that we made an informed decision and a clearer conscience.”

       And in the medical society’s case, it had a strong and positive message to communicate to its membership.

      Your Situation

      Do you have concerns about your investments? Would you like to make sure your portfolio is aligned with the values you hold dear? Have you considered the various tradeoffs that could accompany such an approach?

      You can schedule a consultation with MEDIQUS by clicking here. We’d love to help you feel confident about your investments.

       

       

      *This case study is for illustrative purposes only. It is not a guarantee or indicator of future results. Results can differ substantially. Some details have been hidden or changed to protect the identity of MEDIQUS clients.

      This document does not constitute advice or a recommendation or offer to sell or a solicitation to deal in any security or financial product. It is provided for information purposes only and on the understanding that the recipient has sufficient knowledge and experience to be able to understand and make their own evaluation of the proposals and services described herein, any risks associated therewith and any related legal, tax, accounting or other material considerations. To the extent that the reader has any questions regarding the applicability of any specific issue discussed above to their specific portfolio or situation, prospective investors are encouraged to contact MEDIQUS Asset Advisors, Inc. or consult with the professional advisor of their choosing.

      **”ESG Investing” is not defined in federal securities laws, may be subjective, and may be defined in different ways by different managers, advisers or investors. There is no SEC “rating” or “score” of ESG investments that could be applied across a broad range of companies, and while many different private ratings based on different ESG factors exist, they often differ significantly from each other. Different managers may weight environmental, social, and governance factors differently. Some ESG managers may consider data from third party providers which could include “scoring” and “rating” data compiled to help managers compare companies. Some of the data used to compile third party ESG scores and ratings may be subjective. Other data may be objective in principle, but are not verified or reliable. Third party scores also may consider or weight ESG criteria differently, meaning that companies can receive widely different scores from different third party providers. A portfolio manager’s ESG practices may significantly influence performance. Because securities may be included or excluded based on ESG factors rather than traditional fundamental analysis or other investment methodologies, the account’s performance may differ (either higher or lower) from the overall market or comparable accounts that do not employ similar ESG practices. Some mutual funds or ETFs that consider ESG may have different expense ratios than other funds that do not consider ESG factors. Paying more in expenses will reduce the value of your investment over time.

      ***Investment advisory services offered through MEDIQUS Asset Advisors, Inc. Securities offered through Ausdal Financial Partners, Inc.  Member FINRA/SIPC ∙ 5187 Utica Ridge Rd ∙ Davenport, IA 52807 ∙ 563-326-2064. MEDIQUS Asset Advisors and Ausdal Financial Partners, Inc. are independently owned and operated. Investments are not FDIC-insured and are not deposits of or guaranteed by a bank. The material has been prepared or distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Investing involves risk, including risk of loss. Before investing, you should consider the investment objectives, risks, charges, and expenses associated with investment products. Investment decisions should be based on an individual’s own goals, time horizon and tolerance for risk. Past performance is no guarantee of future results. Diversification and asset allocation do not ensure a profit or guarantee against loss. Consult your financial professional before making any investments.

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