Broader adoption of retail environmental, social and governance investing will be driven by wealth management firms building platforms for these investments, rather than relying on asset managers to create new products, according to Cerulli Associates.

Cerulli believes that the recent revival of interest in ESG investing is different from other product launches.

As with other product trends, asset managers are inventing and adapting products. However, unlike past product introductions, wealth management firms are creating platforms and asset allocation models for investors to allocate to ESG investments.

The September issue of The Cerulli Edge–U.S. Asset and Wealth Management Edition looks at how wealth management firms are building ESG options for their investors and advisors.

According to Bing Waldert, managing director at Cerulli, the theme of ESG investing is not a new one for the asset management industry.

“Products and strategies that purport to invest more ethically have long been a part of the industry,” he explained in a statement. “Early products were relatively simplistic, screening out ‘sin stocks,’ such as tobacco or gun stocks. However, growing awareness of client change and social issues has revived interest in ESG and socially responsible investing.”

The report finds that numerous examples exist of wealth management firms building ESG platforms in recent years rather than rely on asset managers’ new products.

For example, Merrill Lynch launched a series of socially conscious models on its Merrill One platform in 2015. These products mixed mutual funds and exchange-traded funds.

Then in 2018, Merill added passive ETF-only models with its Impact Portfolios, which include five portfolio models, containing between 10 and 12 ETFs. In addition to being available through Merrill Lynch advisors, these portfolios are also offered through Merrill Edge, Merrill Lynch’s direct-to-consumer platform.

“Merrill Lynch, along with other broker-dealers (BDs), is trimming the number of products and managers it offers on its platforms,” the report states. “However, Merrill Lynch left the door open for potentially interesting strategies, such as ESG, to be added to its platform.”

In 2017, Morgan Stanley also debuted a series of ESG models, including both mutual funds and ETFs.

“Notably, these models had minimums of $10,000, compared with $400,000 for other firm-discretionary models, suggesting that they could be positioned with younger, less wealthy investors,” the report states.

According to Cerulli, Morgan Stanley currently offers 140 sustainable products on its platform and plans to grow this number.

Cerulli also notes that interest in offering ESG and sustainable investing platforms is not limited to wirehouses and private banks.

Custodians working with registered investment advisors and other independent advisors are creating models and ESG offerings to serve their clients as well. For example, Envestnet launched three separate accounts quantitatively managed by its in-house investment team using Sustainalytics data.

These portfolios are part of a series of thematic separately managed accounts developed by Envestnet. The firm also launched a gender equity portfolio in October and has plans for carbon neutral and Catholic values portfolios, according to Cerulli.

TD Ameritrade also took steps to make ESG investments available to advisors that custody on its platform. In the spring of this year, the firm added four ESG portfolios, managed by Nuveen, to its Model Market Center platform, which allows advisors to review third-party offerings to inform their client asset allocations. The firm also added a screening tool to help advisors filter for ESG options.

More recently, TD Ameritrade added five ESG portfolio for its robo-advisor clients.

Another example is E-Trade, who added Earth Equity Advisors, an ESG manager, to its model marketplace.

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