Welcome to the Financial Finesse Podcast, where we’ll be discussing tips on how to handle your money and life with skill and style.
Your host Cathy Curtis, CFP has been helping make finance accessible and intriguing for women for almost 20 years. You’ll get savvy, actionable ideas, listening to her conversations with some of the coolest and smartest women on the planet.
And now, here’s your host, Cathy Curtis.
Hi, welcome to Episode Three of Financial Finesse. I’m Cathy Curtis, host of this podcast and also founder of Curtis Financial Planning, a financial advisory firm focused on the finances of independent women. I am thrilled to welcome my guest Haleh Modasser. Haleh is a senior vice president and
partner at Stearns Financial in Chapel Hill, North Carolina. The friend that introduced Haleh and me said we’re birds of a feather. And she was right. What we really share is a passion for empowering women around their finances. Haleh has taken this passion a step further and written a wonderful book called Women on Top: Women, Wealth and Social Change. Haleh’s basic message and we’ll get into it is to encourage women to invest their wealth with the mind towards doing good in the world by doing well themselves financially, to do good, but also doing well. In our conversation, you will hear the acronym ESG and the term ESG Investing often.
ESG is an integration of the E environmental
s social and the G governance into investment analysis that includes but goes beyond the purely financial sales, profits growth and things like that. For example, environmental factors determine a company’s stewardship of the environment. Are they concerned about climate change, pollution, resource depletion in their operations? It also looks at social factors. How a company treats its employees. Is the workforce diverse, is the environment safe for the employees. And lastly, it looks at governance factors, such as for diversity and executive compensation. Some also call this value-based investing or dual mandate investing. But before I get into it too much further, I want to welcome Haleh. Haleh, thank you so much for joining me on my podcast. It’s a pleasure, Cathy. Thanks for having me. I’m just thrilled that we can have a
conversation about something that we’re both so passionate about. So I thought we’d start, there’s always a lot of confusion around what values-based investing is both in the financial advisory community and the public, the public in general. So could you just give us a brief explanation about this type of investing? Sure. So the idea here is that you’re investing your assets in accordance with your values. And that has seen multiple iterations over time, historically speaking, people who did that really cared more about the change that they were creating than their financial return. And I think that kind of gave a bad name to this type of investing because they by definition, did have to take lower returns, and often paid higher expense ratios as well. But in the last five years, values-based
investing has just exploded. There is so much product out there. It’s inexpensive, it’s accessible. And recent studies have shown that ESG investing, which is the most current iteration of values-based investing, actually does as well, if not better than an unconstrained portfolio. Yes, I’ve heard that. I do invest some of my clients in an ESG manner. And I think what moved me towards this is one, the demand by my female clients for this type of investing. Women really want to invest with their values, if they understand it, which I think is one of the issues is women, when they hear that they’re like, oh, yeah, that sounds really good. But they don’t really know what it is. And I’m wondering why you think there’s this education gap.
And well, let’s first start with the
common perception out there that 80% of women are interested in ESG investing. That is a statistic that I’ve run across for several years. And in writing this book, I did an original research study, where I actually interviewed 500 Boomer women ages 55 to 75, with investable assets of 500,000 or more, and I was shocked to learn that 80% of these women, and remember, these are the women that have the assets right now. 80% of them didn’t really know what ESG was, a disconnect, it was completely opposite of what I had heard. And I investigated it further, talked to many experts in this and we’ve kind of decided that the millennial women are what’s driving that figure. But unfortunately, the millennial girls don’t yet have the asset
base to move the needle, the way that Boomer women do who currently control somewhere between 60 and 67% of the nation’s wealth?
Yeah. And your survey was Boomer women specifically, correct. The women that do have the 500,000 or more in assets? Yeah. Could I ask you, was the study a nationwide or was it a certain geography? It was nationwide, we actually wanted to make sure that it had a 95% confidence interval. So in order to find women meeting this criteria, that is Boomer women with investable assets of over 500,000, we had to go to about 5000 women and finally culled it down to who we think are the women that actually control the majority of the wealth or a sample of the women that control the majority of the wealth. And I think
it’s a pretty good representation of most Boomer women. That would be our clients. Cathy, right away. ESG investing unless they’re your client or my client. Well, yeah, and but the reason I asked about the geography is that I’m in Northern California where a lot of people know about it and have heard of it and kind of understand it. So that may be an anomaly a little bit. That’s not really like the rest of us. But even so, there still is a myth that the investment returns aren’t as good. I get that question all the time. Can we debunk that myth? Absolutely. There was actually a meta study done. That’s a study of over 2000 studies that showed that at worst, ESG investing returns the same as their typical portfolio at best it slightly outperforms. And I think over time, we would find
I mean, it makes intuitive sense if you think about it, if a company treats their employees well, if a company has transparent corporate governance, if a company has inclusion of gender and race within their ranks, they’re going to do better over the long term. That’s not disputable. Yeah. It makes complete sense to me that as time goes on, companies that are scoring higher on the ESG spectrum will outperform.
Well, it makes sense to me. Um, you and I are like preaching to the choir. So this is a challenge and question I have for you. How do we educate more of these Boomer women with the wealth that can, you know, make great change by investing in this manner and supporting companies that have these values? What do you think the answer
is in getting more people to invest this way?
Well, I think the first order of responsibility is the women themselves. As you know, I’m sure 95% of women die alone, regardless of marital status, and that’s because women have longer life expectancies. So suddenly they inherit wealth from their parents, from their husbands. They may have earned their own assets, you put it all together, and they’re faced with
a ton of money and the responsibility of prudently investing it. And so, my message to women is, please don’t put your head in the sand. You know, you have to read, you have to understand, you have to do your homework. But what I find is that most high net worth Boomer women prefer to use an advisor and I’m all about that. What is distressing to me
is that there are many advisors who don’t really understand or want to promote ESG options, and therefore they don’t really show that or educate their clients on that. And I feel like it’s a real missed opportunity for women. And not to get on my feminist flag here. But, you know, we haven’t had a woman president, less than 6% of Fortune 500 companies have a woman CEO, I mean, women still have a gender pay gap. And women still take time off to take care of kids and they don’t earn as much and they don’t have as much in retirement savings. And so here’s an area where women actually are already in the lead. They’re already on top. They control the majority of the wealth in the nation, and they can really leverage that wealth to leverage their voice. Okay, well, I have an idea. So both of us would like to
see more of this kind of investing? And what you’re saying is, it’s really in women’s best interest to do so. Right? Because so many of the values and issues within ESG investing match what women want. I know you found that in your studies, right, that it matches what women care about. And then for advisors, women control $22 trillion, is what I’m reading or 61% of the wealth in the country. So it seems like there’d be a motivation on both sides to invest in this manner. I want to step back a minute though and talk about why women may not be what about this, this phenomenon about women who are wealthy but never feel like they’re rich? And they you know, the bag lady syndrome is alive and well. I was surprised when I read that in your book because I see that many of my wealthy women clients, no matter how much they have, they still don’t believe
they’re wealthy. And that may be a little bit of a deterrent in investing in this manner. If there’s any inkling that maybe it doesn’t have the same returns for you mentioned or that their husbands may still be involved in the investment decisions, and they’re not enlightened about ESG investing. Yeah, I mean, generally speaking, Boomer men are not as interested in ESG investing as Boomer women, for example, or women in general. And if the male advisor is also not as inclined to promote ESG investing, then I would suspect that a boomer woman who’s delegated the investment management either to her husband or to their advisor, probably just has no idea that it’s even an option. Right? What I find is, the higher the net worth, it’s a little bit like Maslow’s hierarchy. You know, once you’re not worried
about food and shelter, you suddenly want to give back. And so my higher net worth clients are the ones that are coming to me and saying, look, I, I have an amazing life. I have had an amazing life. I have all of this wealth. And before I leave this earth, I want to do something. And to be honest, so many feel disenfranchised in this political environment. You know, and so my study found that less than 30% of women, regardless of political affiliation, feel that either the government or philanthropy can attack the social issues that we face as a country. So they really want to make a difference with their wealth. And I think the conclusion is that the real power brokers of our capitalist society are corporations. And if we can get corporations to view us as stakeholders.
Not just investors. But if we really as women care about the environment, if we care about how people are being treated during the pandemic, their working conditions, do they have time off? Can they work from home, then which is a social and ESG? Right? caring about the people in the company’s rank, as well as its master? I mean, there’s a social means the primary question I would have for your audience is, is a company required? Or is it incumbent upon a company to do more than just care about the shareholder? I mean, here we are buying their products at Target or Walmart. You know, is it is there a responsibility on that company to sell us something that’s safe? Mm hmm. You know, the food products, is there a responsibility to protect us? You know, are they responsible for treating
employees well, do we expect good corporate governance and transparency, diversity on boards and diversity in the workforce, things like that. There. In your book, you cite a couple of examples about companies that didn’t do these things and were hurt in their profits. So can you talk about that. Dick’s Sporting Goods comes to mind and a couple other examples that you mentioned. And the ones that I would point out immediately would be Volkswagen, okay. The amount of shareholder value that was lost because of that emission scandal was enormous. And MSCI had actually downgraded Volkswagen due to complaints, at least a year or two before the scandal ever hit. So if you were a Volkswagen shareholder, and you had been focused on ESG factors, you probably wouldn’t have held Volkswagen when that scandal broke.
That’s true also with Equifax. It’s true with Wells Fargo. I mean, there are a number of examples of that. I think the Dick’s Sporting Goods example that you’re referring to Cathy has to do with the weeks following the Marjory Stoneman gun shooting. You’ll recall that was when a 17-year-old in Florida went into a high school and opened fire on a group of students with a semi-automatic weapon.
Anyways, the country was outraged. But the difference this time was that people took to social media, and they started questioning, where did that gun come from? How did the 17-year-old get that gun? Mm hmm. And I know in my office, I had several clients calling and saying I want you to dump all gun stocks, anything that has to do with the gun industry. And so we did that. We found what
we were looking at some of our ETFs and mutual funds that both Walmart and Dick’s Sporting Goods to sell guns, they distributed guns. And within two weeks when these companies were faced with economic risk and reputational risk, they had both changed their rules. One
raised the age from 18 to 21, to buy a gun and the other stopped selling bump stocks entirely. And that’s when I had my aha moment, which was, wow, it took two weeks to change major policy, whereas the NRA and all the political wrangling over the years about gun control, which by the way happens to be one of the issues that Boomer women really care about, regardless of party affiliation. They did it in two weeks. Yeah. So was that the motivation to write this book? Was that one of them? It really was because I saw that
power being harnessed of economic harm and reputational risk by the consumer and by the investor toward a company, I started to realize that, you know, you could completely bypass politics, you just like go directly to the company and say, I don’t like that you’re doing that, and they will change. Yes. So this is the three pillars thing you talk about. Women traditionally have done charitable work, volunteer, give money to charities. They’ve gotten politically active and voted for their candidate. But what you’re saying that’s all good and that’s important work, charities do important work, but investing is a way to make an even bigger impact on and make change happen in a really astoundingly quick manner. All right. Well, for one thing, I love our charities, I mean, I love them.
But very few women have enough money to give away that they can move the needle. However, if you’re not giving money away, you’re investing your own assets, but you’re using your wealth to promote causes that you care about. That’s a lot more money that you can leverage. Well, it’s a lot more people investing in that same manner.
Yeah, pool women’s resources together. It’s as high as $23 trillion.
And just to put that in perspective, the entire GDP of Australia this year is about 1 trillion. I mean, this is a lot of wealth, and 7% of the nation’s wealth and so it can really move the needle if women will come together and vote with their pocketbooks, so to speak. Well, another interesting point you made in the book is that this is kind of a unique
time, there’s all these Baby Boomer women, right? And then there’s this one opportunity now to make some real change before we move on, right and pass on. And then new generations may have different ideas. So the time is really now. I also want to bring up another point about right now, we have the pandemic. And we also have all this social unrest with the George Floyd killing, and Black Lives Matter. And I also have my women clients who want to know, what can I do? Everyone’s wondering what can I do to help and this is a great way to do that is to invest in this manner. And so let’s get into more about the specifics of how you invest in this way. So you said earlier, one way is wealthy Boomer women work with financial advisors, right? So they rely on their financial advisors to help them make investment decisions or they just turn over
the investment decisions to their advisors. So one thing they can ask their advisors to invest in this way. Okay, so, too, so for the advisors listening, I want to just emphasize that you can do ESG investing and build diversified portfolios. As Haleh said earlier, it’s not just about negative screening or positive screening anymore. There is a way to invest in this way called best in class. And Haleh, do you mind just going on a little bit about best in class in ESG investing. Yeah, I’m interested that you asked because the Vatican just came out the Pope did and said that he wanted all good Catholics to divest of all oil stocks.
I read that and I thought, let’s, let’s logically play that through. You’re an investor. You own Exxon, you sell your Exxon and it goes to somebody else.
Who buys it? Does that in any way, shape or form injure Exxon? They don’t even know. You know, more than 6 billion trades are made a day. They don’t know whether you’re rebalancing your portfolio or whether you’re making a statement, they’ve already gotten their money at the IPO, you know, you’re not taking money away from them. So what is the best way to show Exxon that you would like for them to come up with alternate forms of fuel, cleaner energy, and leave a better carbon footprint? What is the best way? I would say that the best way is
to own some of their shares, and potentially vote by proxy, and pool with other people in writing shareholder resolutions. So that’s one option, that’s active ownership approach, right. The other option is simply to buy a fund
that has already been created that only incorporates the best in class, as you just mentioned. Mm hmm. Let’s say that you have an oil company that’s doing all the right things. And then you’ve got another oil company that just doesn’t care. That fund is going to wait, the better oil companies hire and have very little of the ones that aren’t doing the right things in the fund. And in that way, it’s more of a passive message to the companies that hey, look, if you want to be in this massive fund, which by the way has huge amount of market share, you better step up your game and start doing what this other company is doing. Ya see? I really, to me, that makes so much sense. Because then you can still build a portfolio that has a piece of every industry there is you don’t cut out oil companies you don’t cut out
companies that make junk food or you know what I mean, you, you have the diverse array of companies. So you can build a diversified portfolio. But you overweight the companies that are doing good, quote unquote. And I want to get to this doing good thing, because who determines which companies are doing better than others in this area? It’s the rating agencies. Right. And I think that’s also another area where there’s some, it’s a little bit gray, because it’s not truly standardized yet. But it’s getting there. Right. Can you speak to that a little bit? Yeah, it’s a lot better than it used to be. But, you know, some of your listeners may have heard the term greenwashing. Right, in order to curry investor favor, every fund and every company says, guess what? We’re ESG when they’re really not, you know, there’s a lot of deception
going on, because there’s a lot of self-reporting going on. And we have these rating agencies that are doing a phenomenal job, but because the, it’s not as standard as it could be, you might have one company rating the same company completely differently than another. So it’s really important. I mean, this is one of the areas I would say to, to, you know, any investor, if you’re really interested in ESG, it really is worth it to go to someone who understands the space and try to kind of weed out the greenwashed products and try to actually develop a diversified portfolio across all asset classes, not just stocks, but bonds, alternative investments, real estate, there are many, many companies that are doing good while also doing well. But it’s hard to access if you frankly, I mean, you almost have to be a professional to access them.
Some of these asset classes, yeah, certainly the private equity and alternatives and things like that. But I would argue that an investor can build an ESG portfolio using some of the fund families out there right now, who have really taken this seriously. And I’m, I’m so thrilled to see that you can build a diversified portfolio with large cap, foreign emerging markets, small cap, and, and it’s diversified and it performs well. And you know, sometimes it outperforms even. So it just depends. Yeah, and if you’re worried about returns, I mean, it’s very easy to look up the track record of these funds. You don’t have to take anybody’s word for it. You just look at how they perform. How did they perform in a bull market? How are they performing during the pandemic? Many ESG funds during this pandemic have outperformed, many are positive.
Yes, I’ve noticed that in my own portfolios and not just because of who I am. I’m absolutely thrilled to see that. So, you know, are we, is there any downside to this kind of investing that you can even
I Cathy, I really don’t think so. I think this is the wave of the future. I think we as investors expect more from our companies, it’s not just enough to be focused on the bottom line, we really, we can see that with the social unrest in this country after the George Floyd killing, you know, and the pandemic, the disproportionate numbers of minorities that have not only lost jobs but lost their lives, due to a lack of access to health care and education and, you know, jobs that are more secure and so really through ESG we can promote
and support companies that are supporting these minorities to kind of level the playing field. So it’s, it’s hard for me to see as progress is made over time and we become hopefully a more and more civil society at least that’s my hope that this just won’t become the standard. This type of investing is not replacing fundamental stock valuation, it’s an add on
to all the other fundamental criteria, it still has to be a good investment for you to invest in it. Right, an added bonus. And I would say that if a company is performing well in this added criteria, that they’re going to do better over the long term. Right. And, and also, many rating agencies are looking at ESG criteria now too I mean, S&P and Morningstar and all the big ones right? And it’s because
there is a demand for this kind of investing, maybe starting with the millennial generation. But there is a demand. But I think also we can’t discount the impact of social media. I mean, things are so digital, that if a company does something, quote unquote, bad, everyone’s gonna know it’s instantaneous around the world. So companies really have to protect their brand. Companies that have behaved well during the pandemic. I’m thinking of Ford, you know, converting some of their manufacturing to make face shields. People know that it’s warm and fuzzy. It’s US company. Yeah. And you think of other companies that haven’t done so well. Right. You know, and you don’t forget that when you’re at the grocery store, and maybe you don’t want to buy that product. So
we can’t lose sight of the fact that reputational risk has
gone through the roof in terms of its ability to
go across boundaries, and everyone’s going to know everything instantaneously. Yes. Well, I have to say I think your book is extremely timely. I know, I know, you published it when earlier in the year, it was February and I was thinking to myself, you know, is anyone going to be interested in ESG? Like people are interested in the E part, which is the environment, but who cares about social justice, right, but look at now, I know, I get out there and talk to as many people as you can, because people have their ears open and are listening. Yeah, I actually read recently that the interest in ESG is up 140% since the pandemic, that’s amazing. It is amazing.
So as an advisor, let’s say you’re an advisor, you haven’t done this kind of investing before, right? And you want
let’s say you can do it management approves a bit and all that right? And a client walks through the door and you don’t know whether they care about it or not. Would you offer it as an option? Would you educate? Would you do what you normally do? I think this is a question that advisors have. How do I dip my toes in if I’ve never done this before? Um, well, we at Stearns are launching our ESG platform to coincide with the publication of this book. Okay. Basically, we have a fund lineup and some private investments across all asset classes that is ESG focused. And when we have someone coming in off the street when they sit down and we you know, you chat with them, you find out what their goals are. We make that an option. I mean, it’s not something that they have to do. Some people immediately gravitate toward it.
You know, I mean, it kind of blows my mind that we’re in a capitalist society. And if I asked you, Cathy, for example, what did your portfolio do last year, you’d be able probably to give me the return and the standard deviation and return the whole thing.
If I asked you, well, what causes did your assets support, you know, you might be met with a blank stare. And so it really is an epiphany for potential clients, or even existing clients when you tell them that, you know, I know you’ve been really bothered about all the stuff that’s going on, you know, if you want to do something about it, there is a way and you know, and they don’t have to, but they need to know that that option is out there. Right. Okay. So your company is offering it as an optional type of portfolio. Yeah. And are you heading up that initiative? That’s fantastic. That’s very, very exciting. I mean, we work as a team and so I’ve got
my investment department who actually put together and researches the fund lineup, but, you know, I think and it’s probably because I’m a woman advisor and 95% of my clients are women, and I find that women really want to make a difference, they care about the greater good. Yeah, I can’t take credit for the concept because it started with my women clients, asking, you know, what can I do? Well, it’s just another piece of your toolkit. It’s another pillar to do something that supports your values. And I, you know, I agree with your message. I’m really happy that you have taken this on. It’s obviously a real strong passion for me too. And I hope that our listeners will take this as a starting point to dig in deeper, learn more.
You know, listen to their clients, talk to their clients.
And, and we can all create change together.
I love that message, Cathy, thanks for doing what you’re doing. And thanks for having me on. Thank you. Is there anything else you’d like to add? For example, where can people buy your book? And do you have a blog or podcast, anything you’d like to share with us on your public platform? We kind of deferred the official launch of the book because the pandemic hit and it didn’t even occur to me that, you know, my book would become more relevant. I was thinking who’s interested in a book when everybody’s worried about this Coronavirus, but it is out there on Amazon and readily available that way. Okay. We’re having a formal book launch
upcoming but it hasn’t happened yet. Okay, well, I’m excited for you. Thank you for taking the time to write this book and putting all the research and thought you did into it and I’m looking forward to hearing
more. Thanks Cathy.