Co-founder and CEO of PAX Financial Group, LLC. Guiding the transition into retirement.
As a financial advisor and fiduciary, I was skeptical of biblically responsible investing (BRI). So, the idea of using a BRI portfolio was something I avoided for many years, despite demands from my clients and community.
Finally, I reluctantly capitulated and bought a plane ticket to a Kingdom Advisors conference in Orlando. I was cautious but kept an open mind. I’m glad I did because the conference and, more importantly, the advocates of biblically responsible investing, were impressive. The advisors, analysts and representatives had a different perspective than I anticipated.
If you’re interested in BRI, here are a few points to consider.
In my journey for clarity, I needed to get unstuck on an acronym issue. Should I own companies that follow ESG (environmental, social and governance), SRI (sustainable, responsible and impact) or BRI principles?
MORE FOR YOU
After interviewing potential BRI firms, I realized that many BRI funds were constructed similarly to SRI and ESG funds but included a biblical component or aligned with a denomination’s framework (e.g., Catholic, Baptist, etc.) There were a few differences between BRI fund options, however. Some of the funds excluded alcohol and tobacco. Others made it a point to exclude companies with legislative agendas considered antithetical to a Christian worldview. This optionality gave me choices to consider based on my clients’ convictions.
Other religions are also gaining interest in the active management space, such as Jewish- and Islam-related investment portfolios. Hopefully, more religions will catch on to the faith-based investment trend and be able to have successful offerings, as well.
Performance Of Values-Based And BRI Funds
At the conference, I listened to academics, Ph.D.s and Wall Street icons who unapologetically validated BRI legitimacy. I read research reports and did further homework between sessions. In a passing conversation with another advisor, he told me that his client’s BRI returns were not diluted in his 10-plus years of experience. Even though this finding was anecdotal, it was interesting, and I wanted to explore it further. Today, there is plenty of data that discusses values-based investing performance, though more is still needed.
For example, a 2019 study by Morgan Stanley using over 10,500 funds concluded that sustainable funds (i.e., those that follow ESG principles) had no statistically significant performance difference and actually provided a 20% smaller downside deviation than traditional counterparts. Additionally, Shane Enete, a CFA with Biola University, a private Christian university, studied one BRI index from 2012-2016 and found that it added 4% in additional annual returns compared to a secular counterpart index during that time. However, this study, as with most BRI studies, is backtested and not actual returns. Until there is a larger pool of BRI investments with a longer track record, measuring a large pool of investments with actual performance relative to benchmarks will not be available.
The Potential To Effect Change
Sometimes we forget that stock investing means you are part owner of a company. Put your business owner hat on for a second. You can see the trickle-down effect of corporate leadership realigning priorities beyond profit maximization based on investor preference. For example, should investors collectively value employee diversity and the environment to the same degree as profits, that could encourage a company’s leadership to work toward those causes? Research has found that purpose-driven companies grow more quickly and often have better returns than their “profit only” counterparts.
Finally, I had to find a way to overcome my concern with the costs associated with BRI funds. In the past, BRI funds required my clients to pay a fee for the distribution name, a third-party subaccount manager, trading costs and even platform fees. Many of these costs were not transparent, but I was aware of them and knew where to find them in the prospectus. At that time, the total costs associated with BRI adoptions was more than I felt comfortable with being a fiduciary for my clients.
However, the BRI segment is moving in the industry’s direction as a whole with regard to costs. Some funds have moved to an exchange-traded fund model, such as Inspire Investing, thus reducing management costs. Also, with the elimination of trading fees on most of the major custodial platforms, the collective cost of BRI has become much more competitive and much lower than my earlier experience.
As with most investments, the size of assets that a fund company manages has a material impact on internal expense ratios. It will be a long time before we can expect BRI cost of investing to compete with companies like Vanguard. Interested investors will need to weigh the higher cost relative to the desire for values-based investing.
My journey made me feel more comfortable about BRI as an approach that allows those with a Christian worldview to align their values with their wallet. Should the industry continue to grow, I believe the options will expand, costs will continue to go down and BRI funds’ performance will compete with their traditional secular counterparts.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.