The Markets October 22, 2018

Advisers See Increased Interest in SRI

Seventy-nine percent are incorporating socially responsible investing into their practices, according to an Eaton Vance survey.

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Socially responsible investing (SRI) continues to be a key area of focus for financial advisers, according to an online survey of 618 advisers by Eaton Vance.

Seventy-nine percent have incorporated SRI into their practices, and among this group, 44% say it is an important part of their practice, up from 31% in the second quarter. Thirty-five percent said that clients’ interest in SRI is growing, and 60% said that it is an ongoing topic of discussion.

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“Responsible investing strategies allow advisers to take a more holistic approach to wealth management with their clients,” says Anthony Eames, director of responsible investing strategy at Calvert Research and Management, with which Eaton Vance collaborated on this research. “As responsible investing gains in popularity, there’s increased dialogue between advisers and their clients.”

Fifty-six percent of advisers said SRI is driving new business to their practices, yet only 35% said they are very well informed about the topic.

“We are working to bridge this information gap by offering advisers enhanced tools and educational programs,” Eames continues. “Offering a full suite of responsible investing solutions can be a key differentiator for advisers trying to deepen and expand their client relationships.”

Eighty-seven percent of advisers said a robust research program is important for environmental, social and governance (ESG) analysis, but 67% said it is difficult to obtain measurable, quantitative sustainability data from companies, and 54% said they do not understand the connection between ESG and financial performance.

Jessica Milano, director of ESG research for Calvert Research and Management, says there is a direct correlation between the two: “Calvert’s proprietary research process leverages multiple data sources to capture and analyze ESG factors that drive company financial performance over the long term. Data show that firms that optimize their ESG practices tend to be rewarded for their efforts, along with their shareholders.”

Ninety-three percent of advisers said that demonstrating the impact of ESG investments is important to them and their clients, and 82% said it is important to engage with company leadership to drive positive business and ESG outcomes.

Compliance October 22, 2018

Disclosure Changes Coming for DB Plan Clients

Amendments in the update are effective for fiscal years ending after December 15, 2020, for public business entities and for fiscal years ending after December 15, 2021, for all other entities.

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The Financial Accounting Standards Board (FASB) is making changes to the disclosure requirements for defined benefit (DB) plans.

In Accounting Standards Update 2018-14, the FASB says the objective and primary focus of the changes are to improve the effectiveness of disclosures in the notes to financial statements by facilitating clear communication of the information required by generally accepted accounting principles (GAAP) that is most important to users of each entity’s financial statements.

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The following disclosure requirements are removed from Subtopic 715-20, Compensation—Retirement Benefits—Defined Benefit Plans—General:

  • The amounts in accumulated other comprehensive income expected to be recognized as components of net periodic benefit cost over the next fiscal year.
  • The amount and timing of plan assets expected to be returned to the employer.
  • The disclosures related to the June 2001 amendments to the Japanese Welfare Pension Insurance Law.
  • Related party disclosures about the amount of future annual benefits covered by insurance and annuity contracts and significant transactions between the employer or related parties and the plan.
  • For nonpublic entities, the reconciliation of the opening balances to the closing balances of plan assets measured on a recurring basis in Level 3 of the fair value hierarchy. However, nonpublic entities will be required to disclose separately the amounts of transfers into and out of Level 3 of the fair value hierarchy and purchases of Level 3 plan assets.
  • For public entities, the effects of a one-percentage-point change in assumed health care cost trend rates on the (a) aggregate of the service and interest cost components of net periodic benefit costs and (b) benefit obligation for postretirement health care benefits.

The following disclosure requirements are added to Subtopic 715-20:

  • The weighted-average interest crediting rates for cash balance plans and other plans with promised interest crediting rates.
  • An explanation of the reasons for significant gains and losses related to changes in the benefit obligation for the period.

The amendments in the update also clarify the disclosure requirements in paragraph 715-20-50-3, which state that the following information for defined benefit pension plans should be disclosed:

  • The projected benefit obligation (PBO) and fair value of plan assets for plans with PBOs in excess of plan assets
  • The accumulated benefit obligation (ABO) and fair value of plan assets for plans with ABOs in excess of plan assets.
The amendments in the update are effective for fiscal years ending after December 15, 2020, for public business entities and for fiscal years ending after December 15, 2021, for all other entities. Early adoption is permitted for all entities. An entity should apply the amendments on a retrospective basis to all periods presented.

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