ESG and SPAC Investing News for Financial Advisers

The latest for financial advisers: ESG and SPAC investing, adviser compensation issues.
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A roundup of the latest news and reports of interest to financial advisers.

Proxy Voting Adds ESG Leverage to Retirement Plans: A new Morningstar report presents proxy voting as a backdoor entry to ESG investing for retirement plan participants. As advocates pressure for simpler proxy voting procedures, retail investors could gain considerable leverage, writes Jeff Benjamin.

Meeting the Growing Need for Financial Caregiving: A new tool tracks spending and sends alerts about unpaid bills and potential elder fraud, helping families to organize and protect the daily finances of an aging loved one, writes Mary Beth Franklin.

House Panel Unanimously Passes SECURE 2.0: The bill, which advances to the House floor with a strong bipartisan push, would raise the RMD age from 72 to 75, among many other provisions, according to InvestmentNews.

5 Things Top Advisers Are Warning Their Wealthy Clients: Here’s what managers at some of the largest firms have been discussing and say should be top-of-mind in the months ahead, writes Charlie Wells.

Hidden 401(k) Plan Fees Are Eroding Retirement Savings, Study Says: Three-quarters of business plans pay hidden administration fees, writes Joyce Blay.

Common Wealth Transfer Mistakes Families Make: “At times, reaching out to professionals just seems like a cost and not an investment into the future” for some families, says Interchange Capital Partners’ Brian Baum.

Radical Views on Adviser Compensation: The advisory profession is set up to encourage selfishness and greed, writes Sara Grillo. For that to change, compensation must change.

Research of Interest

SPACs

Abstract: Special Purpose Acquisition Company (SPAC) IPOs boomed starting in 2020. While SPAC IPO investors have earned 9.3% per year, returns for investors in merged companies are more complex. Depending on weighting methods, they have earned -4.0% to -15.6% in the first year on common shares but 15.6% to 44.3% on warrants.

The researchers rationalize why certain companies go public via a SPAC merger despite their high costs by identifying the economic roles of SPAC sponsors and investors. Sponsors transfer more than 30% of their compensation to other investors as inducements to complete mergers. SPACs are evolving towards a more sustainable equilibrium.

Investing in Crises

Abstract: The researchers investigate asset returns around banking crises in 44 advanced and emerging economies from 1960 to 2018. In contrast to the view that buying assets during banking crises is a profitable long-run strategy, the researchers find returns of equity and other asset classes generally underperform after banking crises.

While prices are depressed during crises and partially recover after acute stress ends, consistent with theories of fire sales and intermediary-based asset pricing, the researchers argue that investors do not fully anticipate the consequences of debt overhang, which result in lower long-run dividends. The researchers’ results on bank stock underperformance suggest that government-funded bank recapitalizations can often lead to substantial taxpayer losses.