What was different this year: These check-ins came just days after the shooting deaths of 20 first-graders and six teachers at Sandy Hook Elementary School in Newtown, Conn. Two clients, Safran says, were so appalled by the mass murder that they wanted to re-evaluate their portfolios to ensure they weren’t profiting from the manufacture and sale of the guns used in the shooting. “This was the first time that I have had clients make a portfolio request that was the result of an external event,” Safran reports.
In fact, one client wrote a heartfelt email saying not only that he wanted to move away from guns in his portfolio, but also that the shooting made him rethink his own role in social change.
“After much thought, and no small amount of admiration for the move by Cerberus to sell its stake in a firearms maker, I’ve decided I’d like to move into socially responsible investing,” he wrote. “For me that means, at least for now, no fossil fuels companies and no weapons makers.” Because most of the client’s $750,000 portfolio was in index funds, he asked Safran to conduct a detailed analysis of which funds own gun stocks.
NEW DEBATES ON WEAPONS
Ever since the shootings on Dec. 14, there’s been a renewed debate on gun control. One battle is being waged on the legislative front, with the federal government and several states poised to take tougher anti-gun measures. (Tougher laws already have been approved in New York.)
Yet some investors have begun wondering whether they can use the power of the purse to bring about social change. A number of big public pension plans, including those in California, New York and Chicago, have either frozen or divested their stakes in gun makers. The current gun maker divestiture movement was touched off days after the Sandy Hook shooting when the California State Teachers’ Retirement System put enough pressure on one of its holdings — private equity firm Cerberus Capital Management — that the firm put its Freedom Group, a collection of the country’s premier gun manufacturers, up for sale.
What has surprised some advisors is the extent to which shootings have made individual investors want to take matters into their own hands too. Sean Lee, a financial planner and retirement income specialist in Murray, Utah, a suburb of Salt Lake City, fielded four new requests from clients who had had enough of guns in their portfolio. “Many of our clients are retired and they have grandkids that are that age,” Lee says of the young shooting victims in Newtown. “Stuff like that tends to hit home.”
Lee says he was a bit surprised by the reaction, given his firm’s location. “We’re a conservative state and we have some of the biggest gun manufacturers here,” he says — a reference to Browning, maker of automatic and semi-automatic assault rifles.
On the other hand, about 10% of his clients already ask him to exclude alcohol, tobacco and defense names because of religious beliefs, he says. And his clients do have a history of making portfolio changes as a reaction to news events. After the 2010 oil spill at a BP site in the Gulf of Mexico, he got a slew of requests asking him to eliminate that company from their holdings — although, he says, “that was more to protect the earnings that they had gotten because there wasn’t a lot of confidence in BP.”
Some advisors aren’t quite so fast to react to client requests. Philip Lee (no relation to Sean Lee), a wealth manager with Modera Wealth Management’s Boston office, had clients approach him about the gun issue. One couple wanted to know what exposure they had to the three publicly traded gun makers, Sturm Ruger (RGR), Smith & Wesson (SWHC) and Alliant Tech Systems (ATK). After conducting a review of the $2.5 million portfolio, Lee found it was minimal — less than $250. “I offered to liquidate the entire mutual fund holdings to eliminate their exposure,” Lee says.
But doing so would have meant incurring long-term capital gains taxes of $9,400. “During our discussion, they realized that the allocation was incredibly small, and they were willing to tolerate it, so they chose not to act.” Instead, Lee says he suggested the clients gift appreciated assets and some cash to anti-gun organizations.