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Guiding Clients Who Are Guided by Faith

By Chris Latham September 18, 2013

Most advisors don’t have to choose between respecting clients’ religious beliefs and maximizing their wealth. But sometimes a situation comes up where faith and finance intersect. Some religions forbid adherents from making certain types of investments; others require that believers set aside a portion of income for charity or to support their organization. Advisors who have handled such situations say that doing so with grace and creativity can earn unusually deep client loyalty — or even turn prospects into clients.

Pam Dumonceau, president of planning firm Consistent Values in Greenwood, Colo., has twice helped devout Christians figure out how to fit church donations into their financial plans. In one case, a widow’s large donations were beginning to put pressure on her income, which had dropped after her husband died. A lawyer referred the woman to Dumonceau, who suggested that she begin giving the church the dividends from stock she had inherited from her husband. “I knew she wasn’t going to sell the stock,” says Dumonceau, who also advises on the Colorado team of Asset One, which manages about $370 million. “I suggested this solution because it was clear that she would never think of it herself.” The idea was so welcome that the widow’s face lit up, Dumonceau adds. She expects the woman to become a regular client within weeks.

And last year, a prospect — an accountant in her final year of work before retirement — told Dumonceau that she wanted to continue tithing to her church after she retired. It happened that the prospect owned shares of a blue-chip stock bought some 30 years ago, and estimating its cost basis was a problem. Dumonceau suggested putting the shares into a charitable trust that would disburse funds to the church. The arrangement covered the woman’s tithing goals for several years, avoided having to calculate cost basis and helped Dumonceau land a client.

Halal Investing

Religious strictures on financial activity can resemble those of socially responsible investing. However, whereas the meaning and implementation of SRI varies from client to client, a religion may have fairly explicit rules that apply to all followers.

For example, devout Muslim investors face faith-based constraints that go beyond merely avoiding so-called usury assets (anything that pays interest on debt), according to Naushad Virji. His Lake Mary, Fla., firm also makes sure such clients steer clear of “sin” industries linked to alcohol, tobacco, gambling or pornography. Another boundary is when a company’s accounts receivable make up too great a percentage of total assets.

Virji Investments, which opened for business 10 years ago and now manages about $20 million, didn’t start out as a niche firm. But as more and more Muslims in Virji’s network asked how they could abide by Sharia — Islamic law — while maximizing returns, he started to see an untapped market. Nowadays, about two thirds of his clients use the firm’s ShariaPortfolio service, which Virji calls “the Halal way to invest.” The portfolio follows guidelines set by the Accounting and Auditing Organisation for Islamic Financial Institutions, based in Bahrain.

Naushad Virji
“The biggest challenge in Sharia investing is how do you reduce the portfolio risk?” Virji says. “It’s a lot harder than socially responsible investing in general.” For instance, since most fixed-income assets and the financial-services sector are off-limits, Virji’s strategies favor equities and the technology sector. Yet he estimates that only about 9% of stocks that trade in the U.S. are Sharia-compliant. One compromise is the Sukuk market, which allows clients to hold bondlike securities issued by foreign banks through a structure that technically lacks debt.

Keeping Kosher

Except among the ultra-Orthodox in Israel, only a small minority of Jews would avoid, say, owning shares in a bread-making company during Passover, according to Moses Pava, dean of the business school at Yeshiva University in New York, who has written extensively about Jewish business ethics. “You can’t necessarily speak of Jewish screens for investing,” he says.

However, Pava says, some American Jews favor “terror free” mutual funds, which won’t invest in companies that do business with states viewed as sponsors of terrorism. And, of course, there are funds that invest exclusively in Israeli companies.

Pava reflects that, in general, Judaism places a good deal of emphasis on finance, which has played a part in Jewish tradition for millennia. “Virtually every page of the Talmud has something to do with business,” he says.