Spotlight: Understanding faith-based financial planning

Some advice firms, and some companies that work with financial advisers, are aimed at specific religious communities, such as Christians or Muslims.

Some people may gravitate towards those firms’ products and services even if they do not share the same religious beliefs. But faith-based financial planning really comes into its own when the religious beliefs and values of advisers and clients are aligned.

We should have inclusion for everyone. People shouldn’t be excluded from homeownership because of their faith

People’s values and beliefs shape who they are and how they live their life. The way they conduct themselves in business, their views on wealth and what they decide to do with their money can all be influenced by religious beliefs. So, how are firms delivering financial advice within the context of religion?

Financial inclusion

Central to all religions is the importance of considering other people, rather than focusing on oneself. In a financial services context, this tallies with the profession’s focus on putting clients first, promoting equality and helping clients to achieve financial resilience.

For firms that are active in the world of Islamic finance, one of the main objectives is achieving equality for Muslims in areas such as homeownership. Conventional mortgages can be tricky for Muslims because lenders charge interest on the loans they provide. In Islam, paying or receiving interest – known as Riba – is not allowed. Profiting from lending money is discouraged because it is thought to promote selfishness and financial greed.

Although some British Muslims can reconcile a conventional mortgage with their beliefs, others have a stricter interpretation of Sharia – the religious code that Muslims follow.

The Islamic finance sector does not sit by itself. It’s connected to the ecosystem that makes general business work

Without firms like StrideUp – a provider of Sharia-compliant mortgages – British Muslims would face a stark choice between compromising their principles or renting for life.

“There is an imbalance: 37% of people rent nationally, but among Muslim households it’s up to 60%,” says StrideUp head of sales Rizwan Ali. “That’s certainly something we need to address.”

StrideUp’s Islamic finance products enable Muslims to buy property through a co-ownership and rental agreement, thereby avoiding the paying of interest.

“As a society we should have inclusion for everyone. People shouldn’t be excluded [from homeownership] because of their faith and values,” says Ali.

Importance of alignment

If an adviser’s approach to their work is underpinned by their faith, a working environment that does not recognise those values can be challenging.

Better Future Financial Planning founder David Chamberlain is a member of the Association of Christian Financial Advisers. Although his firm does not market exclusively to Christians – so as not to exclude anyone else who needs help – it is sensitive to the needs of Christian clients.

As young Muslims grow older, there tends to be more of an appetite for Sharia compliance

Chamberlain has personally experienced a clash in values around his faith, in a business context. One of his former business partners – not a Christian – did not share Chamberlain’s vision for the firm and other colleagues had very different views around money.

“The Christian perspective is that, ultimately, God owns everything – we are just stewards of money,” says Chamberlain. “However, the view from most people in the world would be, ‘It’s my money, I’ve earned it. It’s mine to do what I want with.’”

Giving away money to charity is a key tenet for Christians, but those who are not religious may not appreciate its importance.

“My colleagues couldn’t understand why I gave away so much from my income, particularly when things were a bit hard,” says Chamberlain.

Charitable giving is a big part of financial planning for Christian clients.

“It is not just about generating the highest returns. The good your money does and where it’s invested matter too,” says Chamberlain.

Some clients come to us even though they’re not completely aligned with Christian values and beliefs, because they think a Christian adviser will be honest and ethical

It is also important for advisers to ask Christian clients about their charitable donations because of the potential impact on their tax return.

“Often people will have been giving to charity for a long time and not claiming higher-rate tax relief on their donations,” says Chamberlain.

Christian clients sometimes consult Chamberlain about their spending from a faith perspective. For example, one client wanted to sound him out on whether paying for children to be privately educated was a good use of his money.

“The Bible doesn’t say anything about private education either way, but he was just weighing up whether that was good stewardship of what he had,” says Chamberlain.

Wide appeal

An interesting point made by those involved in faith-based financial planning is that advisers do not need to be of the same faith – or, indeed, religious at all – to help clients in line with their religious beliefs. Nor do clients need to be religious to seek out faith-based financial planning.

Often people will have been giving to charity for a long time and not claiming higher-rate tax relief on their donations

“Some clients have found us through the Association of Christian Financial Advisers and they’re not Christians themselves,” says Chamberlain. “They’ve come to us even though they’re not completely aligned with Christian values and beliefs, because they think a Christian adviser will be honest and ethical.”

We need a range of minimum contribution levels for auto-enrolment

Similarly, not all of StrideUp’s customer base is Muslim.

“We have customers who are not of Muslim faith because we offer certain nuanced differences in our criteria that they will benefit from,” says Ali.

For example, deposit contributions from friends and family are acceptable to StrideUp. There can also be four applicants for one mortgage, with all applicants’ incomes taken into consideration at 100%.

“We work with a lot of mortgage brokers, a lot of whom are not Muslim,” says Ali. “A key part of our journey has been to get brokers involved in this and explain to them, ‘Look, it’s just that the underlying contracts are different.’”

Hearts and minds

Zahir Nayani, partner in Islamic finance at law firm Foot Anstey, goes into detail.

He says: “The Islamic finance sector does not sit by itself. It’s connected to the ecosystem that makes general business work.”

There is no legal, regulatory or religious mandate for practitioners of Islamic finance to be Muslim, he adds.

My colleagues couldn’t understand why I gave away so much from my income, particularly when things were a bit hard

“An argument could be that, if you’re not, you can come at problems with fresh solutions, which folks who are ideologically aligned to the faith may not see,” says Nayani.

However, he wonders how you “win the hearts and minds” of Muslim retail customers who are not keen on Islamic finance because they consider it “interest by other means”.

Nayani wonders: “When they see that the stakeholders and senior organisations involved are not ideologically on the same wavelength, does that create a disconnect?”

Another issue, says Nayani, is that British Muslims are one of the poorest socio-economic categories.

“So, you have folks who may not be able to participate financially in the market and that does leave you with quite a narrow pool of retail investors.”

Those who are left may just be seeking the best rates, as other people do.

The good your money does and where it’s invested matter too

“As much as some folks in the industry would have you believe otherwise, Muslims are no different,” says Nayani. “If we look at Muslims being around 6% of the UK population, we have to be honest as to how many of that 6% are OK with conventional finance.”

That said, demographic trends show that British Muslims tend to be young – the average age is 27. Younger people in general tend to be interested in things like ethical products, and the young Muslim community is no different.

“As they grow older, there tends to be more of an appetite for Sharia compliance,” says Nayani. “So, there is an argument to say that, going forward, the appetite is looking to increase quite substantially.”

Amanda Newman Smith is features writer for Money Marketing