Faith-based wealth firms have not kept pace with RI’s expansion despite their influence and remain a niche market, say experts.damircudic/iStockPhoto / Getty Images
Small but mighty may best describe faith-based investing’s impact in Canada these days.
Indeed, the fact many advisors are likely hearing more from clients about how their investments can help address climate change or reduce social inequality is partly a result of decades of the slow yet steady influence of faith-based investors seeking to have their money do good as well as generate profits.
A Natixis Investment Managers survey on environmental, social and governance (ESG) investing released in November points to how this values-based strategy has grown.
For example, the survey found that 76 per cent of investors in Canada believe companies should be accountable for their impact on society, while one in two believe selling stocks of firms with poor ESG performance is the best way to drive home that message.
Ian Thomas, chief executive officer of Kitchnener, Ont.-based Kindred Credit Union Ltd., says these values-based objectives’ origins certainly stem from faith-based investing dating back decades – if not longer.
“Regardless of how people arrive at their investment goals – whether it’s from a values- or a faith-based lens – it’s really founded in a desire [to create a better world],” he says.
Kindred Credit Union is a case in point. Founded in 1964 as the Mennonite Credit Union in Waterloo, Ont., Kindred played a pivotal role in launching Meritas Funds, a trail-blazing socially responsible mutual fund company – including on climate change. (Northwest and Ethical Investments LP, which is among Canada’s largest responsible investment [RI] fund companies, now owns Meritas Funds.)
Still, measuring faith-based investing’s growth is challenging, according to a recent study from the Zurich-based Center for Sustainable Finance and Private Wealth. One way to measure its popularity, it states, is to examine RI’s growth.
The report says two of the fast-growing areas of RI – thematic and impact investing – have annual growth rates of about 90 per cent and 33 per cent, respectively, in recent years. Both strategies began with socially responsible funds often founded by religious organizations in the 1990s, which employed negative screens such as excluding companies involved in weapons, alcohol, or tobacco, it adds.
Yet, the study also states that faith-based wealth firms have not kept pace with RI’s expansion despite their influence.
How faith-based investing fills a gap
Consequently, religious-based wealth management remains a niche market despite having tremendous potential, says Mohamad Sawwaf, co-founder and CEO of Manzil Halal Financing & Investment Solutions in Toronto.
“There is a $20-billion wealth opportunity just among Canadian Muslims alone.”
The Shariah-compliant provider of financial services – including mortgages and halal investment funds – launched in 2019 aiming to serve the 1.6-million Canadian Muslims who have struggled to align finances with faith.
“We started to fill a gap that has been ongoing,” he says.
As Mr. Sawwaf explains, many investment options are unsuitable for Muslims, especially those charging interest, which is forbidden in Islam.
In turn, the flagship investment offering at Manzil is its fixed-income fund, which also serves its mortgage product. How it works is investors in the fixed-income fund provide capital to purchase homes on behalf of Manzil’s mortgage clients.
“Each payment to the mortgage has principal [repayment] and profit components,” Mr. Sawwaf says, adding profit flows to investors in the fixed-income fund at an annual rate of about 4 per cent.
The equity component of Manzil portfolios uses a U.S.-based exchange-traded fund, operating similarly to traditional RI funds by employing negative screens, but the company plans to launch its own equity fund early next year.
Manzil is not entirely unique. S&P Down Jones Indices LLC has long provided Shariah-compliant indexes for stocks and sukuks, Islamic bonds that do not involve interest. Wealthsimple Inc. also offers a halal portfolio featuring a Shariah-compliant equity fund, a gold allocation and 45 per cent sitting in non-interest-bearing cash.
But Manzil is unique in Canada offering a fixed-income vehicle, says Mr. Sawwaf, adding the investment is available as a platform-traded fund on the NEO Exchange, accessible through advisor distribution channels. Its availability remains limited, though, because most large brokerages have not yet permitted advisors to offer the fund to clients, he says.
Firms rebranding to increase appeal
While faith-based strategies, like the Manzil fund, likely have broad appeal, many companies offering them face comparable challenges, including Waterloo-based insurer FaithLife Financial.
“We operate exactly the same as any life insurance company in Canada,” says Duane Zappitelli, vice-president of sales and distribution. “The biggest difference is we offer member benefits.”
Rather than excess premiums paid to investors, the money goes to members “to give back to the communities,” he adds.
FaithLife rebranded from Lutheran Life Insurance Society of Canada in 2008 to appeal to more Canadians – a strategy that’s now bearing fruit. Mr. Zappitelli says the insurer’s sales growth has outpaced the market in recent years – albeit its overall market share remains small.
Kindred also changed its name in 2016 from Mennonite Savings and Credit Union to attract more clients, especially millennials who are more drawn to RI strategies.
Mr. Thomas says Kindred advisors – often certified financial planners and RI specialists – offer traditional wealth services.
Meanwhile, some advisors also have a certified kingdom advisor designation, with origins in the U.S., appealing to certain clients seeking to align their finances with biblical principles, he adds.
‘Financial inclusion’ is a key driver
The designation often appeals to evangelical Christians who don’t want “to invest in medical institutions providing abortions, for example,” says Russell Sawatsky, an advice-only financial planner at Money Architect Financial Planning in London, Ont.
Mr. Sawatsky does not have the designation but has a pastoral background, as noted on his website.
“If [prospective clients] have Christian scruples, they may see that [experience] as a selling point,” he says, even though he doesn’t work exclusively with individuals of faith.
Still, previous ministerial work is beneficial in helping clients with behavioural finance issues like budgeting.
“Pastoral care and counselling are part of being a minister, so I may be a little more attuned” to emotional aspects surrounding cash management, he adds.
More broadly, Mr. Sawatsky says his background in divinity can appeal to individuals feeling they do not fit comfortably within mainstream channels.
Manzil has a similar aim. Although its services are available to non-Muslims, Mr. Sawwaf says the firm’s modus operandi is serving Muslims, who have often felt excluded from wealth services.
“There is a huge financial inclusion play here,” he says.
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