Despite efforts in the last few years by some financial institutions to increase product availability for Canadians Muslims, these clients are still underserved, with a lack of product availability and suitable expertise for proper portfolio construction.
Hash Assad, a Calgary-based executive financial consultant with IG Wealth Management, explained that financial advisors need to be mindful about whether an investment is compatible with Islamic law before recommending it to Muslim investors, who follow criteria of halal, what is permitted, and haram, what is prohibited.
For example, some all-equity mutual funds show only their top 10 holdings and may contain companies in haram industries such as tobacco, alcohol and gambling, Assad said. “When we look at halal … every single security should be checked for those criteria laid out for you.”
Islamic compliance services companies provide institutional clearance for Canadian investments. For example, Wealthsimple’s halal portfolio was audited by religious experts from London-based Ratings Intelligence.
There are even apps and online platforms that can screen ETFs, individual stocks and entire indexes for compliance. “Being able to find an investment, specifically a security like stocks, has simplified significantly over the last five years,” Assad said.
In terms of constructing a portfolio, the traditional 60/40 rule is out of the question, as conventional fixed-income assets are haram, given that interest is deemed exploitative under Islamic law. Instead, Muslim investors hold on to cash or buy gold. Although the less diversified portfolio means these investors are exposed to more risk, Assad said he takes care in constructing the right portfolio based on a client’s age, cash needs and registered savings accounts.
Over the past decade, Canadian firms like Wealthsimple, Manulife and Manzil have started to offer halal investments, but the pickings are still slim. For example, the TSX 60 Shariah Index shows 60 halal companies, such as Canadian National Railway, Shopify and Thompson Reuters, covering about 73% of the exchange’s market capitalization, but a TSX 60 Shariah–based index fund doesn’t exist, and investors would need to buy each of the 60 stocks individually, Assad said.
Mohamad Sawwaf, founder and CEO of Toronto-based halal investment firm Manzil, estimated that Muslim Canadians have up to $50 billion in investable assets sitting in chequing accounts. “The capital is sitting on the sidelines in cash and undeployed and not bringing economic value,” he said.
Manzil offers five portfolios for Muslim investors available through OneVest as the portfolio manager and investment advisor. Sawwaf said halal fund availability in Canada will increase over time but will be a slow process. He points to more mature markets in the U.K. and U.S. where there are billion-dollar halal funds.
Part of the reason why halal funds are still limited in Canada is because many financial institutions require a five-year track record before a product gets listed on their shelves, and many halal funds are less than five years old. The cost of managing a fund is “extremely high,” Sawwaf said. The lack of wider distribution means it’s harder for a fund to break even, and if it doesn’t reach breakeven point within the first year or two, the manager will have to pay out of pocket to keep the fund going.
Advisors can help Muslim clients by making product teams aware of the need to consider halal investment products to increase distribution. “Don’t be shy [about] asking your compliance or product departments to assess the fund,” Sawwaf said. “You have this fiduciary duty to your client … and you need to at least go through the process to say, ‘Well, at least I tried to get this fund onboarded.’”
The wealth management industry could also provide more education to advisors about Muslim investments. Assad said he’s seen cases where Muslim investors were provided the wrong advice from advisors with good intentions, and also one advisor deferred to him when the advisor wasn’t sure how to advise a Muslim client.
“I really appreciate that, because instead of him trying to go for the sale and just get paid, he said, ‘I don’t feel comfortable doing that,’” Assad said. “He had that core belief and core understanding that you got to do what’s right for the client.”