Connecting With Clients Through Faith-Based Investing

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In the wake of the COVID-19 pandemic, many Americans have turned to religion to help them grapple with the reality of the situation. In fact, Pew Research Center surveys reveal that 28% of Americans report having a stronger sense of personal faith due to the pandemic, a number greater than that of any other developed country. With this context, it’s important to remember that faith is the foundation from which many religious people live their lives, working hard to ensure that their actions align with their morals and values.

This extends to their investment portfolios as well. The success of a financial plan starts with the client–advisor relationship, especially for clients of faith. Knowing that a financial advisor treats their values and their faith with respect helps a client feel more comfortable. This is why it is crucial for advisors to have conversations with their clients about their faith and how it may (or may not) impact their investment decisions. For advisors, having an open and honest talk could act as a beneficial gateway discussion into greater conversation of what clients own and their financial plans. For clients, they could walk away feeling truly heard and respected, establishing a stronger bond between the client and the advisor. But it is also important for advisors to approach these conversations about religion prepared. So what should advisors keep in mind when considering, say, faith-based investing focused on the values of Catholicism, one of the largest denominations of faith in the U.S.?

Do You Know the Guiding Principles?

The primary tool behind all screening efforts for Catholic faith–based investing, specifically, is the United States Conference of Catholic Bishops’ socially responsible investment guidelines. These guidelines lay out core church principles and values that should always be kept at the forefront of faith-based investing efforts. There are six major themes:

  1. Protecting human life;
  2. Promoting human dignity;
  3. Reducing arms production;
  4. Pursuing economic justice;
  5. Protecting the environment; and
  6. Encouraging corporate responsibility.

It is crucial that advisors make sure that all of the companies they invest in on behalf of their  religious clients are constantly in alignment with these values. Companies that derive revenue from abortifacients, weapons of mass destruction or have poor labor rights should be considered excluded, for example, based on what the individual client believes. It is more than possible to invest according to your faith values without sacrificing financial value.

Not All ETFs Are Created Equal

When it comes to faith-based investing—and following the core principles set forth by the USCCB—it can be difficult and inefficient to manage a portfolio of individual stocks, unless you have direct-indexing capabilities. The best way to help faith-driven clients is through the utilization of ETFs. However, similar to other impact ETFs, there is a core hurdle to overcome: greenwashing—or, in this case, “faithwashing.”

Because the business environment is ever changing, it can be difficult to assure your client that all of the underlying securities held in a faith-based ETF align with the USCCB guidelines. Any given company might make a problematic decision, like an acquisition of another firm that does not align with Catholic values, that would warrant divestment of all faith-based assets. But, if no one’s paying close attention, a religious client may keep their stake simply because it slipped under their advisor’s radar. This would mean that the client is actively investing in companies that go against their beliefs and values, which, if they discover this themselves, will likely lead to a multitude of problems for both client and advisor.

Because of this, it’s critical that advisors point their clients toward funds that are actively managed, as opposed to those that are passively managed. Active management can ensure that, even though circumstances change constantly, a real person is always there to keep tabs on all companies an ETF invests in. With this security built in, religious clients can feel more confident that their money will not support companies that contradict their values, even accidentally.

Faith-Based Investing Is ESG Investing

Another increasingly popular form of investing out there nowadays is environmental, social and governance (ESG) investing. For those looking to get into ESG, one option they should consider is faith-based investing, a form or subset of ESG. Strong moral values guide all ESG strategies, including faith-based. There are plenty of examples that show how faith-based investing is ESG investing. Because of this, advisors can potentially point clients who are interested in ESG investing, and also practitioners of faith, toward faith-based investing.

Faith-based investing and ESG investing both highlight the importance of the environment, looking to invest in companies that are striving to lower their negative environmental impact and even positively affect it through various business efforts.

ESG focuses on overall social good, seeing it as important to promote just wages, a good workforce environment and general societal outreach. This follows perfectly with the USCCB guidelines of promoting human dignity and pursuing economic justice.

Investors of faith place high value on just and moral leadership. It is critical that all companies involved in a faith-based approach have a C-suite that exemplifies these ideals. From the top, governance is a key part of an ESG approach as well, necessarily highlighting companies and individuals that embody positive change through their example and their leadership.

Conclusion

As the circumstances of the world today lead more and more investors of faith to ensure their portfolios reflect their values, it will only become more and more important that advisors keep these things in mind. Religious clients will have specific goals and conditions that come hand in hand, and advisors must be ready to discuss these topics so as to be best suited to serve them well. Faith is a very serious part of many practitioners’ lives, and coming to the table prepared will likely give advisors the tools they need to properly deliver high-quality service that will enhance the relationship.

Michael Skillman is the CEO of Faith Investor Services, an ETF issuer solely dedicated to bringing to market faith-based investment products that adhere to specific religious values. Previously, Skillman served as CEO of Cadence Capital Management and has more than 30 years of asset management experience.