Faith-based investing, or biblically responsible investing, is socially responsible or moral investing rooted in religious principles. Often, individuals and institutional investors, such as high-net-worth (HNW) investors, are drawn to aligning their investment strategies and portfolios with their ethical or religious values.
This guide delves into faith-based investing, offering insights and outlining the steps for those considering this investing strategy.
What is faith-based investing?
Faith-based investing revolves around investing in strategies that align with moral or religious beliefs. For instance, an investor may avoid companies that deal with alcohol, gambling, etc., due to the religious prohibition of these items. Similarly, an investor might refrain from investing in businesses associated with weapon manufacturing or stem cell research in adherence to religious doctrine.
The key to faith-based investing is selecting companies whose business operations and products reflect the investor's religious, moral, or ethical convictions. This style of investing represents more than mere financial gain; it is a statement of personal beliefs and values.
Understanding faith-based investing
The first step when considering faith-based investing is to understand what this strategy entails. While 'faith-based investing' may seem broad, it generally refers to any investment strategy considering the investor's religious beliefs.
Different faiths may have different guidelines for faith-based investing. For instance, Christian-based investing might focus on promoting companies that uphold principles such as human rights, environmental stewardship, and corporate ethics. Investment strategies connected to abortion, alcohol, gambling, pornography, and tobacco, among others, are often avoided with faith-based investing.
A faith-based investing plan
Once you understand the concept of faith-based investing, the next step is to create an investing strategy plan that aligns with your faith. When doing so, it is essential to carefully consider your investment goals, risk tolerance, and time horizon.
Many faith-based investors utilize mutual funds or stocks in a separately managed account (SMA) according to specific religious principles. These faith-based mutual funds screen out companies involved in activities that conflict with the fund's ethical or religious criteria. Additionally, stocks can be screened, helping to identify those that do not meet faith-based criteria.
You and your faith-based financial professional will work together to select funds aligning with your spiritual beliefs and goals.
Identifying suitable companies
Identifying appropriate investments may be challenging for faith-based investors, requiring a thorough review and analysis of potential companies. Many investors utilize the services of financial professionals who specialize in faith-based investing. These professionals often use Screen-Based Investing, which enables them to exclude or include specific companies based on their adherence (or lack thereof) to particular ethical or religious values.
They can provide valuable insights and guidance for those new to faith-based investing. These professionals may offer personalized planning and recommendations that align with your religious beliefs and goals, helping you stay true to your values. Doing so may help you work toward aligning your investments with your faith without compromising return potential.
Working with a Certified Kingdom Advisor (CKA®)
Faith-based financial professionals can work toward obtaining specific designations, such as the Certified Kingdom Advisor (CKA®).
To enroll in a CKA® program, the financial professional must have a letter of reference from a pastor or member of pastoral staff and two client references.
Additional prerequisites to the program may vary by discipline:
- Accountant: CPA, EA
- Attorney: JD
- Financial Planner: CFP®, ChFC®, or CPA/PFS designation or have 10 years of full-time financial planning experience.
- Insurance Professional: CLU®, FIC® or 10 years of full-time experience practicing with clients in this discipline
- Investment Professional: CFP®, ChFC®, CPA/PFS, CFA®, CIMA®, AAMS® designation or have 10 years of full-time experience practicing with clients in this discipline.
In addition, the training requirements are to complete the CKA® educational program and pass the final proctored, closed-book certification exam. Once the financial professional has their CKA® designation, they must complete 10 hours of continuing education per year.
Monitoring faith-based investment strategies
Like any investing strategy, faith-based investing requires regular monitoring and adjustment of investment strategies. Market conditions, company policies, and religious doctrines can change over time. Regularly reviewing your investment portfolio helps monitor your faith-based criteria and objectives as you work toward your goals.
Faith-based investing allows religious individuals to align their financial endeavors with personal beliefs. The process involves identifying suitable companies and monitoring investments for ongoing compliance. As with any investment strategy, conducting thorough research is critical. Seek professional guidance if needed and continue to monitor your investments.
A financial professional can help you identify the goals you wish to accomplish, determine how to make use of your existing resources to work toward those goals, and then select suitable investment strategies that align with your faith, risk tolerance, and timeline. You must understand how your investments reflect and support your deeply held values. Schedule your consultation today with a Certified Kingdom Advisor (CKA®).
Important Disclosures:
Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing.
Socially Responsible Investing (SRI) / Environmental Social Governance (ESG) / Biblically Responsible Investing (BRI) investing / Faith Driven Investing (FDI) has certain risks based on the fact that the criteria excludes securities of certain issuers for non-financial reasons and, therefore, investors may forgo some market opportunities and the universe of investments available will be smaller.
All information is believed to be from reliable sources; however, LPL Financial makes no representation as to its completeness or accuracy.
This article was prepared by Fresh Finance.
LPL Tracking #660732
Sources:
https://www.finra.org/investors/professional-designations/cka
https://www.investopedia.com/articles/stocks/12/investing-and-faith.asp
https://www.morningstar.com/sustainable-investing/matter-faith