Financial advisors don’t own crystal balls, or rely on gypsies to divine the direction of the financial markets.
Instead, they do their homework, kick some tires, and apply the knowledge they’ve learned to make prudent and profitable investment decisions for their clients.
That, obviously, is how it should be.
Financial advisors need to apply the same diligence to their practices – specifically, to focus on demographic groups that can help grow their businesses over the long haul. I call this micro-niching.
Exhibit “A” is the burgeoning Muslim affluent investor class in the U.S.
By and large, advisors may view Muslim investors as a potential profit center, but don’t feel they have the requisite knowledge of issues important to Islamic financial consumers like Sharia Law, avoiding investment vehicles that emphasize debt and collecting interest, and socially responsible investing (at least, how it applies in the Muslim world).
Advisors who take this stance are missing the boat, and worse, missing out on a potentially lucrative client demographic.
According to the World Wealth Report 2012, issued by Capgemini and RBC Wealth Management on June 19, 2012, the Muslim-dominated Middle East is the only global bourse where high net-worth individuals are still adding to their financial assets.
This from the report:
The overall financial wealth of high net worth individuals (with total assets of $1 million or more) declined across all regions in 2011, with the exception of the Middle East, according to the World Wealth Report 2012, released today by Capgemini and its new partner, RBC Wealth Management. The 1.7 percent decline is the first since the 2008 world economic crisis, a year in which HNWI global wealth declined by 19.5 percent.
What’s more, the global Islamic Finance industry is growing at a fast clip – about 20% annually, and assets in that market are valued at $1.3 trillion. A big bonus for advisors: the total amount of Islamic consumer financial assets is only 1% of the entire global consumer finance assets. That suggests plenty of room for growth for the Muslim high net-worth investor market, just as markets in the Europe and the U.S. are approaching critical mass.
As more global bourses witness a decline in high net-worth assets, the trend in the Middle East is a compelling one for U.S. advisors. Why? Because there is a steady stream of young, affluent Muslims pouring into the U.S. these days, and they’re looking for good, solid, and custom-made financial advice.
How can a family financial advisor leverage the Muslim affluent investor market here in the U.S.? Try the “Three D’s” approach - diplomacy, due diligence, and dependable results:
Here’s a deeper look at what advisors have to do to win over Islamic investors:
- Get to know Shariah law– U.S. advisors looking to break into the Muslim investor demographic must know this – job one is knowing all about Shariah law. By and large, the law covers Muslim rules and regulations in conducting financial business in the Islamic faith. For U.S. advisors, it’s helpful to first understand that Shariah is highly similar to the same codes of conduct found in many Western socially responsible investments. For a good, comprehensive review of Sharia Law, and how it applies to Islamic finance, read this report from RREEF Real Estate Research.
- What industries does Shariah prohibit?When courting Muslim clients, know that certain investment sectors are off limits. Those include gambling, pork production, adult entertainment, Western banking and finance (debt and interest rates are a deal-breaker for Islamic clients), alcohol production and sales, and tobacco production or sales.
- When talking to Muslim financial clients, emphasize these themes– You can gain some leverage with Islamic investors by speaking their financial language. That means emphasizing themes they want to hear, like focusing like a laser on underlying assets, or shared risk taking in any potential investments, and returns connected to specific and real investment outcomes. With Muslim investors, the over-riding theme is all about shared profit and loss.
According to The Economist, 23.4% of the global population in 2010 were Muslim, and that number will rise to 26.4% by 2030 – from 1.6 billion to 2.2 billion. A significant slice of that population is heading west, to North America, where their need for financial management will become paramount for affluent Muslims.
Can financial advisors afford to miss out on that opportunity?
Not if they want to significantly expand their businesses, they can’t.