Choosing the right broker as a Muslim

[spookydawg77]

So I'm a UK resident, I already have a Wahed account with an ISA which I opened this year, so in the hunt for a brokers I didn't really care about whether it supported ISAs. Wahed also ends up investing into a shariah compliant ETF which spreads its investment across 350 world wide companies using iShares MSCI World Islamic UCITS ETF in one (and you can see a full list of companies on that link) and 150 emerging markets using HSBC Islamic Global Equity Index Fund IC (GBP) (I'm on a aggressive plan) in another which is more than enough diversification for the passive investor. So I was going to use this as a primarily way to invest, the broker I chose was a side hustle to this.

One problem with Wahed, I'm very environmentally conscious and I've noticed that sharia compliant doesn't necessarily mean green. In the ETF's mentioned, they include companies like Shell and BP which I would rather cut out. So I got aspirations to slowly shift into my own managed and diversified portfolio, that's green as can be. Additionally I have a view that as a Muslim I shouldn't be investing in a company that is running against Muslim values/ummah or resides in a country that is governed by right wing Islamophobes. An example of this is the companies like Tata group who are known to be one of the largest donors of the BJP party in India, and recently hit some controversy with muslim-hindu relations. Tata group also features in the MSCI world Islamic index ... So the index is not perfect in my view. Thus began my search...

I found some cool sites that do a comparison between brokers called brokerchooser.com which was a great place to start and discover different brokers but the information like fees can be out off date. So I found getting information from the source is best.

I first started by signing up to trading 212, however they stick you in a waiting list. I've been waiting for a good 5 months now! So I moved on ...

I next tried Degiro, this was the second broker I tried and to be honest I found it a bit intimidating (theres too much going on in the UI). However I found its got a number of stock types available much more than most other platforms, including things like ETC's (interestingly some of these options require short exams to get started). One thing that really kills it tho is the lack of fractional shares. Dropping $1000 on a single tesla stock is not practical and I'm not sure you can keep a diversified portfolio if your adding small amounts on a regular basis unless you let your money sit there until you can splash out on an expensive stock. Penny stocks are available, but from what im reading their high risk. ISA's are also not available.

Next I tried lightyear, it's got a great app however the rage of stocks and stock types available is a very limited. Seeing a shariah compliant ETF is kind of my litmus test of selection and it failed it.

Next up was eTorro who are based in Isreal, if your part of the BDS movement then this is one is one to avoid. Feature wise tho they seem pretty good.

Next up is Freetrade, this scores fairly high for me and I've held an account with them for a while now. To gain access to more stock choices you do however need to get a pro account which gives you haram interest (3%) on your money. After emailing Freetrade I found that you can opt out of this. Free trade also offer an ISA too. In the end I didn't go with free trade due to their fee structure. You will find that later on I found something that works out a little cheaper. They make most of their money on individual trades. I may shift back to freetrade at a later date.

So the last option was Stake who only deal with US stock. This wasn't an issue for me as most of my stocks were going to be US based anyway. They offer both stocks and ETF's, and also interestingly offer access to a shariah compliant S&P 500 index. There's no ISA options with them. But what I liked was the fee structure, its 0 on trades. They make their money on currency conversions when withdrawing and depositing which in the long term works out cheaper.

Would I stay with stake long term? Possibly no, the other platforms are always improving and where one feature may be missing they might implement it in a year's time. When I'm able to open out another ISA I may make a switch to make my setup more tax efficient.

One disclaimer, I did add affiliate links in this post so we both get some stocks if you create an account. I created this post because I thought other Muslims might find it useful. I'm curious to know whether other people went through this journey too... Selecting a broker didn't seem like a stright forward process. Im wondering whether my approach is correct.

 

[klonopinz]

@spookydawg77 In my humble opinion, I would use an older more established broker.
1. You don't want your shares lent out to someone
2. Older brokers have proven revenue models unlike newer ones like freetrade they are trying to be robinhood but cannot charge for orderflow due to UK legislation.
3. It's better to pay for a decent broker, I would say cost should not be a top priority in the decision making process.

 

[afc]

@spookydawg77 It's been 10 months since this post, what did you end up doing? I did some research recently:

• Vanguard doesn't have shariah ETFs,
• FreeTrade doesn't have the HSBC Islamic Index Fund but AJ Bell and Interactive Investor do
• Although I'm thinking of investing in HLAL / SPUS instead but brokers don't have them

I managed to open a 212 account but unsure if I want to keep money there longterm.

 

[spookydawg77]

@afc I still have stake, I invest for the longterm, i also managed to finally get a 212 account very recently. Ive been debating whether to shift to it. I like the freedome to buy and sell in stake without fees and ive done that a few times to shift on stocks . I removed my money from wahed. I was only getting negative returns and thought with the current market I could do better myself. I also noticed they updated their website to reflect the negative return for 1st year. I do hope to shift back to wahed at some point tho, especially if we shift back into a bull market. I also started making use of Kestrl which is a great app and more cost effective than zoya.

 

[doelight]

@spookydawg77 Stumbled across this. its not something I've thought about much (I don't need to). But I thought I would mention in case its an issue is that some brokers lend out your shares if they aren't in an ISA. Im not sure of that affects your ability to use those accounts but you hadn't highlighted it. 212, etoto, Freetrade are among those who do share lending.

they lend out your shares and you become the owner of collateral (this might be money or some other asset), the company (and sometimes you depending on the broker) are paid for loaning out the shares to a third party.

some of the older brokers don't do this so its always work asking if this type of thing is a concern.

I'm curious to know whether other people went through this journey too... Selecting a broker didn't seem like a stright forward process. Im wondering whether my approach is correct.

its certainly not straight forward at the best of times, more so when you have additional requirements that aren't always easy to find the answers to. I commend your approach to finding greener companies to invest in as well as those who fit your values. I've noticed that is becoming more highly valued somewhat these days, but its not the norm.

 

[spookydawg77]

@doelight thats a good insights, thanks for sharing... will look into that further.