Client Profiling
What this domain tests
This domain tests whether your know-your-client process captures Shariah preferences with the same rigour as risk tolerance and capacity for loss.
What to capture
- Degree of Shariah compliance: strict avoidance of riba versus acceptance of screened mixed companies with purification.
- Ethical exclusions beyond the minimum, such as tobacco or defence.
- Existing holdings, including conventional bonds or funds, and willingness to transition.
- Zakat position: assets subject to zakat, nisab and the lunar-year holding period.
- Liquidity needs, horizon, dependents, income stability and tax position.
- Risk tolerance and capacity for loss, assessed separately from religiosity.
Worked example
A client holds RM200,000 in a conventional bond fund and states that riba avoidance is non-negotiable. Her risk tolerance is moderate and she needs access to RM50,000 within a year. You document the Shariah preference, ring-fence the near-term cash in a Shariah money-market vehicle, and recommend a staged switch of the remainder into sukuk and Shariah equities to manage exit costs and market timing. You record that she declined an immediate full liquidation and the reason.
Suitability
Match the recommended portfolio to both the Shariah profile and the financial profile. A strict-compliance client should not receive a fund that relies on purification as its main compliance mechanism unless she accepts that in writing.
Traps that cost marks
- Equating strong religious preference with low risk tolerance.
- Failing to document a client's refusal of a fully compliant option.
- Assuming all Muslim clients have identical preferences.
- Ignoring existing conventional holdings that create a transition problem.