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July 22, 2010 |
Higher Taxes May Prompt More Giving, Says Fidelity |
Most advisors expect their clients’ taxes to rise over the 18 months, but the good news is that charitable contributions could rise in turn. Those are the findings of research by the Fidelity Charitable Gift Fund—a donor advised fund touted by financial behemoth Fidelity as the third-largest charity in the United States.
If the findings bear out, the greater generosity could come as a spot of good news after a year in which charitable giving saw big declines amid the recession.
According to Giving USA, total charitable giving fell 3.6% in 2009, to $303.75 billion, the most precipitous decline since 1956 when the organization started keeping a tally. Meanwhile, the Foundation Center has reported that the country’s 75,000 grant-making foundations cut their 2009 giving by 8.4%, to $42.9 billion from $46.8 billion, the largest decline ever.
Sarah Libbey, president of Fidelity Charitable Services, says the 3.6% drop was much milder than she expected considering the huge losses investors sustained during the recession.
“Frankly I thought that that was pretty good news. With the continued volatility and sort of slowness of the economy, it could have been much more dramatic. It was the first down year since 1987.” She also said that Fidelity itself has not seen a slowdown, and just experienced its strongest first half ever, with almost $500 million coming into the fund so far this year, a 67% increase over the same period last year.
Still, even Libbey says she saw more caution last year among the account holders’ granting.
“Last year, even though it was our [third] year of granting over a billion dollars, it was also a year that was maybe slightly down from the previous year and that is evidence that the individual donors were saying to themselves, you know our account balance is slightly down. I’d like to see that pick up a little bit more before I increase my granting activity.”
Fidelity surveyed 503 financial advisors, including wirehouse brokers, b/d reps, reps from insurance channels and RIAs whose median number of clients was 150 and whose median typical assets under management was $500,000. About 87% of the advisors the firm polled said they thought most of their clients would see a tax spike in the next 12 to 18 months, and 26% of the advisors think their clients will increase charitable giving to blunt the pain. Some 48% say clients will maintain their giving levels, even with the market uncertainty.
Fidelity also found, as others have, that there is a disconnect between advisors and their clients when it comes time to talk about opening the purse strings: While 63% of advisors think their clients may want charitable planning advice, only 52% of them broach the subject themselves. This happens for a variety of reasons, mostly because the clients haven’t asked for help in this area. Some 31% said that they did not feel qualified or knowledgeable enough about charitable planning to bring it up, but 40% said they would if they knew how to better introduce the topic.
The Fidelity fund has been beefing up its services, developing a private donor group to serve high-net-worth individuals and help them with more sophisticated philanthropic problems, such as what to do with non-publicly traded assets, and also linking these individuals with philanthropic advisors that monitor the gifts and make sure the recipients are seeing results. Libbey says that 70% of the grants are directed through the fund’s Web site, and the clients don’t even need to call Fidelity if they want to respond nimbly to something like the Haitian earthquake.
“I think within three hours of the earthquake hitting we processed our first grant out of a giving account,” she says. “I think that within three weeks, $14 million was processed out of giving accounts to support Haiti relief. So it’s that convenience of knowing you’ve got the ready reserve in your account balance and the convenience of the Web site [for the donor advised fund].”
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Higher Taxes May Prompt More Giving, Says Fidelity |
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