Charitable giving can be a personal, if not touchy, subject both for advisors and their clients. In 2000, the nonprofit consulting group The Philanthropic Initiative (TPI) did a national survey of advisor behavior and its effect on donors. It found that 90% of financial and legal advisors ask their clients about charitable giving, but only half consistently ask "the philanthropic question" to all their high-net-worth clients.
The quotation marks are theirs, as if philanthropy is the "P" word in financial planning. The question in question boils down to this: "Have you thought about philanthropy as part of your wealth management plan?"
According to TPI's 2000 survey, and this year's follow-up study of California financial and legal advisors, the topic of philanthropy often is broached from the standpoint of tax savings and overall estate planning. But the latter study shows that only 7% use an approach based on legacy planning or values and goals to ascertain charitable intent and desires.
"Some financial professionals feel that delving into a client's values and personal feelings is too intimate," says Steve Johnson, a vice president at Boston-based TPI. Others are wary of imposing their value judgments on clients.
Then there are those advisors who believe exploring the heart and psyche of investors regarding philanthropy is both emotionally and professionally rewarding. "I look at philanthropy as a tool that differentiates myself from the competition and is a good service for the client," says Andy Horowitz, president of The Estate Management Group, a wealth management firm in Valencia, Calif.
Much has been written about the so-called intergenerational wealth transfer from older to younger Americans, which forecasts a collective $41 trillion inheritance passed down nationwide over the next half-century. Of that, at least $6 trillion is expected to go to charity. For many financial advisors, philanthropy-based planning to help wealthy clients meet various wealth management and personal goals can be a golden opportunity to forge intergenerational ties with a client's family by forming close bonds beyond the patriarch (or matriarch) generation.
Horowitz is a certified philanthropic developer, a designation for specialists in charitable tax planning. The 250 clients at his firm have assets ranging from $1 million to $50 million, and he makes it clear to them that a lot of their money will eventually go to Uncle Sam or insurance premiums to cover taxes or as gifts. "It's a real eye opener for them when they realize that millions of their dollars could go to taxes rather than where they'd like it to go," he says.
Horowitz likes to go on retreats with clients to gauge what they'd like to accomplish with their fortunes. He'll typically meet with them at golf or tennis resorts, or maybe a relaxed setting like watching the boats at Newport Beach. He met one couple on Catalina Island, where they said they'd like their two sons to understand the responsibility that comes with wealth. After the woman died, Horowitz met with the twenty-something children and their father, who made $50 million in real estate.
"I asked the kids what's the one thing they would change in this world if they could," says Horowitz. "Then I shut up and let them speak." What came out of the conversation was that one son wanted to cure cancer because that's what caused his mother's death. The other son said he'd like to promote education of the arts.
Then Horowitz summarized their conclusions by saying it sounded like they were talking about developing a foundation to improve the quality of life and to educate people. They agreed. Horowitz then said it sounded like the beginnings of a mission statement, and asked them how they would make that happen. The family dug deeper into their thoughts and into the logistics of starting a family foundation.