By Michael Byrnes
Serving today's investors will only continue to get more competitive. One way to stand out is to meet the needs of those that are philanthropic by giving them charitable planning advice. If clients do not get this service from their current advisor relationships, they will turn to another professional for the guidance they need.
At Fidelity Institutional Wealth Services' Inside Track conference, a panel of experts shared their thoughts on the topic of donor-advised funds.
The Fidelity Charitable Advice and Giving survey had the following findings related to incorporating charitable planning advice into a practice:
80% of advisors say it builds strong relationships.
72% of advisors believe it positions themselves as a broad financial expert.
65% of advisors who incorporate charitable planning advice into their practice said it is an important aspect of their client relationships.
61% of advisors say it keeps assets under management.
56% of advisors see it leading to multigenerational relationships.
Benefits Of Donor-Advised Funds
DeLollis, who opened and moderated the panel, said charitable planning consulting creates deeper relationships and retains business. It is just one more hook to prevent clients from leaving.
Charitable services also foster inter-generational relationships, he said.
Brosnan explained how donor-advised funds provide current year tax deductions, the ability to grow charitable dollars tax free, investment options and the ability to grant dollars to charities according to a donor's time horizon. Clients can also used donor-advised funds to make anonymous donations, but Fidelity says only 7% of donors take advantage of this capability.
Brosnan also reminded the attendees that advisors can generate revenue from the investment management.
An Advisor's Experience
Glovsky gave details of his client interactions with these services and said, "We look at tax returns. Do they give anything? Then we look for appreciated assets." The donor-advised fund can be a good solution for reducing capital gains. "Very few people have heard of a donor-advised fund. Talk about the concept and they love it," he said.
He continued about the benefits of front loading tax donations during the big earning years, before clients are about to retire, not when they retire. The tax strategy allows them to benefit from tax deductions when clients need it the most, while also allowing clients to give when they want to.
He added the minimums are very reasonable for the investments and donations. Plus, Glovsky said he never seems to have to have conversations with his clients about performance with these investments.
What About Foundations?
In describing donor-advised funds, Brosnan said, "They are a smart man's private foundation." Private foundations require tax filings and managing them is time consuming, they said.
Glovsky added that accountant fees for foundations can be comparable to the expenses of a donor-advised fund.
Still, the group agreed, private foundation can be the right solution for the right family.
Opportunities For Giving Complex Assets
An interesting benefit of donor-advised funds is that non-publicly traded assets can be given to charities. Boland said this planning tactic can make a dramatic difference in tax planning. Complex assets, like certain real estate and limited partnership interests, may be a good fit for this type of donation, as they usually have a low cost basis. With likely increases in fair market values, donors can avoid some significant capital gains exposure.