For today’s wealth managers, philanthropy is more than an end-of-year tax write-off—it is a growing area of advisors’ practices and an opportunity to engage the next generation of wealth.
The challenge for advisors is to make sure clients getting ready to make donations think of them, industry observers say.
“These clients clearly trust their financial advisors and have a lot of faith and loyalty to them,” Foundation Source CEO Robert Chartener says. “They just aren’t thinking about them when it comes to philanthropy.”
Surveys indicate clients are looking elsewhere for philanthropy advice, which means advisors are being left out of the conversation concerning a significant chunk of assets.
Americans donated around $538 billion to charities in 2014, up 7.1% from the previous year, according to the National Philanthropic Trust. Advisors should also note that, according to the trust, almost every high-net-worth household (98.4%) gives to charity.
On the surface, philanthropy allows planners to connect with their clients on a more personal level while offering financial advice. However, a recent survey from Foundation Source found that most clients are not engaging their advisors in philanthropic discussions. Less than 12% of the 1,200 clients surveyed said they were likely to speak to their advisors about giving, with almost 35% consulting their peers and 28% stating that they sought no advice on philanthropy.
“People think of advisors as someone to talk to about asset allocation or choice of investment vehicles, but the fact is that philanthropy is an important thing that they probably should talk to an advisor about,” Chartener says.
Philanthropic advice is very much in demand, says Jeff Ladouceur, director of Oaks, Pa.-based SEI Wealth Management—even if clients aren’t seeking it from their financial planners.
More than 61% in the Foundation Source survey said it was important or very important that their advisor was knowledgeable about charitable giving.
“At SEI, we spend a lot of time on philanthropy because the demand is there; we wouldn’t be doing it if they didn’t want to,” says Ladouceur. “This is an important topic. There are so many ways to implement these strategies that have different impacts and that require different levels of effort and involvement. But you can’t start on process, you have to discover the client’s goals.”
More than 31% of Foundation Source’s clients said that knowledge of philanthropy influenced the initial selection of their advisor. The same survey found that nearly 54% had actually engaged their advisor for advice on charitable giving.
“Clients may not seek out their advisors on philanthropy, but they’re receptive to having a discussion with them,” Chartener says. “To me, it suggests that advisors should share and understand a little bit more about philanthropy with their clients.”
Almost 42% of respondents said that a planner’s philanthropic expertise impacts their decisions to continue the advisory relationship.
The foundation for charitable advice should be laid during client intake, Ladouceur says.
“Too often the discovery process is investment-focused,” he says. “It’s up to the advisor to expand the conversation to one that involves issues important to the family.”
Many affluent families give in an ad hoc manner, which should be seen by advisors as an opportunity to offer help, says Anne Marie Towle, managing partner at Lincoln, Mass.-based Athena Capital Advisors.
“I definitely don’t think you should wait for the client to come to you,” says Towle. “I think it’s an obligation on the advisor’s part to bring it up. If we don’t plan from the outset, we’re neglecting part of our role as an advisor.”
Jody King, vice president at Fiduciary Trust, views philanthropic advice as having three key components: “It boils down to how to give, where to give, when to give,” she says. “With the wealth plan, you can be giving during your lifetime or you can give after you’ve passed.”
Advice also involves what to give—cash or investments—and which investments to give.
“For the client that is doing regular, annual charitable giving, we will have a conversation with them as to how much they want to give and the organizations they want to give to,” Towle says. “We will give advice as to whether we should be giving cash or securities. We also speak with tax accountants to see what type of asset would be most advantageous from a tax deduction standpoint.”