Independent from their advisors, wealthy families are using philanthropy to teach children about money and their values. Giving offers advisors a chance to connect with these potential heirs. Over 30% of respondents indicated they were interested in engaging the next generation in philanthropy, according to the Foundation Source survey.
“People with young children worry about when and how they talk to them about the money,” says Towle. “Generally, that’s going to be a much older age, but you can start younger.”
Towle helps families create a separate account for a portion of their assets they wish to introduce to their children. She meets with children on a regular basis to discuss how the money is being invested, with the understanding that all of the money will eventually go to charity.
“It’s a two-pronged education,” Towle says. “It’s about managing money and teaching them to start thinking about charitable giving. Then, as they get older, families might get more comfortable exposing them to the larger family wealth. It’s a great way to get them a start, and it’s a fantastic way for us to build relationships with the younger generation when the wealth becomes theirs.”
When younger people are involved in family foundations or donor-advised funds, they can get an education in the technical aspects of finance, says Wayne Johnson, a financial advisor with Des Moines, Iowa-based RIA Syverson Strege and Company.
“Younger generations can learn things like avoiding recognition of capital gains and offsetting income tax deductions in a high-income year to avoid a higher tax bracket,” Johnson says. “That’s what I work with them on in their 20s. I also ask them how they find the right charity to participate in and at what level they want to engage—donor, volunteer or even sitting on a board. Being on a board is a great training opportunity for somebody who is well educated and has some experience.”
Like the larger discussion about philanthropy, it often falls on the advisor to recommend involving children.
“I always try to help them think about including their kids, especially if they’re going to start a family foundation,” says Richard Brown, CEO of Minneapolis-based JNBA Financial Advisors. “It will help them understand responsibility and money and the impact it can have on lives.”
King recommends that families involve young children in volunteerism at charities before bringing them into the financial side of their philanthropic endeavors.
“There are different ways to approach it. Some people are stocking shelves at the food pantry or the shelter alongside their children,” King says. “To others, it means that Grandma lets her grandchildren have $1,000 to give to a charity of their choice.”
Perhaps the biggest advantage to offering clients help meeting their philanthropic goals is the amount of trust it can build between client and advisor.
“When we ask about philanthropy, clients are extraordinarily receptive,” says Preston McSwain, managing partner at Boston-based Fiduciary Wealth Partners. “They thank us for having a conversation that isn’t about making investing a competition, but about how we can take wealth and structure it in a way to produce a multitude of returns, whether they be returns for growth of assets or for impact on the community and the world.”
Thus, for an advisor to truly serve clients’ greater interests, the philanthropic discussion is mandatory, advisors say.
“I think if someone considers themselves an advisor, an advisor on the financial health of a family versus a fund picker or a planner, they have to be in this space,” says Ladouceur. “If they’re not in this space, then they’re missing an important component of people’s lives. People are now looking at their lives in terms of themselves, their family and their community.”