The key to a more valuable planning practice may be in clients’ hearts, not their retirement accounts.
Philanthropy can strengthen the bond between advisors and clients, yet financial planners may be missing the opportunity. While most investors think of philanthropy as a moral or ethical obligation, according to a recent study, advisors are more likely to think of charitable giving in financial terms.
By engaging with philanthropic planning, advisors will end up with happier clients now, and a more sustainable practice in the future, according to “The Heart of Wealth Management,” a recent report by Boston-based State Street Global Advisors. To appease 21st century investors’ desires to do good while also reaping returns from their financial capital, advisors must think strategically.
In a series of surveys, State Street found that advisors tend to underestimate their clients’ altruism. More investors than advisors were motivated to give because they cared about specific causes, had a sense of duty to give back to society, or were bound by ethics or religious codes to donate. On the other hand, advisors were more likely than investors to be philanthropically motivated by tax deductions, legacy building and family engagement.
According to State Street, charitable giving has increased more than sixfold since the 1950s, and online giving has grown by 9.2 percent over the past year. Donor-advised funds have grown by almost 20 percent year over year and now hold $70.7 billion in client assets. Approximately $1 of every $5 under professional management in the U.S. is now in a socially responsible investing strategy.
It behooves advisors to learn more about the philanthropic options open to their clients, says the report. Client respondents who received professional advice on philanthropic planning were 40 percent more likely to be satisfied with their advisors. In the survey, 90 percent of the investor respondents who had an advisor guiding them on impact investments were extremely satisfied or satisfied with their advisor.
State Street says that clients can recognize the benefits they receive from developing a giving strategy, balancing their commitments and identifying efficient ways to donate.
When asked, more than two-fifths of State Street’s client respondents, 44 percent, said they wanted more philanthropic guidance from their advisor. Advisors have an opportunity to attract more of a client’s assets by linking giving and investing, according to State Street.
To do so, advisors should try to understand their clients’ values and reasons for giving. Whether they’re driven by religious concerns, a sense of obligation or duty or by more practical rationales, the motivations to give may help inform a philanthropic strategy.
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