While organic growth is a vital goal for wealth management firms, it is a rare gem. For instance, many RIA aggregators turn out to be poor investments, as simply combining RIAs and cutting their costs does not guarantee their success.

There are several ways to garner new clients, with referrals topping the list. Referrals come in two varieties: client referrals and referrals from other professionals. Referrals from other professionals, such as accountants and attorneys, are not just effective; they are often the most critical way for wealth managers to move upmarket. Some methodologies, such as the Everyone Wins Process, enable wealth managers to build a steady stream of new wealthier clients from accountants and attorneys.

While creating a pipeline of referrals from professionals is very powerful, it is foolish not to benefit from a flow of client referrals simultaneously. For most wealth managers, it is possible to quadruple the number of client referrals they are getting quickly. One highly effective way to generate more client referrals, which is readily in the hands of most wealth managers, is to smartly discuss philanthropy. The key here is to do it strategically, focusing on what matters to them instead of delivering a dissertation on tax-advantaged giving techniques.

“There are rational and emotional reasons for engaging in philanthropy,” says Hannah Shaw Grove, chief marketing officer of Foundation Source. “The rational side of things tends to focus on specific financial or tax outcomes while the emotional side includes the ‘feel good’ aspects of giving such as uniting family members around a charitable cause or building a legacy of generosity. Advisors love to focus on rational benefits because they can be clearly quantified, but bringing the emotional benefits into the conversation can be a powerful impetus for clients.”

The Opportunity
Many wealthy investors are very philanthropic. In a meta-study of 361 wealthy investors, defined as having $10 million or more in investable assets, a third said they are very charitable, another two-fifths identify themselves as charitable, and about a quarter said they are not currently charitable (Exhibit 1). Of the 266 wealthy investors who reported being very charitable or charitable, half said the professionals they worked with were helpful (Exhibit 2). Meanwhile, 35% reported the professional being somewhat or not helpful, and only 13% said they were very helpful.

 

 

Regarding these wealth investors making referrals, when the professionals they were working with were very helpful, they all made referrals (Exhibit 3). This decreased by more than two-thirds when the professionals were considered helpful and dropped to zero when the professionals were considered somewhat or not helpful.

The Art Of Discussing Philanthropy
The key is what it takes to be considered “very helpful.” According to Homer Smith, founder of Konvergent Wealth Partners and co-author of Making Smart Decisions: How Ultra-Wealthy Families Get Superior Wealth Planning Results, “Helping wealthy investors make smart decisions entails helping them critically think through their options, including the advantages, disadvantages, and synergies in the context of their financial lives and objectives. With complete transparency, we empower wealthy investors to achieve their philanthropic goals as tax-efficiently as possible. For most wealthy investors, all the way to billionaires, being able to make their charitable gifts part of their overall wealth planning is necessary.”

As noted, the best results are when wealth managers do not discuss the various planned gifts until the charitably inclined wealthy investors are clear about what they want to do, and this regularly extends beyond charitable giving. Then, armed with these insights, wealth managers can have conversations that strongly resonate with wealthy investors.

By engaging in discovery, wealth managers can use well-crafted open-ended questions to develop a deep understanding of the wealthy investors’ philanthropic personalities.

• Communitarians tend to focus their charitable efforts parochially. They concentrate on their local environment. They are often business owners deeply committed to seeing their community prosper.

• The devout are primarily motivated to give for religious reasons. As such, they tend to support churches, synagogues, mosques, and so forth. Moreover, the devout will support various worthy causes beyond religion.

• Investors incorporate monetary calculus into their decisions. It is essential to understand that their decision to give is not based on a financial analysis. Investors are caring people who want to use their money to effect positive change. It is just that economic considerations, often tax-related, highly influence the amounts they contribute and the way they give.

• Socialites use their social peers to determine which non-profits to support. They are well-connected with people similar to themselves and use this network to transfer information. They make extensive use of the experience of their peers to decide to whom to give, how much to give, and to what extent they should get personally involved in a non-profit.

• Repayers support non-profits because they perceive obligations to the organization. They commonly support health-oriented non-profits such as hospitals and educational non-profits such as universities. 

• Altruists give because doing so creates a high level of self-satisfaction for them. They are giving because it is the appropriate thing to do. Thus, they are not looking for anything in return, so anonymous givers tend to be altruists. 

• Dynasts are socialized to the culture of philanthropy. Growing up, they learned from their family and others to be charitable. Dynasts need not be as affluent as they were growing up.

Also, as part of discovery, wealth managers can deftly connect all the critical issues that matter to these clients. The outcome is wealthy investors making smart decisions that regularly result in more significant charitable gifts.

Becoming Advocates
Unless explicitly asked by their peers for a wealth manager, most wealthy investors will never bring up the subject. However, because of conversations around their charitable goals and actions, most wealthy investors are not only excited to talk about their giving to peers. Still, they will consistently highlight the professionals who made it possible. They become advocates, singing the praises of their wealth managers.

“Certain topics are off limits within the high-net-worth community, but most people will open up about their philanthropy and the professionals that help with philanthropy in a way that is different from more sensitive or technical subjects,” explains Grove. “Conversations about giving can generate a lot of passion, which can create a halo effect for skilled advisors.”

Wealthy investors will not only recommend their wealth managers to their peers but also be able to explain why talking to them would benefit them. They can capably speak about their actions and how their wealthy managers helped them make the best decisions possible. Such explanations are very effective in sparking the interest of their wealthy peers, often leading to client referrals.

Jerry D. Prince is the director of Integrated Academy, part of Integrated Partners, a leading financial advisor firm. Russ Alan Prince is a strategist for family offices and the ultra-wealthy. He has co-authored 70 books in the field, including Making Smart Decisions: How Ultra-Wealthy Families Get Superior Wealth Planning Results.