The donor-advised fund universe continues to grow, in both the size and number of accounts. Many clients establish these accounts for charitable giving after their financial, legal and tax advisors explain the benefits—both for the clients and the causes they want to support.
Many financial advisors have realized over the past decade that they can attract new clients by offering donor-advised funds, as well as retain existing clients and increase assets under management. The percentage of assets in these accounts may or may not be large, but by discussing charitable planning and getting the accounts open, advisors often find themselves managing these monies as well.
There are several scenarios in which an advisor might find the opportunity to introduce these products to clients and prospects (and thus raise his or her profile).
1. In one scenario, an advisor can encourage a client to donate assets the advisor wasn’t handling to a donor-advised fund account. Some fund sponsors allow advisors to manage the assets in the accounts and determine how the assets are invested once liquidated. Most advisors charge on these assets, and clients are pleased someone they trust is handling the assets.
2. Clients can also donate greatly appreciated assets they’ve held over a long time to a donor-advised fund sponsor and receive the fair market value for the donation. This eliminates the need to determine the exact cost basis of these assets, which would be difficult if not impossible to determine if the assets were sold.
3. Older clients can fund and establish donor-advised funds for their entire families or create separate donor-advised funds for their children, which allows their advisor to meet and work with the children before their parents pass on.
4. Some advisors work with younger clients whose aging parents are wealthy and philanthropic. In these cases, an advisor can open a donor-advised fund for the parents, and thus find an entry to managing some of the parents’ assets even if the parents are otherwise working with some other advisor who had never brought up the product in conversation.
5. If a client is about to sell their business (or some other illiquid asset), an advisor can encourage them to donate some of the privately held stock before the sale to reduce the capital gains taxes they would have to pay. The advisors can then invest and manage the assets once they’re liquidated.
6. Sometimes clients establish donor-advised fund accounts on their own, but the sponsors they’ve chosen offer only limited investment choices. An advisor can help clients transfer out of those accounts into new ones that allow the advisors to manage the assets. The advisors are then able to invest and grow the assets so the clients can donate more in the future.
7. When you share your knowledge about donor-advised funds and open accounts for philanthropic friends, family members and colleagues, you end up with referrals. (And if you don’t discuss these things, other advisors will.)