What are some strategies you use when you think about short-term versus longer-term planning?
SILVERIO: In terms of asset allocation, it's important to understand how much the client plans to give away. If it’s a lot up front, they can't tie up large portions of money in private equity or longer-term assets. Getting the right mix is important.
VEGA: When I have clients needing time to develop a long-term giving strategy, they usually start by creating a private foundation for the flexibility. If they later decide they don’t want the foundation, they can transfer their assets to a DAF. Yet if they start with a DAF, they can’t transfer back to a foundation. Some of our clients find it useful to have both vehicles.
How do the foundations you work with make sure they're keeping their investments at a level where they can continue in perpetuity, if that’s their goal?
SILVERIO: For clients who want to give away a lot more than the 5% MDR, financial modeling’s helpful. It can help you explain, “Here's your grant budget and the return expectations for your foundation. And here's what it will look like, in various simulations, over the next 20 years.”
VEGA: We, too, have clients who find financial modeling useful. The idea of perpetuity versus sunset is being discussed more often, and that's where you need to go back to the philanthropic goal and get everyone on the same page.
Any tips on impact investing?
SILVERIO: Not too long ago, people weren't keen on it because they thought they’d be giving up return potential. We think that spread has narrowed. It’s possible now to accomplish both strong investment performance while aligning clients’ values with their investments. We use separately managed accounts of exclusionary screens to omit industries that don’t align with our clients’ values. We also encourage clients to go beyond “screening out” to “leaning in” by proactively granting to organizations aligned with their values.
What's the biggest challenge you’ve faced while working with clients on their philanthropy?
VEGA: The most intimidating part is the family dynamics piece. It can be challenging to facilitate a conversation in which family members are in disagreement. Some advisors prefer to engage a third party philanthropic advisor, which makes a lot of sense.
SILVERIO: Philanthropy can be overwhelming because clients feel this huge responsibility to “fix the world.” So I find it most challenging to help them drill down into such a broad topic to develop the most effective strategy for giving their dollars away. The more you can engage philanthropic consultants with your clients to make it less overwhelming, the better. Then your clients will engage more and not be intimidated by it.
What advice do you most want to offer other wealth advisors about philanthropy?
VEGA: Philanthropy is one of my favorite areas of planning. The important part for the advisor is identifying your role in the process then finding the right partners and resources for the other pieces. In my perspective the process includes: (1) determination of family values and causes to support; (2) strategic consulting; (3) administration and compliance of the charitable vehicle; and (4) measuring impact.
SILVERIO: Don't shy away from discussing philanthropy. There are so many ways that you can add value, and clients likely aren’t aware of the options available to them. It's been great for our business, and I've really enjoyed connecting with clients through it.
Josh Stamer is a senior managing director at Foundation Source, the nation’s largest provider of management solutions for private foundations. The company works in concert with financial advisors, legal and accounting professionals, consultants and family offices, as well as directly with individuals, families and corporations to bring philanthropic visions to life.