Studies have shown that giving back—even without a favorable tax result—is important to most high-net-worth (HNW) investors (typically defined as those with a net worth of at least $5 million). So, what does this mean for financial advisors? It’s an opportunity to provide those clients a holistic view of how their philanthropy can be tied to their wealth planning.
To help you approach these conversations, and help your clients be strategic in their philanthropy efforts, we’ve created a guide to HNW charitable planning.
1. Understand The Why Behind Giving Back
In general, charitable giving is a top priority for this group of investors, while tax planning is toward the bottom of the list. A 2022 BNY Mellon Wealth Management survey shows that 91 percent of respondents said they include a charitable giving strategy in their overall wealth strategy.
In another study of affluent investors conducted by Bank of America and Indiana University, 72.1 percent said their charitable giving would stay the same even if the income tax deduction were eliminated, and 73.3 percent said their giving would not change if the estate tax were eliminated.
Still, some HNW investors are wary of being too philanthropic—prioritizing family needs, or simply unsure of where and who to give.
All of these trends provide opportunities to present ideas and resources, along with your expertise, when first meeting with HNW clients.
2. Strategically Approach How HNW Investors Give Back
The following steps can help you support clients by guiding them toward causes that match their interests, values, and overall financial picture.
Uncover client priorities. Bringing up the topic of charitable giving early in the relationship can reveal a lot about what matters to your clients. By asking the right questions, you can help them determine or narrow down the issues that matter most to them, such as:
• What type of causes are most meaningful to you?
• What organizations do you support year after year, and why?
• Have you wanted to get behind a particular cause but are unsure which organization could make the greatest impact?
Resources like Fidelity Charitable tools can help clients think through their options. The site offers worksheets for determining why and where to give back, questions they could ask nonprofits, and calculators to estimate tax savings.
Be their guide. According to the BofA study, 46.6 percent of investors consider themselves novices when it comes to charitable giving knowledge, and only 5 percent view themselves as experts. Act as their guide to giving back by being familiar with resources and charitable planning vehicles, including private foundations, donor-advised funds (DAFs), charitable funds, and direct gifts.
To go further and make philanthropy a cornerstone of your practice, consider obtaining the Chartered Advisor in Philanthropy (CAP®) designation through the American College. During three online courses, participants learn about integrating estate planning with charitable planning, comparing charitable tax strategies and tools, and understanding how nonprofits are structured and governed.
Help them plan. Often, donors use cash to give back, and many do not use a giving vehicle. This is where you can bring up more strategic, tax-efficient giving, like donating appreciated or complex assets (e.g., investment assets or closely held business interests, real estate, or collectibles). In such cases, clients can typically reduce their capital gains exposure and deduct the full market value of the assets they’re donating (if they itemize).
Even when taxes are not top of mind, you’ll need to be ready to explain the tax impacts of gift giving. Your role is to help clients home in on their passion while you find the most efficient ways to couple their passion with their planning. By so doing, your clients can have a significant impact on a cause they care about while ensuring that their generosity doesn’t undermine their financial future.
Get The Conversation Started
No matter how you and your clients approach HNW charitable planning, understanding what motivates them will allow you to guide them toward reaching their goals. And understanding your clients’ preferences for giving back can help you better anticipate their needs.
Ready to take the next step? Download our free guide for actionable strategies you can apply to your practice today, including three case studies that reflect real-life situations you may come across.
This post originally appeared on Insights, a blog authored by subject-matter experts at Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Please consult your member firm’s policies and obtain prior approval for any designations you would like to use.