ELITE ADVISOR BEST PRACTICES
Grow Your Practice and Your Impact Through Charitable Counsel - Part One
Research shows that advisors significantly underestimate the importance of charitable giving to their clients
By Michael King
- Charitable planning creates unique benefits and opportunities for advisors, their practices, clients and society at large.
- Conventional wisdom says that 80 percent of clients would like their advisors to counsel them in the area of charitable giving, but only 20 percent of advisors feel comfortable providing such advice.
- Clients can receive significant tax benefits from their charitable giving, and those benefits can be enhanced by wise charitable counsel from their advisors.
Do you counsel your clients in the area of charitable giving and planning in an intentional manner and on a consistent basis? If not, you’re missing a tremendous opportunity to secure significant benefits for yourself, your practice, your clients and society at large.
Many advisors are uncomfortable about raising the subject of charitable giving, often viewing it as a very private or personal matter. They often feel it’s an inappropriate subject to raise or explore with clients. However, numerous studies suggest this perspective is flat-out wrong. As a result of this misunderstanding and apprehension, a significant gap exists between charitable giving counsel that clients say they would like to receive from their financial advisors and the counsel that advisors actually provide.
For example, a study conducted by Registered Rep magazine with Russ Alan Prince & Associates found that nearly 35 percent of affluent clients felt it was important for their advisors to help them make meaningful gifts. But less than two percent of advisors surveyed thought charitable giving was important to their clients! Conventional wisdom is that 80 percent of clients would like to receive counsel in the area of charitable giving from their financial advisors, while only 20 percent of advisors are comfortable providing such advice.
So, how can advisors who are reluctant to counsel clients about charitable giving overcome their fears? It’s helpful to understand the myriad of benefits that arise from providing such counsel.
Benefits of advising clients about charitable giving
First, let’s consider the benefits that recipient organizations (and individuals) receive from charitable gifts. The poor and homeless are fed and sheltered through soup kitchens and rescue missions nationwide. Schools, colleges and universities provide forums to educate students and to conduct research in science and technology. Churches and other places of worship provide spiritual training and encouragement and a sense of community beyond one’s immediate family, and are often a source of help and support for those with a wide variety of needs.
These and many other areas of care and service provide an enhanced quality of life to individuals, families and communities. Advisors who provide counsel and encouragement to their clients in the area of charitable giving can play a direct role in furthering the funding and support of the recipient organizations and their endeavors. Such opportunities often provide a real sense of purpose, meaning and fulfillment to advisors beyond simply the technical and service aspects of financial planning.
Second, consider what benefits clients and their families might realize from charitable counsel provided by their advisors—economic benefits, personal benefits and relational benefits.
Direct economic benefits are frequently derived from federal and state tax codes. These rules provide significant incentives and benefits to generous taxpayers. As many advisors know, clients who itemize their deductions for federal tax purposes may deduct up to 50 percent of their annual income for cash gifts. If a client is in the highest federal tax bracket, they will save 39.6 cents for each dollar gifted to a qualified charity.
Real world example
Clients may also gift other (noncash) assets that have appreciated in value and generally avoid the built-in capital gains tax that would have otherwise been imposed upon the sale of such assets. For example, if a client gifts a marketable security worth $200,000 that they bought for $100,000, not only do they receive a charitable deduction for $200,000, saving up to $79,200 in taxes, but they also avoid paying the $20,000 of capital gains tax and the $3,800 of net investment income tax they would have paid if they had sold the stock first and then given the cash proceeds to charity. Of course, gifts of noncash assets such as marketable securities, real estate and privately owned business interests are only deductible up to 30 percent of a taxpayer’s income.
These are significant economic incentives and benefits, intentionally included in federal and state tax codes to encourage client giving and generosity.
When it comes to charitable giving, your clients may secure indirect economic benefits as well. For example, if their business or firm makes charitable gifts, they may enjoy increased revenue and loyalty as a result of goodwill that customers and clients attach to businesses that give back to their communities. What’s more, clients receive personal satisfaction from charitable giving that far surpasses the economic benefits. Often, such involvement provides a deeper realization and sense of compassion for the needs and struggles of others. This in turn creates a greater appreciation for the blessings and benefits that the givers have experienced in their own lives.