ELITE ADVISOR BEST PRACTICES

Why Financial Advisors Cannot Ignore Clients’ Philanthropic Goals - Part Two

Tools, techniques and philosophies you can use today

By Elite Advisor Report staff

Key Takeaways:

  • Corporate tax deductions for giving are limited. This is part of the reason for lower giving rates. But corporate social responsibility is on the rise. Savvy advisors are tapping into that.
  • Making giving into a family activity can also be helpful in preparing heirs for the responsible use of wealth.
  • Too many advisors overlook the key to unleashing a client’s generosity (and satisfaction with you)—understanding the client’s values and interests, and the joy that giving provides him or her.

READER NOTE: Many of the contributors to this discussion will be presenting at the Purposeful Planning Institute’s Annual Rendezvous, August 5-7, 2015, in Broomfield, Colorado.

As we discussed in Part One, purposeful philanthropy is the art of thoughtfully, intentionally and purposefully integrating the passion, spirit and commitment of philanthropy into the fabric of our family system. With record numbers of boomers reaching retirement age and a new generation of younger people looking to make gifts with social impact, the landscape of philanthropy has changed dramatically. Are you and your team keeping up with client wishes?

Corporate giving grew by 12 percent over the past year to nearly $18 billion—but represented just 0.7 percent of corporate profits. Is that really enough? What needs to change to incent corporations to share more with those in need?

RANDY FOX (Planned Giving Design Center): Corporate tax deductions for giving are limited. This is part of the reason for lower giving rates. But corporate social responsibility seems to be on the rise, and shareholder/consumer pressure is the best way to raise corporate awareness about community involvement and responsibility.

TIM BELBER (Alchemia Group): Two factors. First, charities need to clearly address the ROI a corporation receives when it is a strong donor. I know one company that “invests” heavily in education in every community where they have a presence. They do this for two reasons. First, they believe a strong community and an educated workforce [are] good for them. Second, they want to be identified as a good, responsible member of the community. They are in the energy business and worry about the perception of them as part of that industry and the possibility of an accident. They view corporate philanthropy as a way to build good will. Second, the impact conversation needs to happen with businesses. As with the example above, philanthropy does not have to be about giving it away, but instead can really be a two-way street.

Americans as a group historically give around 2 percent of their incomes to charity. Is that likely to change pro or con as record numbers of boomers enter retirement years and a record amount of wealth will transfer into other hands over the next 15 years?

Belber: As I mentioned earlier, the opportunity for this to be a pro, rather than a con, clearly exists.

PHIL CUBETA (The American College): Making giving into a family activity can also be helpful in preparing heirs for the responsible use of wealth. The family members can explore giving options and report back. This can not only teach giving wisely, it can also bring the family closer together. A side benefit of fostering such family activity, for the advisor, is that it helps retain assets under management as the parents pass on.

Fox: Giving as a percentage of income is a poor metric. We should measure giving as a percentage of one’s assets. Americans have less cash than any other asset class today, and until the advisor community educates itself and its clients, the percentage won’t change. There are many more effective ways to give that are simply underutilized.

What is the biggest thing that financial planners and wealth advisors don’t seem to understand about philanthropy?

Fox: First, that their clients give already and want to give. Second, everything about how to do it [right].

Belber: The opportunity it offers to be a better, more valued advisor for families.

JOHN A. WARNICK (Purposeful Planning Institute): Too many financial planners and wealth managers don’t understand that the key to unleashing clients’ generosity and increasing their satisfaction around the impact of their giving lies in understanding the clients’ most deeply held values and interests. Too many advisors continue to focus their conversations with clients about philanthropy on the tax advantages or efficiency of that giving. While that is important, it isn’t what clients are primarily interested in and shouldn’t be the starting point for these conversations.

How can we encourage wealth advisors to encourage client philanthropy even if it means a loss of AUM?

STEVEN MEYERS (American Committee for the Weizmann Institute of Science): You have to change the paradigm. There are an increasing number of “values-based” practices attempting to do this. When these most thoughtful of professionals want to bring the clients’ deeply held beliefs and hopes into the equation, philanthropy is one of their most powerful tools. Advisors at the leading edge are beginning to learn that they can actually play a more direct, creative and active role in helping clients generate and manage the current charitable dollars they need to make a difference today, while at the same time providing for a charity’s future needs by employing as building blocks all the smart gifts (CRTs, CLTs, DAFs, etc.). These tools are already in their existing toolboxes. They just need some radical rethinking of basic concepts like endowment, spending rate and the link between finance and philanthropy. The story of a more strategic and personalized philanthropy is just starting to be written at a few pioneering organizations that focus on innovation, one of which is the Weizmann Institute of Science.

Fox: It doesn’t have to mean a loss of AUM. That’s a huge misunderstanding. Many charitable tools keep AUM or grow it, sometimes for multiple generations.

Belber: Thanks to tools like DAFs, it doesn’t have to mean the loss of AUM. Also, if you have the “all investing is impact investing” conversation with clients, you will increase your ability to retain clients, as now you have something to report on other than just performance.

Any final thoughts for our readers and followers?

Meyers: Follow these three lessons from donors on effective giving:

1. Give with a warm hand. Donors who have the most impact and feel the greatest satisfaction are, first of all, ALIVE. They are actively, directly and personally deciding the use of their funds, matching their most compelling interests to the compelling needs of the institutions that best address causes they are [concerned] about.

2. Give with a warm heart. This, of course, is about the passion donors feel for the cause, the mission, their personal quest. It’s core DNA for them; it embodies both the soul and heart of their values. My gift is for the benefit of ________, where it is essential for each person to fill in that blank, however [he or she chooses].

3. Give with a cool head. Give smart, not just with your heart. Use your advisors and make them talk to each other. If you want your giving to achieve balance, use your smart parts. Be strategic, and have a care for how you give, as well as why. Invest in your philanthropic plan. Not just with CRTs, CLTs, CGAs, insurance, all the rest that pay at death, but with a stream of more modest gifts that can start up your plan while you are alive.


About the Author

Tim Belber, founder and principal of The Alchemia Group in Denver, focuses his practice on helping self-made families align the power of their financial assets with their long-term goals for flourishing as individuals and families across generations. Tim has degrees from the Wharton School and Seton Hall University School of Law and is an Accredited Estate Planner (AEP®). He is the author of the forthcoming book, The Middle Way: Using Balance to Create Successful Family Wealth Transition Plans.

Phil Cubeta, CLU, ChFC, MSFS, CAP is the Wallace Chair in Philanthropy at The American College and is responsible for the Chartered Advisor in Philanthropy (CAP®) designation. Prior to joining the American College, Phil was Chief of Staff for The Nautilus Group, a service of New York Life, providing estate, business, and philanthropic strategies to affluent clients of its member agents.

Randy Fox is Editor in Chief of Planned Giving Design Center and is the regional representative of Charitable Giving Resource Center.

Steven L. Meyers, Ph.D., is Vice President of the Center for Personalized Philanthropy at the American Committee for the Weizmann Institute of Science. Steve is a primary developer of personalized philanthropy, based on his mantra of “the right gift, for the right purpose, for the right donor.” Steve’s innovative donor-focused gift designs, especially a series of arrangements he calls “killer apps,” combine the full spectrum of current and future gifts so that donors can create a lasting legacy where impact and recognition are able to start up right away.

John (“John A”) Warnick, JD, is the founder of the Purposeful Planning Institute and Family Wealth Transitions & Solutions.