Welcome to Financial Advisor IQ

Sweet Charity, Sour Experience

By Grace Williams November 4, 2016

Even if they haven’t told you yet, your clients most likely crave opportunities to explore ways to make charitable contributions. But if you’re too uninformed to ask or focus on the wrong aspects, you might miss opportunities to work with them in this important and relationship-building financial activity.

A recent study by U.S. Trust pointed this out. The firm looked at 1,435 high net worth U.S. households – those with a net worth of $1 million or more, excluding the primary home, and/or annual household incomes of $200,000 or more.

After gauging their positions on charitable giving, the study found that in the past year, 91% donated to charity, while 50% volunteered their time at a charitable organization. Looking forward, of the individuals who donated, 55% planned to give as much again and 28% said they will give more in the next three years.

The survey also found that 21% said their family has giving traditions, and either donate financially or volunteer their time.

While these numbers point to promising potential, there is a disconnect. A whopping 94% said they would like to know more about aspects of charitable giving. Furthermore, half of all respondents weren’t sure about how much to give.

The good news, according to Claire Costello, national philanthropic practice executive for U.S. Trust, is that clients want to talk about it. The bad news: timing and topic are paramount.

“Clients want you to go there,” advised Costello in an interview with FA-IQ. “But the disconnects can be around when and if the conversation is had and around technical and tax elements in the conversation.”

Claire Costello

Clients are increasingly less interested in donating for tax purposes than ever before. Only 18% said they gave for tax purposes, down from 34% prior.

Client enthusiasm for giving back also had its rough spots. Namely, 67% cited a need to learn about available causes they could donate to and where they would like to donate.

Part of the challenge for advisors, according to Keith Reiland, manager of private accounts for Portland, Ore.-based Jensen Investment Management, a $7 billion asset manager, is knowing what questions to ask. At Jensen, when clients express interest in charitable giving they are presented with questions that address their desire to give and that keep the giving rooted in practicality. Clients are educated on better understanding how much to give, when to give and what type of assets they can give.

Concerns about clients’ overall financial well-being alongside giving are also raised.

“If you’re retired, we don’t want to disrupt the ability for you to live your own life,” he says. “We want to be generous with charities, but we don’t want to get to a position where you don’t have enough for yourself or you’re unable to give to your next of kin.”

One example of note, the financial crisis of 2008-2009, presented a case where a donor pledged $20 million to a charity in money instead of shares. The market tanked, but the donor was still on the hook for that donation.

“The $20 million pre- and post-recession [was] not the same,” Reiland says.

Rose Watson, director of advanced planning at Commonwealth Financial Network, a firm managing $100 billion, suggests starting the conversation with a frank, open-ended discussion about what is important to the client. Think: aspirations, wishes, causes and family values. “Ask what type of legacy do you wish to leave, and once you have answers to the questions, you can have a strategy for giving and then explore the right technique,” she says.

Knowing what options are available to your clients is a gesture that goes a long way. If you or your firm is involved with a charity, that provides a natural in when it’s time to discuss your real-life application. If you are not involved, knowing what is available when your client asks can still take you pretty far. Offering clients options such as donor advised funds and trust foundations and explaining the benefits can help you save face if your personal or firm involvement is minimal.

A lot of times, donor generosity simply comes down to a matter of personal preference. According to Tim Hughes – director of wealth management and principal at Rockville, Md.-based Bronfman E.L. Rothschild, which manages around $4 billion – the variety of ways clients can get involved presents something for everyone, if advisors know where to look. “Charity is such a broad term,” he told FA-IQ. “There are so many different types that do cool things.”