Regular readers of this column know I often urge advisors to get better educated about philanthropy. According to the recently released annual Study of the Philanthropic Conversation from The Philanthropic Initiative, most professional advisors (99%) now believe it’s important to “discuss philanthropy” with their high-net-worth clients. Further, 96% of surveyed advisors considered it their “obligation” to discuss philanthropy with clients, up from 62% in 2018.
But saying something is important and actually doing it are entirely different things. As TPI research showed, less than half (45%) of advisors are indeed discussing philanthropy with most of their HNW clients, a percentage that’s barely moved from 44% in 2018.
That’s a problem because most (88%) of the HNW clients that TPI surveyed said philanthropic conversations were important to them, and four out of five (80%) believe advisors have a “responsibility to discuss charitable giving” with them.
This gap tells me that most advisors still aren’t comfortable with planned giving (beyond donor-advised funds) and how giving can help clients reach their financial and legacy goals. It reminds me of when my dad passed away. I took my mother to her estate-planning attorney, and he started the conversation with: “You don’t want to leave anything to charity, do you?”
Technically, the attorney was raising the topic of philanthropy, but I don’t think he was interested in continuing the conversation.
Even among advisors who regularly discuss planned giving, only three in five clients (61%) told TPI they were “very satisfied” with the philanthropic discussions they’ve had with their advisors.
I can tell you from firsthand experience that when most advisors hear “philanthropy” or “planned giving,” they automatically default to the DAF, the simplest of simple solutions. They’re not getting into the family legacy or teaching the children about charitable involvement, or exploring any other structured gifts that might make more sense. See my recent article for more about going “Beyond the Donor-Advised Fund.”
While a DAF often makes sense, there are times when a client can’t afford to give away as much as is recommended because they need to retain some of the value of their gift to produce income to support their lifestyle. A better gift might be a charitable remainder trust, a pooled income fund or a charitable gift annuity. Each of these gift structures provides the donor with the right to income, usually over their remaining lifetime.
As the old saying goes, if the only tool in your toolbox is a hammer, then everything looks like a nail. To stay relevant with clients—and future generations of your clients’ families—it’s important to understand other types of structured giving vehicles, because taking a one-size-fits-all approach to planned giving is like recommending a 60/40 portfolio allocation to all your clients.
Advisor Misconceptions
Some good ways to get up to speed on philanthropy are to join a Planned Giving Council chapter in your area or take the Chartered Advisor in Philanthropy Program. If you’re a professional, you need to invest in yourself and in your continued growth as an advisor. And you don’t need specific licenses or certifications to discuss philanthropy with your clients. That’s important, because TPI data showed there’s a big disconnect between why HNW people give and why advisors think they give:
For instance, surveyed advisors said the biggest reasons why clients give to charity were:
1. Being an inspiration to others (51% of advisors agree)*
2. Having a passion for a cause (47% of advisors agree)
But according to HNW clients, their two biggest motivations to give were:
1. Making an impact (53% of clients agree)**
2. Because it feels good (50% of clients agree)
* This response particularly jumped out at me because only one in four (24%) HNW clients cited inspiration a reason.
** By contrast, only 40% of advisors cited “making an impact” as a reason to give.
I believe advisors often have preconceived ideas about what their clients are thinking when it comes to supporting charitable causes. Instead of asking deep questions, they project their own thoughts and beliefs into the equation.
Advisors also tend to overestimate the importance of tax benefits in philanthropic motivations. For example, TPI data shows two in five advisors (40%) cite tax mitigation as the motivation for client giving, but only one in five HNW clients (21%) cited tax concerns. I’ve found that tax mitigation may not rank as high as other motivations for giving, but tax worries are often what start conversations about giving. I’m sure you have plenty of clients with low-basis company stock or a crisis on the horizon. Philanthropy, when structured correctly, is a great way to address those problems and make clients feel good about helping others.
So why don’t more advisors incorporate philanthropy into their practices when TPI data shows 90% of advisors believe philanthropic conversations will benefit their practice (up from 78% in 2018) and 95% believe philanthropy is important for building relationships with clients’ extended families (up from 71% in 2018)?
Again, they’re just not confident about when or how to discuss philanthropy with clients. It’s not something they do every day. They don’t understand all the nuances, tools and tax rules that go along with it. Why bring something up with clients if you think it’s going to anger clients or make you look uninformed
Why Not Refer?
So, why not reach out to planned giving experts for assistance? According to TPI data, half of advisors say they prefer to advise clients directly about the philanthropic process, rather than refer them to outside experts. But clients are more likely to say their needs for philanthropic advice exceed their “current advisor’s knowledge.”
I understand that many advisors are naturally concerned about losing clients to outside professionals with expertise they don’t possess. That shouldn’t be a concern. Many philanthropic advisors don’t manage money directly or bill based on assets under management. Many work as hourly consultants. They’re not going to take your clients. If anything, they’ll enhance the relationship with your client. They can recommend a number of advanced giving vehicles, such as PIFs,in which the money may stay in the family for three or four generations, that is, for you to manage. They can even structure DAFs for two or three generations, which bodes very well for client retention.
Getting a good philanthropic advisor in your network is just the same as having a good CPA and a good attorney to whom you can refer clients. Once you do, you don’t have to worry about them giving your client bad advice or taking the client from you.
An estimated $84 trillion in wealth is expected to transfer over the next two decades, and one-seventh of it ($12 trillion) is expected to go to charity rather than to heirs. That’s a green light if I ever heard one. As TPI data confirmed, three in four HNW clients (75%) say they’re more likely to choose an advisor who’s knowledgeable about philanthropy, and 71% say they would value philanthropic advice more if their advisors were philanthropic themselves.
Go out and learn everything you can about philanthropy, and then go advertise your expertise because it will set you apart from other advisors.
