Investment Advisers Need to Open Up Charitable-Giving Discussions

High-net-worth individuals want to talk about charitable giving with their investment advisers. But for their part, advisers are not bringing up the topic frequently enough to clients, and, when they discuss philanthropy, they are often not doing it correctly, according to a recent study by U.S. Trust, Bank of America Private Wealth Management.

The report revealed a disconnect in the client-adviser relationship when it comes to charitable giving. In the survey, conducted this August in partnership with the Philanthropic Initiative, a Boston-based nonprofit advisory firm, 312 advisers and 119 individuals with at least $3 million to invest and a steady track record of charitable giving were asked about how often they discussed philanthropy and who initiated the conversation: the adviser or the client? Advisers reported that they had brought up the topic of donating to charity in one third of such discussions. The clients participating in the survey said otherwise, with a 51 percent majority mentioning that they broke the philanthropic ice, with their advisers bringing up the topic a mere 17 percent of the time. The U.S. Trust study also found nearly one third (31 percent) of the high-net-worth individuals who were polled preferred to choose advisers knowledgeable about giving.

Survey participants also reported that when giving is discussed, advisers focus too much on technical matters, especially taxes, and less on personal matters, including the reasons for giving. High-net-worth clients also said advisers have not been including other family members, especially the next generation.

Little has changed since a similar survey was conducted in 1999, according to study author Claire Costello, national philanthropic practice executive at U.S. Trust in New York. A comparison of the feedback gleaned from the research suggested that while clients have become more vocal about allocating investments to philanthropy, advisers’ approach has changed little during the intervening 14 years.

“We found the needle hasn’t moved very much with respect to whether or not advisers are initiating the conversation and getting off on the right foot by talking about it in a holistic way,” Costello says.

Getting involved with charity allocation can strengthen client relationships and be particularly effective at building ties to family members, other than the primary point of contact, notes Sarah Hammer, senior investment analyst at Vanguard Investment Strategy Group in suburban Philadelphia. “As a result, advisers could potentially build relationships that help keep assets in-house over multiple generations,” Hammer says. This issue is of particular importance given the $41 trillion set to pass during the next several decades from baby boomers to Millennials, a demographic that has shown strong affinity for philanthropy when making investment plans. Also of note: Some 90 percent of high-net-worth individuals find new advisers when they come into their inheritance, rather than keep their parents’ adviser.

In addition, advisers who assist in high-net-worth clients’ philanthropic activities are more likely to get chances to serve on nonprofit boards stacked with other wealthy individuals and the opportunity to develop contacts who may become new clients. “If advisers aren’t doing it, competitors are doing it,” Costello says.

Some asset managers recommend just starting the conversation, even if it feels awkward. “My experience is that it is one of the easier conversations to have,” says Emily Drake, partner and senior adviser at Fairport Asset Management in Cleveland. Drake says she encourages all of her clients to develop a meaningful giving strategy from the start of the financial planning process.

Sometimes a specific life event, such as the sale of a business, may provide an opening for an adviser to bring up giving as part of an overall financial management plan. Melanie Schnoll Begun, managing director and head of philanthropy management at Morgan Stanley Private Wealth Management in New York, says she sees advisers asking clients about interest in giving because of a liquidity event, exposure to capital gains tax or a surge in income tax. “It may be from a very tactical perspective,” Schnoll Begun says.

Constantino DeLollis, vice president and national sales manager at Fidelity Charitable, a nonprofit provider of donor-advised funds set up by Boston-based Fidelity Investments, advocates a rather straightforward approach, with direct questions. “One is to ask, Are you philanthropic?” DeLollis says. “Another is, Do you have a tax problem and are you philanthropic?”

With regards to starting the conversation about philanthropic giving, advisers’ skittishness may stem in part from feeling most comfortable discussing technical matters (like asset allocation) or from their perceived inexperience with including charitable donations as part of a wealth strategy. The challenges involved include new tax issues and possibly unfamiliar vehicles such as donor-advised trusts, private foundations and charitable trusts. Philanthropy-focused organizations like Fidelity Charitable offer such educational materials as online tools for evaluation of charities and links to advisers, groups and seminars. Advisers should also look for help from accountants and attorneys with expertise in tax, estate and charitable matters.

“It is imperative to confirm with the other professionals in order to maximize the benefit,” says Fairport’s Drake. She cites a recent case in which a CPA advised dividing a planned move of stock to a client’s donor-advised fund over two tax years, producing a noticeable benefit for the client.

Once the conversation is under way, advisers can consult with their clients as to what charities they support and how often. Following from that conversation, advisers can give tips on possible new outlets for giving and how to maximize the financial utility of their donations.

Advisers have to keep an open mind. The U.S. Trust, Bank of America study, for instance, found that advisers dwell too long on how clients might have concerns over how philanthropy may affect their estates and trusts. Advisers also should muffle their own charitable preferences if, for example, a client wants to give money and other assets to a cause they personally oppose.

“Advisers need to get out of their own way on this,” U.S. Trust’s Costello says. “Their clients want it, it’s good for society, and it’s good for business.”

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