When it comes down to it, Cetera planner Pete Bush finds that his clients don’t care about investments. For one famous one, for example, it’s all about his dad.
Los Angeles Dodgers pitcher Brian Wilson lost his U.S. Air Force veteran father to brain cancer when Wilson was just 17. In 2011, when the closer — whose distinctive jet-black facial hair inspired a “Fear the beard” slogan — was 29 and still with the San Francisco Giants, Wilson made the largest donation by an individual in the history of the Air Force in honor of his father, funding two $15,000 scholarships to be given annually to two future airmen or airwomen.
“That was a very emotional gift,” says Bush, the Baton Rouge, La.-based co-founder of Horizon Wealth Management, who’s been Wilson’s planner since 2003, when the player was still in the minor leagues. (About a fifth of Bush’s clients are athletes.)
“If you are talking about those things with [clients], you really do have a relationship. I think a lot of advisors think they have relationships with their client, but what they actually have is a business transaction, not a personal relationship.”
Bush has learned something that most financial planners have not, says one expert.
Talking to clients about issues of deep interest to them helps advisors “differentiate themselves in the marketplace,” says Susan Winer, co-founder of Chicago-based Strategic Philanthropy, which helps wealthy clients directly and also advises planners on how to help clients become effective philanthropists.
This may be especially important now, as equity market growth has given clients big unrealized gains and spurred an outpouring of donations: Charitable giving jumped 28% last year among wealthy households, according to the 2014 U.S. Trust Study of High Net Worth Philanthropy.
Winer’s firm has released a free guide to help planners develop this portion of their practice. She and other planners offer the following tips for working with clients on their philanthropic goals:
1. Start with the tax return.
The simplest way to tell if a client is charitably minded is to review his or her tax return, says planner Carolyn McClanahan of Jacksonville, Fla.
Her firm reviews all their clients’ tax returns and makes a point of discussing philanthropic goals with those who have a demonstrated practice of giving.
2. Bring the subject up twice a year.
Katherine Lintz, founder of Matter Family Office in St. Louis, says she and her colleagues bring up charitable giving in the first quarter of the year and, once again, in the fourth quarter — in both instances for tax planning purposes.
3. Stay at the table.
Winer says she tries to convince planners not to simply introduce their clients to charities and then walk away. Instead, planners can play a helpful role by becoming involved in the client’s conversation with that charity.
4. Remember: Size doesn’t matter.
“We have people who give away $1 million a year and some who give away $5,000,” Lintz says.
She says she coaches clients to go into charities and say, “If I were to give you X amount of incremental dollars, what could you do that you are not doing now?”
In one case, Lintz said, a charity said that for $800 a month, it could take a busload of kids to visit their parents in jail — so the client began funding that one activity on an ongoing basis. “If you ask, you will be shocked at how many good ideas they have for how you can have direct impact,” she says.
5. Don’t wait for the estate plan.
When clients begin talking about leaving part of their estate to charity, McClanahan says she suggests that they might enjoy watching the good their money can do right away.
“You are doing well and you are on track to die with $18 million,” the planner recalls telling one client. “Why don’t you do this now?” He ended up taking the advice.
6. Use multiple strategies.
For high-net-worth clients, Winer and her colleagues design and deploy a set of simultaneous efforts. One tool is common: grants to charities. Another, less so: venture philanthropy, which uses VC tactics to help charities run effective philanthropic programs.
Winer also encourages parallel efforts around values-based investing, including investments in for-profit ventures with socially transformative goals — funding clean water, clean energy or microfinancing ventures, for instance.
7. Make it fun.
Planner Leon LaBrecque, managing partner of LJPR in Troy, Mich., runs a separately managed account called the Cambridge Investment Strategy that, he says, a number of clients find both fun and engaging.
At the start of the year, that account buys 50 stocks in all: the Dow 30 industrials, plus the next 10 largest stocks in the S&P 500 and the next 10 largest in the Nasdaq. Near the end of the year, the account sells off losers for clients’ tax benefit and encourages participants to give winners directly to charity.
One investor, who made about $50,000 in the account this year, plans to donate about $20,000 in appreciated Disney stock to a charity, he says. “It’s almost an automated way of giving some appreciated property,” says LaBrecque, who requires that participants invest at least $100,000 in the account.
8. Focus on appreciated assets.
Giving appreciated assets like stock or property is preferable to giving money directly, planners agree — because it takes taxable assets out of an estate, gives clients a tax break and enables charities to make use of the funds.
9. Consider charitable lead trusts.
One of LaBrecque’s elderly clients put about $1 million in highly appreciated Philip Morris stock in a charitable lead trust for her alma mater, Penn State. This allowed the university to receive the income off the trust — about $60,000 a year — for several years. After she died, her children inherited the assets.
LaBrecque says he likes the strategy so well that he’s thinking of putting 10% of his company into a charitable lead trust. That would enable him to give 10% of his firm’s revenue to his favorite charities, all of which focus on education.
10. Use donor-advised funds.
Right now there are seven donor-advised funds being opened for every one family foundation, Winer says.
There’s a good reason for that, she and other planners say: The funds allow clients to give money today for immediate tax deductions, but take the time they need to decide where that money should go.
Winer suggests using donor-advised funds for any clients who have less than $5 million to give.
11. Consider family foundations.
Use these only if your client plans to fund one with at least $5 million, Winer says — because the expense of running a foundation, which requires its own tax return and other administrative costs, doesn’t pencil out at lesser amounts.
12. Plan around liquidity events.
For clients experiencing big gains — business owners selling a company, for instance — a smart charitable plan can help reduce their obligation. “The year you sell, there’s a massive tax impact,” explains Paul Pagnato, managing director at HighTower firm Pagnato Karp, in Reston, Va.
If clients are “charitably inclined,” he suggests, encourage them to fund a foundation or donor-advised fund in the year of the sale; they can take the tax write-off immediately, then continue to make distributions over the coming years.
13. Make it social.
One client felt adrift after spending years caring for her husband during his long illness, says McClanahan. After his death, “she was like, ‘What am I going to do with my life now?’ … Her net worth when he died was $4 million. She lived on $60,000.”
McClanahan introduced her client to a local group, the Women’s Giving Alliance, which aggregates $1,500 annual gifts from members into much larger gifts. McClanahan says the client quickly took to her new role as a philanthropist: “She became a social Learjet.”
14. Reach across generations.
That client recently died, after spending her last years giving away several hundred thousand dollars a year, McClanahan says. As part of her estate plan, she left money in a trust so that her children could continue the giving.
“We’ve helped create a culture of giving” in this family, McClanahan says. She also feels that she has stronger bonds now with her clients. “We [offer philanthropic advice] because it’s the right thing to do,” McClanahan says. But “it really makes for stickier clients.”
15. Follow the money.
Planners who do more complex charitable planning say they work with and follow up directly with charities to ensure that clients’ goals are being met along prescribed timelines or benchmarks.
16. Don’t judge non-givers.
Clients who aren’t focused on philanthropy today may simply be too busy running businesses or pursuing other important professions, McClanahan says.
“My business owners, they employ a lot of people,” she says. “All our clients do something good in society. They just do it in different ways.”
17. Keep asking.
Some clients who aren’t charitable right now will become so one day, Lintz says she has found.
“I think it’s such a personal journey,” she says. “People have energy to spend on that phase of their lives at different times. For some, it’s just part of who they’ve been their whole lives. For others, they never really thought of [themselves] as a significant philanthropist or a charitable donor.
“We bring it up year over year,” she says. “We do because you never know when it will change.”
Ann Marsh is a senior editor and the West Coast bureau chief of Financial Planning.
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