Advisors are good at many things, but talking to their clients about philanthropy is not one of them. According to an August study by U.S. Trust and the Philanthropic Initiative, high net worth clients who report having discussed philanthropy with an advisor say their advisor initiated the discussion just 17% of the time. An earlier study by U.S. Trust found that 95% of wealthy investors donate to charity. That's a big gap. "Advisors could be doing much more to connect with their high net worth clients about their philanthropic goals," says Claire Costello, national philanthropic practice executive for U.S. Trust, Bank of America Private Wealth Management, who was involved in the first study.
Dan Harris, business initiatives manager at Wells Fargo Private Bank, agrees that too many advisors hesitate to ask their high net worth clients about their philanthropic aspirations. He suggests, "I think it's because [they're afraid] of giving away assets, and they haven't been trained to talk about it."
As a result, advisors overwhelmingly avoid the topic. And this, say experts, is a costly mistake.
"We are a significant resource generator for U.S. Trust, not a cost center," Costello reports. In fact, charitable giving can boost rather than reduce advisor's AUM with a client. Many broker/dealers have their own units that set up private foundations or donor-advised funds, the assets of which can still be managed by the same advisor. Even community foundations (there are around 800 of these organizations in the United States designed to funnel philanthropic contributions to needy charities in local communities) are happy to deposit large contributions into trusts in the community foundation's name, to be managed by an advisor of the donor's choice. And due to their tax advantages (see "
Aside from the asset-gathering benefits of talking about philanthropy, the conversation is a great way to learn more about your clients and their long-term goals. It's also a great way to keep yourself and your skills from becoming a commodity.
"Talking about charitable giving and clients' passion to make a difference are not in the skill set of most advisors," explains Bill Sutton, head of philanthropic services at UBS. "But the truth is, advisors who don't ask their high net worth clients about philanthropy could find themselves viewed as just another commoditya provider of financial advice. And if you don't ask the question of a new client, another advisor will."
That advisor may just be Dodee Crockett. A managing director and wealth advisor with Merrill Lynch in Dallas, Crockett has made philanthropy central to her practice, and it's pretty much the first thing she discusses with a prospective new client. She even received the Chartered Advisor in Philanthropy credential through The American College in 2005. She says many of her wealthy clients bring their accounts to her to manage because of her expertise in philanthropy.
"I was competing recently for one very large client who had a fairly small family foundation," she recounts. "I asked why they had created the foundation and whether their children were involved in it. Later, after I had won that client, I asked why they had chosen me. They said, 'Your focus on and interest in our goals, even though the foundation was a small part of our assets.'"
Despite the obvious benefits of discussing philanthropy with a client, many advisors simply don't know where to start. "It's not always clear at the outset when you talk about philanthropy with clients what their attitude towards charity giving is," says Ellis Green, a senior vice president of investments at Green Wealth Management Group of Raymond James & Associates. Sometimes, he suggests, the advisor can spot evidence of charitable giving while going through a client's financial records and tax forms. "Then you can point it out and ask what he or she gave to," he says. "I like to find out what it is that gets a client fired up."
Harris at Wells Fargo Private Bank says the firm is so convinced of the value of having a conversation about charitable giving that it has made "philanthropy" one of the twelve financial planning topics that advisors are encouraged to discuss with clients. "I hope that each of our advisors, as they try to work through things with their clients, will get to philanthropyand for most wealthy clients, they'll discover that it is one of the most urgent of issues."
Costello at U.S. Trust notes that even when advisors do get into discussions with their clients about philanthropy, they still tend to overweight the technical aspects of itthe tax implications, the giving vehicle, instead of the "soft side." It is in a conversation about the soft sidein which you explore a client's passion for a cause or desire to have an impactthat you'll learn not only about his or her charitable goals, but more about him or her as a person.
Once the topic is broached, you may find yourself in a different sort of conversation than you expect. Donor needs and expectations have shifted since the time when philanthropy was mostly about deciding how to donate assets after a client dies.
Adrian Sergeant, the Robert F. Hartsook professor of fundraising at Indiana University, says one trend showing up in research on philanthropy is that big donors increasingly "want to have a hands-on role" in their giving, and they are gifting more while they are still alive and active instead of including bequests in their wills. "It could be that people are living longer or making more money earlier in their lives," he speculates, "or that they want to bring their abilities and talents to a project."
Chris Didier, managing director at the Family Wealth Group of Baird Private Wealth Management, says his experience confirms this finding. "Most of our clients are entrepreneurs who started a company and had a liquidity event or are executives of public companies who have retired," he says. "Most are first-generation wealth creators and we find that they want to have an impact with their giving, and to do it within their lifetime, not after they die." That choice, he adds, is often as much about trying to instill their philanthropic values in their offspring as it is about having control.
That's why a conversation about philanthropy will not only deepen the relationship you have with your client, but also with his or her family. Wells Fargo Private Bank's Harris recalls one of his clients, an entrepreneur who had accumulated a great deal of wealth, who had four sons, aged 8 to 18. The client and his wife wanted Harris to run a retreat to show the children about the family foundation and what it was doing.
"One thing we tried was putting the kids on a $500 budget and asking them to come up with different ways they could use it to help people," Harris says. "One of the kids was really interested in video games. So he found a children's hospital that was looking for donations of video games."
Harris urges all advisors to make the effort to address philanthropic goals with their clients."I'll bet every single advisor who has taken the risk of asking a client about philanthropy has found it deeply rewarding," and connected with that client as never before, he says. "Many people find a big disconnect between financial services and joy in your life, but clients giving their money to something they believe in creates a feeling of well-being, and when the advisor helps a client to do that, it brings more joy to the advisor's life, too."
