In a sign of resiliency and an example of a nation coming together in the wake of COVID-19, many Americans have amplified their usual donations to charities — and in some cases have made their first charitable contribution.
Further good news is that the market for charitable contributions has been able to accommodate the growth, having moved over time from charitable vehicles designed for the wealthiest to more accessible options. This trend is likely to continue, fueled by clients increasingly comfortable with having control over their finances.
Currently, different channels for giving are segmented by the economic status of the donor with varying tax treatments. Charitable contributions by the high net worth are, in many cases, funneled through private foundations, with executive staffs and researchers helping to set goals, maximize tax benefits and evaluate grant recipients.
But for mass-affluent investors, donor advised funds (DAFs) can offer a practical and advantageous alternative to writing individual checks in response to a direct mail appeal. These giving vehicles are administered by charitable organizations that manage donations on behalf of organizations, families or individuals. The money in the DAF can appreciate over time and come with an upfront tax deduction. DAFs also have the benefit of letting investors consolidate all their giving flows for tax and reporting purposes instead of having to reconcile different charitable contributions.
Over time we’ve seen the number of donors and of donations increasing, with grants being directed to a greater number of institutions, J.P. Morgan’s DAF
Grants through the J.P. Morgan Charitable Giving Fund and Donor-Advised Funds at J.P. Morgan Wealth Management were up 35% in July 2020 from the year prior, with the funds going to more than 10,900 different nonprofit organizations, an increase of more than 20% in the same period. Leading recipients were medical schools, as well as besieged arts, culture and community organizations whose patrons were living under lockdown, and social justice campaigns.
Advisor Peter Krull favors actively managed sustainable products due to the “greenwashing” he says often occurs with ESG index funds.
We believe workplace giving programs, self-directed DAFs and new fintechs entering the DAF space will increase their popularity and will make such funds even more accessible to a broader range of donors and through mobile technology.
Wealth management needs to get ready to adapt to these trends if it wants to fully serve investors. Data from the
One way to support this trend is incorporating options for charitable contributions into the investing conversation. Clients may not even be aware that DAFs exist, or they might not know of their tax benefits. Asking them about their giving objectives should become a regular topic at the all-important life goals discussion.
When it comes to clients’ giving goals, it’s also important to bear in mind that accessibility is key. With an increased interest in self-directed giving, wealth management firms need to facilitate a dialogue in both self-directed and full-service capacities, offering clients full control over their giving.
