Wealth managers don’t have to be experts when it comes to philanthropy, but they do need to be empathetic and knowledgeable about charitable giving, according to according to industry leaders who will be addressing the annual conference of the International Association of Advisors in Philanthropy in suburban Chicago later this month.
Indeed, high-net-worth households are increasingly relying on wealth advisors when it comes to making charitable decisions, according to the 2010 Study of High Net Worth Philanthropy issued by The Center on Philanthropy at Indiana University. Nearly 39 per cent of high-net-worth households surveyed in 2009 said they consulted with financial advisors about charitable giving, up from 16.4 per cent in 2005. Accountants were consulted most frequently (67 per cent), followed by attorneys (41 per cent).
“Clients are increasingly expecting advisors to talk about philanthropy, and if they’re not going to be part of the conversation, someone else will be,” said Kim Wright-Violich, president of Schwab Charitable, who will discuss “Emerging Trends in Philanthropy” at the conference, which will be held April 27, 28 and 29 at the InterContinental Chicago O’Hare Airport Hotel.
In fact, the realization that advisors may be seen as limited if they are not familiar with charitable giving has led to heightened interest in the American College’s Chartered Advisor in Philanthropy designation, according to Phil Cubeta, who heads the program and is chair in philanthropy at the school.
There have been 426 graduates since the CAP program was launched eight years ago, and last year registration nearly doubled, rising to 600 from 350 in 2009, according to Cubeta. “Clients are looking for someone to have a larger conversation with about values, and advisors should be able to help by filling the enormous gap between the client’s current plan and the plan they need,” Cubeta said.
Interest Trumps Expertise
A wealth managers’ interest in a clients’ philanthropic motives and goals are more important than detailed expertise in various charitable giving tools and techniques, such as donor advised funds, private foundations and charitable lead trusts, according to Cubeta. “Pitching a tool is like pitching product,” he maintained. “It doesn’t work. The real issue is what’s important to the client, and tools will fall into place as a means to accomplish those goals.”
Wealth managers don’t have to be experts to offer basic gift-giving guidance such as funding charitable donations with appreciated securities instead of cash to take advantage of charitable deductions and a tax break on capital gains, said Wright-Violich.
“Advisors have been hesitant to talk about philanthropy because they feel like they’re getting in over their heads or don’t want to get involved with judging their client’s values,” she said. “But we see that 90 per cent of clients who have over $500,000 in investable assets are giving to charity. Advisors have to be able to talk to them about philanthropy, and can always bring in a team of experts later, the same way they work with accountants and attorneys.”
And in a low interest rate environment, wealth managers can also point to charitable gift annuities as a source of lifetime income with relatively high rates of return, said attorney Jonathan Ackerman. In fact, the UJA Federation of New York ran an ad in the New York Times this week touting returns as high as 11.5 per cent for people over 90 and 6.3 per cent for people over 65 who fund a charitable gift annuity.
Nor is it difficult for advisors to help clients who want to investigate a charity before they donate, said philanthropy consultant Renatta Rafferty, author of “Smart Generosity: Everything You Need To Know About Charity, Philanthropy and Giving Wisely." The Internal Revenue Service’s Form 990 provides basic information about the charity, Rafferty said, but wealth managers should also recommend that clients look at a charity’s leadership.
“If I had to ask one question before giving,” Rafferty said, “it would be ‘What percentage of the board of directors made a gift to the organization this year with no quid pro quo?’ if the answer is less than 80 per cent, I wouldn’t donate.”
Tax Bill As Opportunity
The 2010 tax bill, which allows couples to give their heirs up to $10 million tax-free is also an opportunity for wealth managers to have a discussion about philanthropy, said Alan Pratt, president of Pratt Legacy Advisors and the International Association of Advisors in Philanthropy.
“The tax law allows families to set their estate plans in stone, and they can then use their excess wealth toward charitable giving,” Pratt said. “But the current law expires at the end of 2012, so we need to tell clients to roll up their sleeves because the clock is ticking.”
No opportunity to discuss philanthropy with clients should be squandered, said Julie Williams-Lytle, vice president and executive director of philanthropic services for Whittier Trust Company Philanthropic Services.
“A lot of unhealthy things can go on in a wealthy family, but philanthropy is a healthy thing, and parents see it as a good thing for children, because it encourages empathetic thinking,” Williams-Lytle said. “Philanthropy also creates a much deeper relationship with the client. Even if funds for charitable giving are only a small percentage of a clients’ assets with a firm, the person who is managing that relationship can be 90 per cent of the firms’ value-add in the client’s eyes.”