High Net Worth Individuals + Donor Advised Funds = More SuccessSubmitted by American Endowment Foundation on May 13th, 2019
By Eric Kinaitis
Many financial advisors are conflicted; entrusted and trained to preserve wealth and grow the value of their client’s holdings, the concept of helping clients to give money away to charity seems to be a contradiction. The typical viewpoint is that helping a client give assets away is detrimental to the wellbeing of the financial advisor and their practice because they are actively diminishing the assets under management that the advisor is likely compensated on.
However, according to a recent study, 98% of high net worth (HNW) individuals give to charity. As quoted in the study, “Giving your money away is one of the highest freedoms of wealth.” However, not discussing the concept of charitable giving with HNW clients risks making the advisor irrelevant; more than half of HNW individuals who donated to charity did so without any involvement or discussion with their advisor.
Of those who did consult with someone, nearly half chose to consult with someone from a nonprofit organization instead. Lesser amounts of HNW individuals chose to speak with either a financial/wealth advisor or accountant.
There are two areas that financial advisors can improve upon:
- how better to start a conversation with HNW clients concerning their charitable interests
- how to utilize other financial assets of their HNW clients for better charitable planning
Explaining to your clients that asking the following questions concerning their charitable interests will allow you as their advisor to offer the best professional advice possible. According to a journal article published by the National Association of Estate Planners & Councils by AEF Senior Philanthropic Advisor Ken Nopar, there are 10 specific questions that can help you better understand the charitable interests of your HNW clients:
- “Are you currently involved with any non-profit organizations? How . . . as a donor, volunteer, board member?”
- “Do you typically support the same charities every year or do you vary your support from year to year?”
- “How do you decide which charities you support?”
- “Who else helps you decide which charities to support?”
- “Do you give the same amount each year? Upon what does it depend?”
- “Which donations have you made that have provided the greatest satisfaction or regret?”
- “Would you prefer to give anonymously or receive recognition?”
- “What types of assets have you used when you have donated in the past? Cash, checks, appreciated stock, other non-cash assets?”
- “Do you have any charitable vehicles in place, such as a private foundation or donor-advised fund?”
- “Do you want to donate during your lifetime, at death, or for many years after your death?”
For many financial advisors, these questions are likely the first time that they have ever learned about the life goals of their clients and what sort of legacy they desire to leave for their family and society.
Question #8 can help the advisor determine if there are better ways for the client to donate to charity. For many advisors and their clientele, they may not realize that the value of illiquid assets, such as real estate, closely-held shares, or life insurance can be used for charitable gifting.
Donor advised funds (DAFs) can prove to be an excellent tool for both liquid and illiquid assets. DAFs allow advisors and their clients to segregate assets for the specific purpose of charitable planning, and allow the advisor to manage illiquid assets that they may not have had previously.
Contact or call us at 1-888-660-4508 and let us discuss how American Endowment Foundation and donor advised funds can help play a deeper and broader role with your HNW clients.