Clients Give More to Charity Than Advisors Think

Key opportunity for advisors in helping clients think strategically about charitable giving, Fidelity says

One area where advisors can help: giving cash is not the most tax-savvy way to donate. One area where advisors can help: giving cash is not the most tax-savvy way to donate.

New research from Fidelity Charitable shows that more wealthy individuals who use financial advisors are giving to charity than advisors estimate. They are also giving at higher levels.

Advisors to high-net-worth clients figured that 48% of their client base made charitable giving an annual activity or financial goal. In fact, a separate survey showed that 93% of affluent individuals who work with a financial advisor made annual charitable contributions.

The findings are part of Fidelity Charitable’s 2012 “Advice & Giving” research released Wednesday. The comparative study comprised two surveys conducted in March: one of 146 financial advisors with clients averaging at least $1 million in investable assets, and another of 183 individuals with at least $1 million in investable assets and $100,000 in household income who use a financial advisor.

Advisors responding to the survey estimated that on average, 54% of clients had given $2,500 or more to charity in the past 12 months. However, 51% of the clients surveyed reported that they donated at least twice that amount—between $5,000 and $100,000 or more—each year.

“Charitable giving is a key, annual activity for the vast majority of wealthy individuals working with advisors,” Sarah Libbey, president of Fidelity Charitable, said in a statement.

“Advisors who take time to talk about this important financial subject are tapping an opportunity to better understand their clients and their immediate and long-term goals. It’s also an opportunity that can ultimately result in bringing in more assets for the advisors to manage.”

The research also showed that both advisors and clients benefit from charitable planning discussions, especially when charitable giving is integrated into a client’s overall financial plan. Seventy-six percent of clients said such discussions facilitated tax planning, and 47% said they enabled them to give more money to charity, among other benefits.

For their part, 72% of advisors with clients averaging at least $1 million in investable assets said offering financial strategies for charitable giving was a relationship builder, and 57% said it helped position them as a broad financial expert.

In addition, 37% of advisors reported that charitable planning discussions led to a multigenerational relationship with their clients, and 35% said it also could be a referral source.

Opportunities for Advisors

Ninety-one percent of clients surveyed reported that they most often made cash donations to charity—not the most tax-advantaged way to give. Thus, Fidelity Charitable said, advisors have a key entry point as they approach the charitable planning discussion to offer clients a more strategic approach to giving.

A key strategy is donating long-term appreciated publicly traded assets to a public charity. By doing this, donors can potentially eliminate capital gains taxes and take a full, fair market value deduction for the assets at the time of donation. This in turn allows more of their gift to be available for charitable purposes.

Similarly with more complex assets. Thirty-four percent of wealthy clients reported that in addition to publicly traded assets, they owned closely held or private C-Corp and S-Corp stock, restricted stock, limited partnership interests, real estate and other assets as part of their overall wealth portfolio.

These can be another strategic way to maximize giving, allowing for the same type of tax advantages as those available when publicly traded assets are contributed to public charities, Fidelity Charitable said.

Yet, advisors believed that only 24% of their clients owned these types of assets, and 59% reported “never” or “not often” recommending them as a way to help clients achieve their charitable giving goals.

“With such a high percentage of Americans’—and especially baby boomers’—wealth tied up in privately held business interests, the opportunity is huge for both clients and advisors as this group seeks help in monetizing these assets for key life goals,” Libbey said. “There’s tremendous value in helping people give.”

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