Most financial advisors are well aware of donor-advised funds: You put your money in an investment pool of your choice, get an immediate tax deduction and you can take your time deciding when and how you want to ultimately disburse those charitable gifts.
Investors appreciate the ease and flexibility of such funds — it essentially allows you to operate your own charitable foundation with no more difficulty than investing in a mutual fund.
But what’s in it for advisors?
I got an unexpected insight into that question in meeting with Kim Laughton, the president of Schwab Charitable, one of the largest donor-advised fund firms in the industry.
Laughton was visiting Los Angeles for the Grantmakers for Effective Organizations (GEO) conference, a large annual gathering of charitable foundations and large donors, and she was noticeably relaxed and calm during our 45-minute talk.
What was noticed, specifically, was — a la Sherlock Holmes — the dog that didn’t bark, the absence of something that is a hallmark of investment executive interviews, namely: the intangible but ever-present tension of the asset gatherer.
Sure, investment executives are usually intelligent and articulate, and to greater or lesser degrees polite, humorous and insightful, but what doesn’t vary is that they are performing a job whose mandate includes championing their product, which is invariably the cleverest, most useful and beneficial of all similar products.
There was none of that in this conversation, and it was likely to due to more than the mellowness of the Texas transplant’s 18 years working with Schwab and living in leafy Northern California.
Rather, the different vibe stems from the fact that Laughton doesn’t see herself primarily as an asset gather but rather as a service provider. And that’s because Schwab Charitable is not currently nor is it expected ever to become a profit center for Schwab.
“We’re still paying back the loan” that funded Schwab Charitable’s establishment in 1999, Laughton says.
Indeed, the Schwab exec says the nonprofits she deals with especially tend to assume some self-interested motive in dealing with for-profit companies, but she insists that — to the contrary — for-profit Schwab has put far more funding into Schwab Charitable than it could ever recoup.
“There’s the original no-interest loan, our line of credit, the space we occupy, the administrative and trading support, the access to their systems, the millions of dollars a year of pro bono support,” Laughton lists. “Our fees, which are low, help to pay the salaries and costs of providing accounts.”
But Schwab Charitable is, as the name perhaps implies, not in it for the money.
“We are very much a service to Schwab clients,” says Laughton, whose staff will even meet with advisors and donors as subject experts who can advise on charitable planning issues.
The lessened pressure of a service offering as well as the cheerful nature of charitable giving make for pleasant day-to-day interactions with clients. But more is involved, from the client’s point of view, than just pleasantness.
“When people are giving money away, it’s a proud moment,” Laughton says.
And perhaps therein lies a message for advisors, and why they should and often do make charitable planning and community activity a focus of their practices perhaps out of proportion to philanthropy’s weight in clients’ finances.
“As an advisor you want to deepen relations with your clients. When you get to know a client, what they’re involved in as a volunteer has a lot to say about who they are,” Laughton says.
A particularly impressive illustration Laughton cites is Dr. Lester Thompson, a head and neck pathologist in Southern California, who stows large sums in his donor-advised fund with the goal of using the proceeds to dispense medical philanthropy in his retirement.
Reached by phone, Dr. Thompson told ThinkAdvisor he expects to amass between $1.5 and $1.7 million by the time he turns 58, his HMO’s early retirement age, and he intends to physically locate to the various places he donates money to ensure the efficacy of his gift.
So if there’s a location in Vietnam, for example, where they have difficulty in managing malaria, Thompson and his wife — he with his medical knowledge and she with her computer skills — can oversee and track health outcomes.
A native of Africa, Dr. Thompson has already visited 116 countries and is particularly keen on going to places like Eritrea, Tunisia, Somalia and Madagascar “to work with the local population to establish more effective health care resources.
Not only is Dr. Thompson providing medical expertise to those with more rudimentary health care systems, but he is working to magnify the impact by getting other local doctors involved.
He got his hospital to include a link to Schwab Charitable on its website’s employee retirement page, and he recently led a group of physician volunteers on a medical aid trip to Honduras, where his colleagues’ reaction was: “We just had no idea the impact we could have.”
Schwab Charitable’s Laughton describes Thompson’s story as one of many heartening scenarios.
“We have clients working on environmental causes — some at high end even sponsoring vessels working in oceans,” she says, adding K-12 charter school reform, overseas orphanages and civil rights — both at the grass roots and policy levels — as some of the many donor interests that touch lives, often with the involvement of advisors.
Less than 30% of Schwab’s clients work with advisors, but that small segment accounts for fully 70% of the assets. Account sizes range from $5,000 to nearly $700 million.
Of value particularly to such larger accounts — and a sign of the maturation of donor-advised funds — Schwab Charitable’s capabilities today extend beyond traditional cash and appreciated stock donations.
“We are able to accommodate large clients with complex assets—people who have highly appreciated land or shares in a privately held company; or a portfolio of hedge funds or private equity and they want to contribute a portion to charity. We work through the legal requirements and custody the assets ourselves,” Laughton says.
Your client wants to donate a Marc Chagall oil painting with vibrant colors and deep feelings? They can handle that too.
But more than just a gift, involvement in charitable planning opens up vibrant relationships and deep conversations with clients.
“Most advisors we speak to want that deeper interaction. It’s a wonderful way to open those conversations,” Laughton says.
And why are those conversations deeper?
“Because who you are and what you leave behind really trumps everything else,” she says.