About 95% of high net worth households give to charity. And, yet philanthropic discussions between advisor and client often don’t take precedent.
Ken Nopar, principal of Nopar Consulting, who counsels advisors and clients on philanthropic matters, talked to ThinkAdvisor about how wealth advisors can benefit from talking about charitable giving with clients.
“It’s a conversation that’s not really happening right now,” Nopar said in an interview with ThinkAdvisor. “Through the summer it’s not really a topic that many clients think about or advisors think about, and my work with advisors is to try and encourage them to have the conversation earlier than the tail end of the year, because if they do it at the tail end then everybody’s running to get this done and they don’t always make the best decisions when there’s a deadline.”
While in the past there has typically not been a long rapport between advisor and client on philanthropy, Nopar does see this topic increasingly being discussed with clients.
Nopar pointed out six of the many reasons advisors should discuss philanthropy with clients:
1. Stronger Client-Advisor Relationship
Having philanthropic conversations with clients, Nopar said, shows the client that the advisors care about their relationship in the long term.
It shows that the advisors want to do what’s best for the client, he added.
“It deepens the relationship, instead of just talking about the financial ups and downs and the uncertainties,” Nopar said. “If there is a dip in the financial performance, [the client is] going to stick with the advisor because they know in the long run the advisor has the client’s best interest in mind.”
2. Potential Boost in Assets Under Management
Having the charitable conversation has the ability to bring in additional assets under management, Nopar pointed out.
“I think in the past, advisors didn’t talk so much about charitable giving because they sort of viewed it maybe as a way that they’re going to lose money that they’re managing,” he said,. “… and they can in fact still manage this money and bring in additional money or retain the money to manage at different levels.”
Instead of using assets advisors manage, like cash or publicly traded securities, Nopar described examples of other types of assets outside of the advisor’s control that can be used for charitable giving – a second home, farmland, insurance, privately held stock in a company.
“By saying, ‘What are you doing with this? What do you want to do with it?’ and if the client has no need for it, then that can be donated either to a charity or to a donor-advised fund,” he said. “Then they’re not using the assets that the advisor is managing.”
Donor-advised funds, which are simple-to-use charitable vehicles for people at all levels of wealth, have grown in popularity exponentially over the past few years. And advisors are increasingly able to manage the money in donor-advised funds.
As Nopar pointed out, Fidelity Charitable and Schwab Charitable let advisors manage the money when the amount in the donor-advised fund account reaches $250,000 or more, the American Endowment Foundation enables the advisors to manage the donor-advised funds at any level or any amount, and community foundations sometimes have a million-dollar minimum to manage the money, though it may be as low as $250,000.
So, for example, Nopar said, “often farmland or stock can be donated into the donor-advised fund, and previously [advisors] haven’t been able to manage that money because it’s privately held, but now they can because it’s donated to a donor-advised fund. So it enables them to increase the amount of assets they’re managing.”
3. Building a Bridge to Spouses and Next-Gen Clients
“Who is interested in charitable giving? Typically, it’s the wife,” Nopar said. Adding, “this is a broad generalization, but it’s been proven … women, now, have much greater access to assets because they’re working and they’re very involved in charity.”
Including this conversation about charitable giving within conversations about what clients want their wealth to accomplish helps build a bridge to the client's spouse.
And not just spouses but the next generation, Nopar added.
“Advisors sometimes ignore the next generation because they sometimes don’t have as much [assets],” he said, also pointing out that many young people today either in college or out of college, are volunteering.
“They don’t have the assets to give but if the advisor is still managing the money for that next generation, if charitable giving is important and they have this conversation, than there is a much better chance that the next generation is going to stay as well,” he said.
4. Differentiating Advisors From Their Competition
Philanthropic discussions can set an advisor apart from her competitors, said Nopar, who works with many wealth advisors, attorneys and accountants.
“If there are five people competing for business and charitable giving is important to the client and only one brings it up, then there is a much better chance they are going to [pick that advisor] if all else is equal,” Nopar said.
5. Preventing Clients Grom Going It Alone
“If it’s not discussed with the client ... clients are going to do something on their own that leaves the advisor out of the picture,” Nopar said. “Or it’s really not in the client’s best interest. But, if the advisor knows what the client wants to do, then they’re in a better position to help and be viewed as a hero.”
Many clients are setting up their own donor-advised funds, he added, which may then be outside the scope of the advisor.
But if the advisor understands that the client is charitably inclined, Nopar said, “they can determine how the money should be invested, whether there should be charitable vehicles used, and provide the best advice in the long term."
6. Increasing Referrals
“This is really all geared toward increasing the number of referrals that come in,” Nopar said.
Charitably minded people think alike, they know other charitably minded people and they talk – whether it’s at their country club or over dinner – about their charitable causes.
--- Related on ThinkAdvisor:
- U.S. Donors Gave $335B to Charity in 2013: Report
- Private Foundation Investments Returned 15.6% in 2013
- House Passes Legislation to Encourage Charitable Giving
- Giving Circles Offer Point of Entry for Many Donors, Study Finds
- Vanguard Charitable Reports on 10 Years of Giving Through Donor-Advised Funds