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Financial Planning > Charitable Giving

Sowing Good Works

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Philanthropy is very trendy right now. Think of Warren Buffett’s decision to give away around $37 billion worth of his hard-earned Berkshire Hathaway stock to the Bill and Melinda Gates Foundation. Consider others like Sir Richard Branson, one of a growing number of “philanthropeurs,” who are blending profit-intended enterprises with their charitable intentions. Branson, who spoke at the Schwab Impact conference in early November, had announced in September that he would invest some $3 billion over 10 years to help fight global warming. A large chunk of that change will go toward developing alternative “clean” fuels that will, he hopes, not only keep the earth cool but provide a new source of profits for Branson’s Virgin Group of companies.

There are also the demographic trends. Kim Wright-Violich, president of Schwab Charitable, suggests that as people age and “shift their energies from making money to creating a legacy,” they become more interested in philanthropy. The overall growth of wealth means too, she says, that “instead of just the super-affluent opening private foundations, you have the more modestly affluent having donor advised fund accounts, charitable trusts, and more sophisticated tools at their disposal.”

Other recent charitable giving drivers include the recently passed Pension Protection Act, which among its many provisions allows certain high-income individuals who are 70 1/2 or older to donate up to $100,000 from their IRAs tax free to qualified charities. The United Way of America estimates that will lead to an additional $400 million in charitable giving, even though the tax break is only good until December. 31, 2007.

But charitable giving has been a hallmark of the American people for some time. Giving USA, which tracks American philanthropy using research from the Center on Philanthropy at Indiana University, reported a 6.1% increase in total contributions in 2005 to $260.28 billion. It estimates that only half the $15 billion increase over the $245.22 billion donated in 2004 could be attributed to “extraordinary philanthropic response” to three major natural disasters (the Asian tsunami, Hurricanes Katrina and Rita, and the earthquake in Pakistan).

Giving by individuals–always the largest single source of donations, according to Giving USA, rose by 6.4% in 2005, accounting for 76.5% of all giving. While Americans’ savings habits may be negative, charitable giving in 2005 remained at its 40-year average, 2.2% of average after-tax household disposable income.

But what is the role of advisors in charitable giving? What are the options available to clients? How can advisors encourage their clients to emulate the great philanthropists of the past and present and allow their accumulated wealth to do good now and continue to do good when they’ve gone to their reward?

A common theme in discussions with many advisors is that it can be difficult to convince the high-net-worth to part with their money, even for good causes, even (and sometimes especially) when the recipient is the giver’s family. Daniel Schley, chairman and CEO of Foundation Source, a company that provides services to makes private foundations more affordable, thinks that many wealth advisors are not comfortable with raising the issues that are a prelude to the charitable giving discussion. “It’s easy to talk about the hard financial products with which wealth managers are familiar,” he says. “It’s a lot more difficult to be chatting about the children, engaging the next generation in the family business or the family’s wealth, in things that are more subjective and sensitive.”

A number of advisors and their partners are taking a different approach to philanthropy, however, one that starts with their own good works.

Community Involvement and Marketing

Anil Garg has made so many trips to India over the last six years that he’s not sure of the exact number, “I think it’s six,” he says hesitantly. He’s not going on vacation, however, when he jets off to the subcontinent. Instead, he’s taking along teams of fellow Rotarians as part of the service organization’s movement to help eradicate polio worldwide. Garg is quite clear, however, on the number of people who’ve traveled with him on those trips–130–and about how “we are close to getting rid of polio worldwide. There were 350,000 cases in 1988; there were only 1,934 last year.”

Garg may be knowledgeable and passionate about his polio work, but it’s not his full-time job. He’s a financial advisor whose firm is APEX Financial Services in Simi Valley, California, and he is a representative of LPL Financial Services. He’s a retirement specialist, who even got a designation in planned giving, though he admits that not too many of his clients show much interest in charitable giving. There’s something else interesting about Garg. He’s chosen to participate in an LPL program called “Invest in Others,” which seeks to encourage community involvement among its rep force by providing a range of support services for advisors involved in their communities, and seeks to tie that involvement to the reps’ marketing efforts. Not that most advisors need much encouragement when it comes to being involved in their communities, as anyone who knows independent advisors can attest. Many, if not most, advisors go about their charitable work quietly, bringing the same level of passion and planning that marks their day jobs.

But Garg and the many other LPL representatives involved in the program not only get rewarded for going public–”everybody likes to get a pat on the back,” he admits–but they may be encouraging more of their peers, and perhaps not a few of their clients, to get more involved in philanthropic work within their local communities and in the broader community of man. “You wouldn’t believe how those trips change the lives” of those who accompany him, says Garg, who also makes sure to include a paragraph about the trips in his letters to clients, who he says are not only eager to hear of his journeys, but also have been known to make contributions unbidden to the Rotary’s polio eradication effort.

The Invest in Others program was the brainchild of LPL chairman Mark Casady, recalls Kandis Bates, LPL’s executive VP of corporate marketing, as part of LPL’s “year of the community.” Bates notes that Casady’s pronouncement was “a pretty broad topic,” and that while LPL knew “anecdotally” that many advisors were active in their community, “when we rolled out Invest in Others, we were blown away” by the level of advisors’ commitment to their local communities.

The sharing happened at first in a low-tech way at LPL’s national conference where attendees were encouraged to post index cards sharing their community involvement stories on a poster board, then moved onto a portal page on LPL’s BranchNet extranet site. Bates’s team also shares those stories with the entire LPL family through brief profiles mailed out to the rep force.

Beyond the sharing, the LPL program provides resources to help advisors choose appropriate volunteer options, and newsrelease templates and other tools to help promote those local causes. LPL has also put together a financial literacy program in partnership with Putnam Investments for advisors to present in their local middle school and high schools, and works with Van Kampen to help advisors create a student scholarship program. Finally, beginning in January 2007, LPL will launch the Invest in Others Foundation with some of its partners, under which advisors will be eligible for a $250 match of their donations to any 501(c)3 charity. Moreover, the program seeks to match the advisors’ community involvement–and increase its impact–with communication and marketing tools to publicize those efforts while promoting the charity.

The Options for Clients

When it comes to encouraging clients’ charitable impulses, it seems there are more options than ever–including charitable trusts, private foundations (see “Private, but Reasonable” sidebar), and donor advised funds.

Wright-Violich of Schwab Charitable, which nestles under its wings the Schwab Charitable Fund and Schwab Charitable Trust Services, thinks there will be more donations in the form of real estate over the next 18 months, “a small trend,” she says, “but an interesting one because of the tax implications.” That will play into a donor advised fund’s strengths. “If you give appreciated real estate to your foundation, you only get a cost basis deduction,” she notes, while if you give it to a donor advised fund, “you get a fair-market value deduction.”

As for specific programs, in late October, Schwab Charitable launched Charitable Trust Services, a suite of services that allows RIAs who custody with Schwab Institutional to manage the investments their clients have donated to a charitable remainder trust.

Also in October, over at Fidelity Investments, the Fidelity Charitable Gift Fund cut its minimum initial contribution to its Giving Accounts to $5,000, and lowered the minimum grant recommendation from $250 to $100. Of particular interest to advisors would be Fidelity’s Charitable Investment Advisor Program, under which certain advisors can provide discretionary investment management to the Gift Fund for donors with a minimum $1 million balance in their Gift Funds.

The final word on charitable giving is to ensure you match the tool to the client. If clients are “worried about income during retirement,” advises Wright-Violich, “then a charitable remainder trust makes a lot most sense than a private foundation or a donor-advised fund. If they have a highly appreciated piece of real estate that they want to contribute, then a donor advised fund or a CRT make more sense.” Identify the clients’ need first, she argues, then “piece together some of these strategic charitable giving tools to minimize the tax and maximize the dollars going to charity.”


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