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.