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Philanthropy Focus: What Your Clients (and You) Shouldn't Do

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As advisors work with their clients to help them achieve philanthropic goals, they may encounter activities that they would rather not become involved in, or that lie beyond their expertise.

In part one of a two-part series, Calvin Edwards of Calvin Edwards Consulting, a philanthropic consulting firm, discussed what you and your clients should do regarding philanthropy. In part two below, Edwards offers some suggestions on when financial advisors might want to turn the process over to an expert, as well as guidance on what advisors should not do in the charitable planning process.

Taking action based on their understanding of the client’s philanthropic profile. While financial advisors may know their clients well enough to know their passions, particularly if they have had conversations about charitable goals, they may not know enough to help clients choose the right venue for giving. You may understand how important giving is to your client, but still not be able to choose the best recipient for his generosity.

This is an area in which advisors are not likely to have the depth of background that will enable them to take appropriate actions based on the client’s preferred charitable sector, geography, and organization or gift type. They also might not be sufficiently acquainted with the reasons clients are driven to give, their past giving history or preferred degree of involvement in the causes they support—particularly if it affects their overall financial planning.

Making sure husband and wife are on the same page regarding charitable giving. Edwards says that spouses are often at very different places in their approach to philanthropy, even if they both regard it as important and something that they want to do. Getting both to a place of reasonable agreement, whether on amounts, charities, or scheduling of gifts, may be more than an advisor wants to be involved in.

Viewing charitable giving as a financial transaction. Your donor client will not regard it that way, says Edwards. He will be far more concerned with the potential good he can do, and will likely view any preoccupation on your part with tax optimization strategies and calculations as simply part of your job as his advisor. He will be focusing on the higher goal of making a difference in the world. For you to communicate effectively, you must consider that. Says Edwards, “It’s important for advisors to think in those categories, and approach their clients with the mindset of, ‘How can I be your advisor as you seek to make a difference in the world,’ versus ‘How can I be your advisor to minimize your tax obligation and maximize money available for giving.’”

Identifying and qualifying organizations to receive gifts. Financial advisors may not have the broad acquaintance with the charitable field to be able to locate and evaluate the best recipients for their clients’ largesse. Edwards says that often this can lead to a financial advisor “playing favorites” by suggesting organizations with which he is familiar—which may or may not be best suited to the client’s charitable objectives. He says advisors should compare the process to choosing a manager for a portfolio but not picking individual stocks. In this case, he says, advisors may help their clients choose the sectors in which they wish to effect change, and then leave it up to a philanthropic consultant to choose the institutions within the sector best known for successfully bringing about that change.

Performing due diligence on nonprofits. This can be a time-consuming process, and making sure that an organization is the most efficient in using its gifts and achieving its objectives is not easy. While an advisor is certainly capable of analyzing an organization’s balance sheet, says Edwards, his ability to understand how effective a charity is in its mission—whether providing education or medical care or meals to the homeless—can be harder to evaluate. This is particularly true if the charity does most of its work in a location on the other side of the world—like providing lifesaving surgery to residents of refugee camps or founding schools for those in subsistence-level cultures. Therefore, the advisor may not be able to provide his client with the best advice regarding which nonprofits are worthy of receiving funds.

Additional services that a philanthropic consultant can provide that advisors cannot, or may not want to, offer can also include:

  • Creating terms and conditions for gifts
  • Grant monitoring
  • Program evaluation
  • Impact analysis
  • Representing donors at nonprofit events
  • Overseeing venture philanthropy initiatives.

Donors are increasingly looking to “buy outcomes,” and advisors who want to provide the best service to their donor clients may find that they can best do so by bringing in experts in evaluating those outcomes and ensuring that they occur.

Part 1 of this series looksed at what advisors should do for their clients’ philanthropic needs.