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.”