The latest quarterly Investor Watch report from UBS indicates millionaire clients could stand to have a discussion with their advisors about charitable giving.
The report released Tuesday, “Doing Well at Doing Good,” found that almost all respondents said they have donated time or money to a charity in the last year (91%), and 55% have given both.
Furthermore, over a third of respondents have increased the amount of money they give.
However, just 20% say their giving is extremely or very effective, and only 40% reported feeling satisfied with their impact on their community.
Although over half of respondents to this edition of the UBS Investor Watch had at least $1 million in investable assets (millennial and Gen X respondents had a minimum of $100,000 and $250,000 investable assets, respectively), just 9% of respondents said they’ve discussed giving with their advisors because they feel those discussions are for the very wealthy.
Respondents who aren’t talking with their advisors are missing out, too. The report found that across all wealth levels, those who do work with an advisor on a charitable giving plan are more satisfied with their impact.
“We saw an inflection point at the $5 million level,” Sameer Aurora, head of client strategy for UBS, told ThinkAdvisor on Wednesday. “People who have north of $5 million in investable assets do tend to behave more like philanthropists.”
Aurora noted that it’s not just that those clients have more to give; “it’s actually more around the fact that they are more strategic and organized around their giving. They’re more thoughtful about it.”
Respondents with $5 million or more in investable assets also more likely to work with an advisor, Aurora said, and are more likely to use tax planning strategies “and therefore are more likely to feel satisfied with the effectiveness and outcome of their giving efforts.”
Less wealthy millionaires were more likely to engage in “checkbook philanthropy,” Aurora said; writing a check for various causes when they’re approached by friends or family rather than following a strategic giving plan that maximizes their efforts.
Advisors who want to help increase their clients’ satisfaction should initiate conversations about charitable giving, Aurora said. He noted that the fourth quarter is a good time to reach out to clients on this topic.
“Most of the giving that takes place happens in the last two months of the year,” he said. “Being more proactive and looking beyond the end of the year, it’s a good time for clients and investors to sit down with their advisors and for advisors to initiate the conversation with their clients around, ‘What are your giving goals and plans for the following year? What are the causes that you want to support?’”
He added that it’s a good opportunity for advisors to begin multigenerational conversations, too, by asking how clients want to get their adult children involved.
“Families will include their children in their charitable giving as a way to pass on values and legacy,” he said. “Including a client’s charitable giving goals as part of their broader financial plan is a real opportunity, and frankly a responsibility, for the advisor.”
Tax planning is one clear area advisors can help their clients increase the impact they make with their charitable giving. The report found most millionaires give to charity altruistically and called tax deductions an “afterthought,” however, some strategies can help those clients give larger donations.
As planning gets more tactical, advisors can draft more specific strategies for their clients, such as implementing donor-advised funds, “which can be funded with as little as $25,000,” Aurora said. “That allows the money to grow on a tax-free basis. The client actually ends up having even greater impact than they would if they were simply writing a check.”
Tax benefits tend to vary state by state, Aurora said. “That’s the value that a client will get working with an advisor, which is optimizing their personal situation and using these tax deductions that are available for philanthropic giving as best suits each client’s personal circumstances.”
Across all generations, causes that “help the less fortunate” were cited as the most important priority. After that, though, the report identified distinctions in the causes different generations support.
Boomers and older generations donate to similar causes. Religious organizations were their second priority, and they were more likely to give to their alma mater than younger generations.
Gen X and millennials were more likely to give to causes that fight diseases, and put a lower priority on religious organizations. Millennials were more likely than any other generation to give to causes that support education or kids’ programs.
Aurora noted that millennials in particular are driven by social activism, not just in their charitable giving, but their investing, too.
“They’re more engaged in trying to make a difference at a grassroots level in the world today,” Aurora said of millennial investors. “They feel strongly about this, and they give out a sense of passion as opposed to a sense of responsibility or duty, ‘because I have to give back.’”
Advisors who want to connect with this group should try to engage with them on a personal level to understand what drives them,” Aurora said. “The other trend we see in addition to passion-related charitable giving is also this notion of values-based investing, which is investing your money with companies whose mission or whose causes you really believe in. This notion of aligning your personal values to your wealth, we’re seeing a lot more of that with millennials.”
— Check out Top 25 U.S. Charities: 2014 on ThinkAdvisor.