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Schwab Charitable, RIAs Give Advisors Some Philanthropy Advice

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As interest in environmental, social and governance investments continue to rise, the vast majority of advisory firms today are offering philanthropic investment services to their clients, so merely providing charitable planning is no longer a true differentiator, according to Schwab Charitable.

Many advisors would benefit, therefore, from building out more robust and specialized philanthropic, socially conscious plans that will help differentiate their firms and ultimately help grow their practices, it says.

Pointing to Schwab’s RIA Benchmarking Study released earlier this year, Kim Laughton, president of Schwab Charitable, said during a roundtable discussion in New York on Thursday that almost 80% of advisory firms now offer philanthropic planning services to their clients.

During the session, she and two other industry experts — Drew Beresford, president of RIA Manchester Capital Management in Charlottesville, Virginia, and Rick Moreno, director of business development at investment manager and RIA Aperio Group in Sausalito, California — discussed the philanthropic investment planning trends they’ve seen over the past few years and provided pointers on how advisors can improve their own philanthropic service offerings via tax-smart moves and making sure that they sit down to have thoughtful conversations with clients and their families.

For example, some clients may be able to benefit from both the increased standard deduction and the charitable deduction to reduce taxes and give more to charity. The advisors also included areas that remain largely untapped, such as how to help clients construct socially responsible portfolios, merging impact investing with charitable giving, and how to work with clients beyond tax strategies to help them set philanthropic goals and select charities.

“We’ve really been drawn into” offering philanthropic planning “over the years” as it’s become “increasingly important” to many clients, Beresford said, adding: “It’s changed and evolved over the years” as part of a “generational shift” that’s been taking place in “how our client base is viewing philanthropy.”

One major change Beresford’s seen: In the past, his company’s advisors typically sat down once a year with clients and went over their charitable options, maybe making a small change here and there, he noted. But “I think what we’re seeing today is” that there’s “much more thoughtful” consideration being given to charity, which more clients are seeing as “impact philanthropy” that can “drive change within a particular organization around some cause or issue,” he told reporters.

The change is being “driven by the younger generation, but honestly, the older generation, I think, are getting dragged along too,” Beresford said, adding: “It’s a totally different conversation today” and one that’s “continuing to evolve,” but starts with the client’s values and what they’re passionate about. His firm then works with them to develop a financial plan to incorporate those concerns while, at the same time, maximizing tax benefits and being sure the plan still makes financial sense.

In many cases, clients come to Manchester advisors with a “strong desire to do good … but not a lot of clarity around exactly how they want to do that,” Beresford said, adding it usually “starts as a conversation” that is helped by tools the firm has developed, including questionnaires, to help craft an appropriate portfolio incorporating the issues most important to the clients.

Another plus of this type of investment strategy is that it helps strengthen the bonds between clients and their advisors, Beresford said. After all, charitable investments are more “meaningful” to clients than “whatever the next municipal bond” an advisor wants for the client, he said, adding that with the latter: “They just don’t get excited in the same way.”

Moreno noted that his firm, which specializes in ultra-high net worth clients and has about $31 billion in assets under management, has seen socially responsible investments among its clients grow to $7 billion from about $3.5 billion two years ago. His firm is “just seeing a tremendous amount of interest,” he said.

Aperio first started adding these types of investments to his clients’ portfolios about 15 years ago, Moreno said. Clients would point out which companies’ securities they didn’t want their portfolios to include and Aperio advisors would go along with that, he noted. Meanwhile, if a client says he or she cares deeply about the environment, the firm’s advisors tilt toward companies that generate a lot of revenue from green initiatives, he said. Advisors can also work to exclude companies from portfolios if they don’t have any women on their boards if a client is concerned about gender diversity, he noted.

Clients are also increasingly saying they want to engage in strategies to help shareholders of companies including Starbucks who are trying to push those organizations into crafting better green initiatives, Moreno said.

Echoing Beresford, Moreno said his firm was seeing “multi-generational involvement now” among clients and their families who want their values incorporated into their portfolios.

One word of caution, Moreno provided, was that it’s important to make sure a client’s portfolio doesn’t have “so many constraints” on what can be invested in it that it no longer looks like a tracking portfolio and falls well below the benchmarks that are desired for how the portfolio performs.

Separately, Fidelity Charitable said Wednesday that more than $5.25 billion in grants to over 125,000 charities were recommended by its donors so far in 2019, breaking the full-year record of $5.2 billion granted in 2018. The more than 955,000 donor-recommended grants took place in the first 10 months of this year, “with Giving Season still yet to begin,” it said.

Since its creation in 1991, Fidelity Charitable has made more than $40 billion in donor-recommended grants to more than 294,000 charities, it said.

In July, Schwab Charitable said it facilitated over $2.4 billion in grants to over 83,000 charities during fiscal year 2019. That was a 33% increase in dollars granted compared to the 2018 fiscal year, and a 26% increase in the number of grants, it said at the time. In the past 20 years, Schwab Charitable donors recommended a total of more than $12.5 billion in grants to 150,000 charities, it said.

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