Philanthropy is personal. The ways in which we give away our hard-earned money are rooted in our family values, life experiences and world views. How we give is a reflection of who we are and what matters most to us. For advisors seeking to create deeper connections with clients, charitable giving can be a powerful topic to explore. Helping clients realize and execute an effective giving strategy builds trust and elevates an advisor’s ultimate purpose beyond investments and portfolio management to something more meaningful and valuable.
Understand Your Clients’ Values
To support your clients’ goals in maximizing their charitable impact, you first need to understand their values and charitable focus areas. Start with some questions to understand the causes most important to them, and how they want to focus their giving:
- What cause is most important to you?
- Who will benefit from your support?
- Where will you focus your giving?
- What common values are driving your goals?
The discussion around these nonfinancial, emotional questions will equip you to guide your clients in how to maximize their financial assets to drive these goals forward.
Adding Complex Assets to the Conversation
One way advisors can add value around charitable giving is by bringing up strategies that maximize the impact and tax benefit of philanthropic gifts, such as donating complex assets through a donor-advised fund (DAF). Assets such as private company stock, LLC or limited partnership interests, and even artwork and real estate, are often overlooked when it comes to a philanthropic plan. Yet complex assets gifted through a DAF can be a powerful charitable giving strategy.
As clients approach retirement and think long term, they are focused on simplifying their financial picture. Advisors can help develop a tax-efficient exit strategy for their business and related complex assets to guide clients as they consolidate their holdings and focus more on succession planning. This is a natural jumping-off point to start talking about charitable giving at a time when clients are thinking about their goals around impact and legacy.
Advisors can add real value in the process of setting up a DAF, starting with encouraging clients to be proactive about complex asset donations and identifying windows of opportunity.
When executed correctly, there are a number of benefits for clients and the causes they care about. It’s an opportunity to rebalance a client’s portfolio in a tax-effective way, including avoiding capital gains taxes while receiving a deduction on the asset’s fair market value. A DAF also allows clients to support many charities over a greater period of time with the proceeds of a single complex asset. What’s more, it can also be used in grantmaking to organizations that would otherwise be unequipped to receive the complex asset as a donation.
Selecting the Right DAF — and the Right Sponsor
Advisors don’t have to be experts in gifting complex assets to incorporate that approach into a broader philanthropic strategy for clients. But selecting the right DAF partner for the process is critical. There are some key considerations worth exploring, particularly when complex assets are involved. The first is experience — complex assets are, by definition, complex. An experienced DAF sponsor can help navigate the many steps in the transaction to mitigate any unexpected issues.
This experience should come with an expertise on risks associated with transferring and liquidating complex assets. In most cases, it’s best to work with a DAF that will liquidate the complex asset at the earliest opportunity. Not all DAF sponsors utilize this strategy, but the approach has two notable benefits. First, it minimizes the risks inherent in holding the asset. Second, it means those funds can be held and granted in line with the broader investment philosophy and gifting strategy. Within that strategy, it’s important to consider fees and the overall investment principles used to manage the assets within the DAF.
Maintain Focus on Your Client’s Goals
Complex assets and DAFs can be a powerful jumping-off point for advisors looking to expand conversations around charitable giving and foster deeper client relationships. It’s an opportunity to consider a client’s broader portfolio in order to maximize charitable deduction opportunities.
But conversations around these tactics must be in sync with a greater philanthropic strategy centered on the client’s goals. Every recommendation and communication must tie back to the impact the client wishes to achieve. Philanthropy is an opportunity to help clients realize a greater purpose with their financial assets. Advisors should use every tool in their toolbox to elevate their role in working with clients in that undertaking.
Mark has been chief financial officer of Vanguard Charitable since January 2019. Mark is a CPA and holds an MBA from Temple University’s Fox School of Business. Mark’s strong connection with the not-for-profit sector stems from his training as a classical violinist and his affinity for Philadelphia’s arts organizations.