Learn the Business of Philanthropy to Keep Assets

In the view of some who follow the philanthropy business, financial advisors could have one of two reactions to the announcement by Warren Buffett and Bill Gates that they have rounded up 40 billionaires who have agreed to give away most of their wealth.

In the view of some who follow the philanthropy business, financial advisors could have one of two reactions to the announcement by Warren Buffett and Bill Gates that they have rounded up 40 billionaires who have agreed to give away most of their wealth. There’s the advisor who says, “Thank God it’s not my AUM they’re giving away,” and the other who asks, “What if my client wants to give away my AUM?”

“What I see happening with Gates and Buffet is something that’s almost absurd,” says Philip Cubeta, assistant professor of philanthropy at American College. “We have the wealthiest people in this country having to get together to talk to each other about philanthropy because their advisors go at it in such backwards fashion.”

How so? Cubeta says advisors are too focused on the nuts and bolts of financial planning and tax strategies, and not looking at the larger picture of how charity is important to their clients. They’ve confused the ends for the means. “When Gates and Buffett get together with their peers, they’re not talking about whether it’s a foundation or a charitable lead trust or donor advised fund — all that technical plumbing of financial planning and estate planning. They’re talking about where you want to have an impact,” Cubeta says.

“Wealthy people are eager to have this conversation. If you’re not going to be at the table when that happens, they’re going to talk with each other about it and other people about it,” he adds. “If you’re client is meeting with other wealthy people in town, unbeknownst to you, to talk about giving away half of what you manage, you may wish you were part of that conversation.”

The Giving Pledge, as Gates and Buffett outlined their initiative, calls for the super wealthy to commit the majority of their wealth to charitable causes during or after their lifetime. It’s a moral commitment, not a legal one, as the initiative’s website says, and it doesn’t call for pooling funds or targeting a specific cause. It comes at a time when charitable giving is slackening off in the United States, according to Giving USA Foundation; 2009 contributions were off 3.6 percent, to $303.8 billion, while in 2008 they fell by 2 percent.

Christine Gustafson, who leads the Gustafson Group at UBS Wealth Management in Phoenix, Ariz., works closely with investor clients on their charitable planning. The Giving Pledge announcement last week spurred a number of conversations among people she works with, she says.

“You either get it or you don’t. That’s the reason you probably hear so many advisors who are not as keen about this idea because their mindset is, ‘Oh great, that means we lose the assets,’” she says. “Unless the advisor is the one getting out ahead of this concept and sets up the structure.” An advisor can build on that by persuading a client who has set up a community foundation with the advisor to also persuade the client’s affluent friends to put up an endowment. “It puts me in a position to go with my client when they make a pitch to someone else,” Gustafson says. “And it frankly puts me in line to manage that money.”

Not all charities are struggling. On Wednesday, the Fidelity Charitable Gift Fund, the largest donor advised fund in the nation, ended its fiscal 2010 year on June 30 with nearly $4.4 billion in assets, up 15 percent. The first half of calendar 2010 produced the strongest performance for donations in the fund’s 19-year history. More than 152,000 grants totaling $531 million were made to not-for-profit organizations nationwide, an increase of 27 percent and 16 percent respectively from the comparable period a year earlier. About 12 percent of the outgoing grants in the first quarter were aimed at Haitian earthquake relief.

Gift Fund President Sarah C. Libbey said she expects a stronger performance in the second half of this year, when charitable giving for tax purposes tends to pick up. In the first six months of 2010, contributions of appreciated securities made up 51 percent of total contributions to the fund, compared to 32 percent in the first half of 2009.

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