Remember the 2006 documentary “An Inconvenient Truth,” which chronicled Al Gore's mission to educate people about global warming? His point was that we couldn’t keep sweeping this “planetary emergency” under the rug. It had to be addressed head on so that it could no longer be ignored or disputed by skeptics.
For years before the movie was released, Gore had been banging the climate crisis drum. Sometimes that’s how I feel when it comes to educating financial advisors about charitable planning and helping clients with their philanthropic goals.
Quoting Mark Twain, Gore stated: “What gets us into trouble is not what we don't know. It's what we know for sure that just ain't so.” I couldn’t agree more.
Advice Clients Want vs. Advice Clients Receive
Case in point. A Charities Aid Foundation (CAF) survey of more than 200 independent financial advisors, wealth managers and planners found that just one in 20 advisors (5%) felt “very confident” discussing philanthropy with clients -- much less advising them on it. Nearly three-quarters of surveyed advisors (72%) didn’t include philanthropy as part of their initial fact-finding with clients, despite one in five (21%) saying they saw a direct link between providing philanthropic advice and winning new business. Further, half of those polled by CAF researchers say this information gap was due to a “lack of available training.”
That’s disturbing for all of us because philanthropic endeavors are increasingly important to affluent clients. According to a recent CEG Insights survey of 400 affluent investors, seven out of eight (87%) expressed a desire to make a meaningful impact through charitable activities. However, just 6% report receiving charitable planning advice from their advisors, according to CEG. Ouch!
And if that’s not enough of a global warning, you risk falling even further behind the next generation of high-net-worth (HNW) donors and clients if you continue to ignore charitable planning. A separate CAF study found that one-third of young HNW individuals (under 34) consider themselves philanthropists, and nearly two thirds say giving to charity is an important part of their lives. But they’re often not getting the help they seek from advisors. According to researchers, the lack of experience and education means “financial advisers are failing to meet the needs of the next generation of donors.”
From what I’ve seen throughout my career, advisors don't talk about philanthropy because they don't know how to talk about it, and they don't know anything about it because they don’t know where to turn for advice. I understand not wanting to look foolish or uninformed in front of your clients, but that’s no reason to keep kicking the education can down the road. You have to show some initiative to learn about philanthropic planning but it’s not like splitting the atom. The American College’s CAP® program (Chartered Advisor in Philanthropy) is a start. It will at least give you basic foundation. But for too many advisors it comes down to money. They don’t know how they’ll get paid by providing advice on charitable planning. We see the same thing in the legal profession. There’s a huge demand for qualitative planning around things like family dynamics, but lawyers can’t figure out how to get paid for providing that advice. Those may be hurdles, but they’re not insurmountable. If you’re not careful, someone else will come in to fill the void, especially as your client base gets younger.
As Upton Sinclair wrote a century ago: “It's difficult to get a man to understand something if his salary depends upon his not understanding it.”
It’s Good for Business
I don’t buy the argument that there’s no money to be made providing clients with advice about charitable planning and family dynamics. The trick is knowing how to use the tools that are out there to your advantage. When I speak to advisors, the first thing I tell them is that without philanthropic planning, all their clients’ money goes to pay taxes. When that happens, you have no chance to manage that money. The government is the one that now manages the money. But if you do charitable planning for your clients, that money may end up in a charitable trust. The charitable trust may hang around for many, many generations allowing you to manage that money almost forever.
“Okay,” advisors tell me. “Show me how. When do I use these tools and what are all the rules?” Charitable planning is one of the most complex areas of the law. Advisors don't realize that they can bring in outsiders to help them. Again, the resistance to outside help is that they don't want to look uninformed or out of touch in front of their client. But the client doesn’t care. They want the best advice possible.
I also see many advisors worried about being disintermediated from the client if they bring in outside expertise. It’s the old scarcity mentality: “Everyone’s a competitor; not everyone’s a collaborator.” That means making referrals to someone else is a risk. That’s just shortsighted thinking. We’re in the midst of the greatest transfer of wealth in history. Boomers are aging out. Gen X is coming along and wanting to be more hands on with their planning. They want to be more socially conscious and aware. But by and large, nothing has changed in the financial service industry to address that. Firms are no longer willing to pay employees to get the advanced training they need.
Again, that’s just a lost opportunity. According to CAF research, among advisors who do regularly give philanthropy advice to clients, more than half (56%) said they saw it as an opportunity to get to know their clients better and to build better business relationships with them. When you think about it, what else should we be doing for clients?
Recently we worked with a couple in which both husband and wife were presidents of respected charitable boards. They had made serious financial commitments in their estate plans, but they alsowanted to be leaders in current capital campaigns. As we developed and designed strategies for them, we were able to more than double their projected financial commitment on their death while also freeing up a current gift of $1 million. We accomplished this without negatively impacting their balance sheet or personal cash flow. We helped their advisor become a hero to the family and, by the way, the kids will inherit more, not less, when mom and dad pass away.
Randy A. Fox, CFP, AEP is the founder of Two Hawks Consulting LLC. He is a nationally known wealth strategist, philanthropic estate planner, educator and speaker.