One out of two. Half of ultra high net worth adults from wealthy families think it very or extremely likely they will keep their parents’ investment advisor. The other half are less likely to keep their parents’ advisor. Which half are you?
Investment advisors need to engage entire families – current and future clients – because of the bottom line. Some speculate that investment advisors may not be attracting enough younger clients to offset their seasoned client base, leading to flat or even declining growth. Research suggests that investment advisors with portfolio books containing 30 percent younger clients (less than 45 years old) can almost double asset and revenue growth, with minimal near-term revenue reductions, compared to more seasoned client bases. The upcoming major intergenerational wealth transfer makes attracting younger clients very important.
Goals and Values Giving Gap – A Missed Opportunity
Almost all high net worth households donate to charity and three-quarters volunteer, most with family. Philanthropic goals and values are their passion, but most investment advisors discuss charity from a technical perspective. Only a third discuss client philanthropic goals and passions. Fewer talk with clients about helping to share charitable giving values with children – less than 15 percent. More clients want a goals- and values-based philanthropic discussion. Fewer than half are happy with their advisor’s charitable discussions.
This is a “goals and values giving gap.” It’s an opportunity gap between the strong wealth advisor relationship clients want, and the relationship and advice they get.
Discussing Family Charitable Goals and Values
Investment advisors should understand their clients’ charitable goals and values. Investment advisors should introduce goals- and values-based discussions with interested clients early in their relationship. It will, over time, become a key aspect of their strategic and tactical asset allocation. Ninety percent of high net worth individuals believe philanthropic discussions should occur in the first meetings with their advisor.
Before the Discussion. Learn about the family’s charitable giving history and determine your client’s receptiveness to family discussions. Sharing your own charitable giving with clients to start the philanthropic discussion is often an effective “icebreaker” that inspires trust. Ask who will participate in the family discussion. Invite participants to the discussion with advanced knowledge of the topic – everyone should be ready to participate as appropriate. Set ground rules ahead, such as what type(s) of client financial information will be part of the discussion with participants.
Start the Discussion. If participants don’t know the family’s charity history, you might ask your client to summarize it. Start the discussion with a positive client experience – and celebrate it. Discuss how the participants feel about successful charitable giving – what are the experiences (including volunteering) they feel good about? Follow-up with open-ended questions that help inform you and the participants. Discuss family and/or individual charitable goals and ask for examples of giving that have achieved, and have not achieved, the goal(s).
Develop the Process. Asking open-ended questions helps develop the charitable giving process. Questions might include: Who has (and in the future will) make charitable decision(s)? What is the giving process? Where will donations go? When will giving happen? How will the amount to give be determined?
Discussing charitable goals and values with a client and their family increases understanding and engagement in a subject close to their heart.
Donor-Advised Funds Offer Unique Contribution to Family Charity
Most wealthy donors now use, or plan to use, a charitable giving vehicle – and tax efficient donor-advised funds are the most popular choice. Donor-advised funds offer unique family philanthropy advantages that compliment foundations or act as stand-alone charitable vehicles.
Donor-advised funds offer independent financial decision-making in a structured environment. Clients can create individual donor-advised funds for family members, family funds, or theme-based funds (e.g. supporting educational or medical research charities).
Why do donor-advise funds work well for individual and family giving? Financial commitments are limited to the funds provided, beneficiaries are vetted for charity legal status, and charitable giving is centralized with minimal administrative duties. Yet donor-advised funds are flexible, permitting donors to advise donations to a million well-known and lesser known 501(c)3 nonprofits.
4 Ways Donor-Advised Funds Engage Client Families
Here are four ways you can use donor-advised funds to engage client families:
1. Family Living Legacy
Family donor-advised funds can promote intergenerational bonding through discussions about supporting inspirational cause(s). Families can decide the formal and informal dynamics of the fund. Formally (legally) funds are organized with one or more individuals having the right to name the fund, advise grant distributions, make succession arrangements, and provide for others to have these fund rights. Informal dynamics include internal family decisions about how to determine cause(s) to support, amounts to give and when to give them, and volunteering or other activities outside of the fund.
2. Initial Independence
Creating a donor-advised fund for a client’s child can provide them with experience in independence, budgeting, and decision-making. Adults (age 18 years old or older) may legally advise a fund. Funds for minors require an adult advisor, but can still offer children a great charitable experience, from naming the fund, to selecting the charities to support and suggesting the grant advisements to make.
3. Individual Living Legacy
Donor-advised funds for individual adult family members can offer a great way to follow unique charitable passions and encourage entrepreneurial philanthropic endeavors.
4. Leaving a Charitable Legacy to Heirs
The gift of charity to heirs offers an incredibly meaningful way of transmitting values across generations. Donor-advised funds can list heirs as successors or in some cases an unfunded donor-advised fund in the name of one or more heirs can become an estate beneficiary.
Engaging families through their philanthropic activities promotes family values. Investment advisors that share their client’s charitable passion, give sound technical advice, and value multi-generational relationships improve client philanthropic experiences. Donor-advised funds offer a unique, flexible way to achieve numerous family charitable goals. Giving clients and their families the “value-added” advice they seek is not only good for philanthropy, it offers investment advisors a strong foundation to build relationships with the next generation of clients.
Hiram Wurf is Charitable Catalyst and Managing Director of The Advise Us Fund® , an independent donor-advised fund and planned giving provider.
Kim W. Suchy is Managing Director at Optimum Investment Advisors, where he serves on the Investment Committee, and is responsible for the design and implementation of investment strategies for high net worth, endowment, foundation and employee benefit clients.