PART TWO OF A TWO PART SERIES
New research shows that adviser-client discussions of philanthropy in the USA are falling short of their potential impact on the adviser’s business, their clients’ lives and society.
With philanthropy as an increasingly important aspect of their wealth experience, high-net-worth (HNW) individuals in the USA are turning to their professional advisers to discuss the topic. The adviser-client conversation is a safe space away from the agendas of fundraisers where clients can explore more meaningful values – and interest-based philanthropy – and where advisers can infuse a heightened level of professionalism and rigor to the execution of philanthropic strategies. These conversations are capable of creating a triple win: greater positive impact on the adviser’s business, their clients’ lives and society. But are these needle-moving conversations happening?
This question lies at the core of new research conducted by The Philanthropic Initiative, a global philanthropic advisory firm, and U.S. Trust, Bank of America Private Wealth Management. The U.S. Trust Study of the Philanthropic Conversation: Understanding Adviser Approaches and Client Expectations stands as the most comprehensive look, in the past decade, into the extent and dynamics of philanthropic conversations between advisers and their high-net-worth clients. The study surveyed a random sample of over 300 wealth advisers, trust and estate attorneys and accountants and a random sample of 120 HNW individuals in the U.S. who are actively engaged in charitable giving.
With only 41% of HNW individuals fully satisfied with the philanthropy conversations they are having with their advisers, the findings suggest these conversations are not meeting the evolving needs of the affluent. Fortunately, the research identifies a number of important disconnect that can help advisers close the gap between what they have been doing – and what their clients actually want.
Open the conversation earlier and more often
Disagreement between advisers and their clients begins with the frequency of these conversations. While most advisers (89%) say they discuss philanthropy with clients to some degree and 71% make it their regular practice, only 55% of HNW individuals report discussing philanthropy with a professional adviser with an additional 13% who have not, open to the discussion. As to who raises the discussion, one-third of advisers (33%) say they are the ones to initiate these discussions while their clients initiate them just 20% of the time. However, among HNW individuals who have discussed philanthropy with their adviser, half (51%) say that they are typically the ones to initiate the conversation, and that their advisers brings up the subject on their own just 17% of the time.
What matters more to HNW individuals than who initiates the philanthropic conversation is that it be had in a meaningful way early in the relationship. Advisers indicate they are more likely to bring up the subject of philanthropy once they have greater knowledge of a client’s personal (40%) or financial goals (47%), or when they are aware that a client volunteers or is active in the community (43%). However, one-third (34%) of HNW individuals feel the topic should be raised during their very first meeting with and adviser, and virtually all (90%) agree that this discussion should occur within the first several meetings.
The message to advisers: While it is important to understand your client, don’t drag your feet.
Deepen the discussion with values - and interest - based conversations
At the root of the surprisingly low satisfaction with philanthropic conversations could be the disconnect between what clients want out of these conversations and how their advisers are approaching the conversation.
71% of advisers say they raise the discussion through a technical angle – focusing on tax considerations or giving vehicles such as foundations, trust or donor advised fund – while only one-third (35%) begin with their client’s philanthropic goals and passions. While HNW individuals are interested in the technical aspects (39%), they are equally interested in discussing the personal aspects of philanthropy that begin with their values and interests (39%). According to a majority of clients (63%), advisers continue the discussions with a primary focus on the technical aspects despite their belief that they are more balanced between the technical and personal.
The message to advisers: your clients expect the technical help, but also want conversations that are more personally meaningful to them.
Understand what actually motivates your clients
The overemphasis of technical topics by advisers is both explained and made more mysterious when looking at advisers’ perceptions of why their clients give. Advisers are wonderfully aligned with what their clients identify as the top three motivations for giving – which are all personal: passionate about a cause, a desire to give back, and a desire to have an impact on the world or community around them. Beyond, however, we see a major disconnect. Advisers believe (46%) that reducing taxes is just as powerful of a motivator for their clients as the desire to give back or achieve social impact. HWN individuals, however, ranked reducing taxes as second to last (10%) in a list of motivators for giving.
Further evidence of the disconnect on the topic of taxes appears in advisers’ belief that 40% of HNW individuals would reduce their giving if the estate tax were eliminated, and that 78% would do so if the income tax deduction for donations were eliminated – whereas just 6% and 45% of HNW individuals, respectively, indicated they would reduce their charitable giving if these tax policy changes occurred.
Perhaps not surprising, when asked what kept their clients from giving or giving more, advisers cited they won’t have enough money to leave to their heirs (41%), they won’t be left with enough money for themselves (34%), and they don’t consider themselves wealthy enough to give (22%). On the contrary, very few HNW individuals cite these same reasons (4%, 14% and 5% respectively) but instead cite a fear that their gift won’t be used wisely (30%) and a lack of knowledge about or connection to a charity (24%)- two fears that, coincidentally, can be put to rest by developing a strategic approach to one’s giving.
The message to advisers: it’s time to finally admit that while your clients want to maximize tax advantages, there are more powerful forces that drive their giving.
Build your relationship with the next generation
While the research uncovers many lost opportunities, few are as straight forward as including clients’ children and extended family in the philanthropy conversation. Nearly half (45%) of individuals surveyed feel it’s important to involve children and grandchildren in discussion with their advisers about charitable giving – yet only 9% report that their advisers have done so.
The message to advisers: if you are looking to better serve your clients while building a meaningful relationship with their children before they hire their own advisers, involve the next generations in the discussion.
Work on your own “stuff”
Being comfortable with one’s own philanthropy can be of valuable for professional advisers. About one-half of advisers talk about their own personal philanthropy with their clients – which is a good thing. 8% of individuals, for example, cited learning about their adviser’s philanthropy as the most interesting way an adviser can open the philanthropic conversation. Additionally, a third (34%) of HNW individuals are more open to discussions if they believe their adviser to be philanthropic and 43% would place more value on the advice they receive if they believe their adviser to be philanthropic – a number that jumps to nearly one-half (49%) for clients who have previously discussed philanthropy with an adviser.
While HNW individuals’ knowledge of philanthropic giving vehicles is low (15-20%), advisers rate their own knowledge only somewhat higher. Only 49%, 37%, and 29% of advisers rates themselves as being very familiar with charitable trusts, private foundations and donor advised funds respectively – raising the question as to why so many of the conversations they are having focus on giving vehicles.
The percentage of clients who feel their advisers would be strong at discussing personal values and charitable goals and who feel there advisers are knowledge about giving vehicles increase well over 20% each after clients have spoken about philanthropy with advisers – indicating that philanthropic conversations regularly increase the perceived value of an adviser.
In situations where a client’s needs exceed the advisor’s capabilities, which 49% of advisers have experienced, most (84%) advisers either have or would refer their clients to another source for help – most often an attorney (23%) or a philanthropic adviser outside of their firm (21%). For those who do or would not refer clients to another source (16%), lack of a referral network is the most often cited reason as to why.
Fortunately, many (57%) advisers plan to increase their knowledge about philanthropy over the coming year with greatest interests in developing strategic giving plans and mission formation (55%); understanding more about giving vehicles (50%); integrating values and goals into overarching wealth management plans (46%); and engaging the next generation in philanthropic giving (45%).
The message to advisers: knowledge is power.
Do well by doing good
Deeper, more personally meaningful conversations around philanthropy can inspire your clients to think differently about their giving and, ultimately, move them towards greater philanthropic impact. But to be clear, the research shows these conversations are also good for business. Three out of four (74%) adviser say philanthropy conversations are good for business for a variety of reasons including: presents a more comprehensive and holistic approach to managing a client’s wealth (25%); demonstrate greater interest in their clients’ charitable goals and aspirations (18%); shows clients that they are interested in more than just their clients’ money (13%); and provides insights that help advisers better serve their clients (13%).
30% of advisers have been asked to serve in some capacity related to their clients’ giving vehicles, providing additional business opportunities. Many advisers (75%) find discussing philanthropy with clients to be an excellent way to deepen relationships and establish new relationships (54%). And many HNW individuals (40%) agree that these conversations do in fact deepen their relationships – raising the theory that more clients would feel the same way if a greater percentage of discussions focused more on the personal aspects of philanthropy.
Additionally, the research found that knowledge of philanthropy was a selling advantage in one out of three new business opportunities as 31% of HWN individuals would be more likely to select an adviser who was knowledgeable in philanthropy – a number that jumps to nearly half (46%) when that individual has previously discussed philanthropy with an adviser.
The message to advisers: the more meaningful these conversations are to your clients, the more meaningful they will be to your business.
While there are advantages to building one’s own capacity for advising clients across every aspect of philanthropy planning and execution, simply opening the discussion in a way that resonates emotionally with a client and sparks their interests is valuable in itself. Advisers are encouraged to find their own level of philanthropic fluency – for when their clients’ needs exceed their expertise, there are numerous resources including colleagues, philanthropy advisers and community foundations who are experienced in partnering with advisers to help define and achieve philanthropic goals. The research shows nothing but up-side for those advisers who take a good look at how they are and aren’t discussing philanthropy with their clients – and who work towards better alignment with their clients’ expectations.