How charitable giving deepens client relationships and grows assets

Submitted by john.warren on November 11, 2019
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How charitable giving deepens client relationships and grows assets

Talking to clients about their charitable giving is a way for advisors to deepen client relationships and grow assets under management.

Robert Huebscher of Advisor Perspectives interviewed Kim Laughton, president of Schwab Charitable, on how advisors can integrate charitable planning into client discussions and use it as a tool to expand and deepen relationships. Here is their conversation as featured on Advisor Perspectives.

Tell me about your role at Schwab Charitable, the clients you work with, and the goals you try to help them achieve.

I'm president at Schwab Charitable. We are an independent 501(c)(3) public charity with a mission to increase charitable giving in the U.S. by providing a tax-smart and simple giving solution to donors and their investment advisors. The majority of our assets, about 76 percent, are in accounts that are associated with an independent investment advisor. We serve more than 2,500 advisors of all sizes and across all regions of the country, and the vast majority of the larger advisors that work on the Schwab platform take advantage of the services we offer.

How involved are financial advisors in their clients' charitable giving?

Every practice is unique, so advisors engage in a few different ways. Some start at the beginning of the philanthropic journey and help clients identify their personal mission, which often can involve multiple family members and generations. More commonly, advisors get started by integrating charitable planning into wealth management and tax planning conversations. When clients experience a financial event – be it a high-income year, a big windfall event, taking a company public, or selling a company – they can face a large tax bill. Advisors help those clients think through the best way to earmark money for charity and reduce their tax bill.

The third way financial advisors get involved is by helping clients consider what type of charitable giving vehicle will work best to accomplish their giving objectives. Advisors can help them give appreciated securities directly to charities, or establish a donor-advised fund or a private foundation if they wish to give over time. For clients who want to earn income while also giving to charity, they may recommend a charitable trust.

No matter when they get involved, advisors tell us it is always a great experience to discuss charitable planning and giving with a client. It deepens the client relationship as they learn more about their clients by understanding their passions and the organizations and causes that they currently support or want to support in their retirement or through bequests from their estate. By building that deeper relationship, advisors can also more easily connect to other like-minded friends and family members.

What should financial advisors know if they're thinking about building or expanding their charitable planning services?

We're celebrating our 20th anniversary, and what we've seen is that the interest in charitable planning has grown every year. Since our inception, we've facilitated more than $13 billion in grants to over 150,000 charities. In the last several years, charitable planning has become an integral value-added service offered by our advisors.

Schwab conducts an annual benchmarking survey of investment advisors on different topics, including which value-added services they offer. Last year, charitable planning was one of the most popular services offered by advisors. Almost 80 percent of advisory firms surveyed reported including charitable planning in their primary service offerings1, and it jumped from the fifth to the third most popular offering over the last five years.

It's important for advisors to get into the philanthropic game, because 80 percent of their peers are already in it. The clients with whom advisors have good relationships may continue to work with them, but they will increasingly want this service. Philanthropy is a service that's too personal to be commoditized.

Is it too late for advisors who don't already have a charitable offering?

No, not at all. Despite the fact that it's growing and popular, advisors still have a huge opportunity. According to a 2018 U.S. Trust survey, 90 percent of high-net-worth individuals gave in the prior year. Generally, this giving increases with age and means, and most investors are saying they're hungry to learn more about charitable giving. That study found that over 70 percent of high-net-worth individuals said it's important to discuss philanthropy with their advisor. It's never too late.

What are the steps that advisors can take to build out their philanthropic services?

Advisors don't need to do it alone. Schwab Charitable can help them mix philanthropy into the financial planning and wealth management process, which keeps things simple for their clients. Advisors are uniquely positioned to help clients in this way. We find that there are three best practices that our advisors use to develop an offering.

Many of our advisors start by simply incorporating charitable planning and giving into their quarterly or annual reviews with their clients, especially when they discuss taxes. They can help clients identify opportunities to reduce taxes by giving appreciated investments rather than cash to a charitable vehicle or directly to a charity. Advisors can also help identify which assets are most appreciated or more highly concentrated in a portfolio and would be best to trim by giving some shares to a charitable vehicle.

Depending on clients' tax situations, such as whether they are or close to itemizing, advisors can help clients time their gifts to get the full tax benefits. Concentrating or “bunching” charitable contributions by giving more or less in certain years can help clients receive the best tax advantages while maximizing donations. This is important if clients are on the cusp of taking the standard versus itemized deduction.

A second way advisors can add value is by organizing a 360-degree view that includes charitable planning. It is important to coordinate all financial, tax, and legal experts to assess which assets, tax benefits, and charitable giving vehicles will optimize the impact for their clients. All vehicles have different tax considerations and deductibility rules, so it's helpful when the advisor guides clients in selecting one that's right for them.

The third way advisors can assist with charitable planning is by helping clients align their investments with their philanthropic goals. This could be anything from ensuring that an environmentally inclined client has socially responsible investments to adding a gender-based strategy, or whatever the client is passionate about. Sometimes that means divesting certain positions, and that can be tricky with highly appreciated assets. Clients don't want to pay taxes when they sell a holding, but those can make great charitable gifts into a donor-advised fund or other endowed vehicle.

For instance, clients can take a share of an oil company that is inconsistent with their values and move it to a charitable account so they potentially don't have to pay taxes when it's liquidated. Then the funds can be given to an environmental cause or any other cause of interest. Divestment and portfolio rebalancing can work well together.

With Schwab Charitable, advisors manage both the assets and the charitable vehicle and can recommend investments that are consistent with clients' values.

How does this translate to advisors who are trying to work with the next generation of clients, specifically Millennials?

The Millennial generation represents a huge amount of wealth in the coming years. Although they are still building careers and may not currently have the means to give as much as older generations, Millennials tend to be more philanthropically engaged and give to a variety of charities.

Millennial clients prefer simple, easy digital approaches to giving, like our donor-advised funds. They don't like to interact with a lot of attorneys or be faced with paperwork and expenses.

Some Millennials work at smaller tech companies, and a lot of their wealth is tied up in concentrated positions. When these companies go public or a windfall event occurs, it's important to assist them, so that they can handle these events tax-effectively.

If there's one thing you'd like our readers to take away when it comes to how financial advisors can work with their clients on charitable giving, or specifically how they can work with Schwab Charitable, what would that be?

To methodically add charitable planning into a practice, advisors should have annual conversations, particularly around tax-planning season. These conversations deepen client relationships and, eventually, help increase referrals. In fact, my experience is that advisors who implement charitable planning as a core service offering see it as one of their most valuable services.

The best time to integrate charitable planning into a wealth-management offering is now; however, advisors don't have to do it alone. Schwab Charitable can help advisors fill in the gaps and provide the expertise they need to serve their clients.

Schwab Charitable offers a simple, efficient, tax-smart solution for clients, and valuable support services for advisors. To learn more, visit www.schwabcharitable.org/advisors or follow us on LinkedIn

If you're thinking about becoming an independent advisor, consider a custodian who invests in your success. Contact us  to learn more about the benefits of a custodial relationship with Schwab.

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