Why should financial advisors care about philanthropy?

March 01, 2018
7 min read

Mike Todd

Director, Charitable Investment Programs

With any given client, you probably want to do at least one of the following:

  • Increase your share of wallet, and
  • Keep those assets in your book.

Luckily, there’s a fairly easy way to manage that, one that many financial advisors haven’t considered. And it involves helping your client give away some of their money.

It may sound counterintuitive to suggest that you get your clients to give away assets to charity. But philanthropy is real. Nine in 10 high net-worth individuals (HNWI) are already giving to charity. And the charitable sector contributes to a little over 8% of Canada’s GDP.

The question is: Are you helping them do this?

In the world of wealth management, there is rising demand for philanthropic advice—and in this regard, advisors are failing to meet their clients’ needs.

I’m going to explain this growing disconnect between what clients want and what financial advisors are offering, what that means for the future of wealth management, and what you can do to bridge the gap.

Financial Advisors and Philanthropy: The Disconnect

According to a US Trust Study, most HNWI are already talking to someone about their charitable donations. Only, in most cases, that someone is likely to be their accountant, their private banker, or their friends—not their financial advisor.

In fact, more than half of HNWI surveyed were unhappy with the level of attention their financial advisors give to matters of philanthropy. Which means that the advisors who do discuss philanthropy with their clients have a clear-cut advantage.

What Philanthropists Need from Financial Advisors


If recent trends are anything to go by, the giving habits of philanthropic HNWI are anything but set in stone.

Where people send their charitable donations changes based on current events. For instance, according to Fidelity Charitable’s 2017 Giving Report, there were dramatic shifts in HNW donations in response to the Syrian refugee crisis. Similarly, numbers changed in response to the results of the 2016 Presidential elections south of the border.

Groups such as the Southern Poverty Law Center and the American Civil Liberties Union, and Planned Parenthood became some of the most supported charities at Fidelity, when previously these charities hadn’t even charted.

When you’re managing your client’s charitable assets, you’re the person they go to when they want to make donations in response to current events. You strengthen your relationship with your client, and the cash or assets they donate becomes part of your assets under management (AUM).

Genuine Interest

You may think that the most obvious benefit to clients who donate to charities is the tax rebate.

It’s true—donating publicly traded assets is a great way to offset capital gains taxes. But be careful not to overestimate how much your clients’ giving is motivated by personal gain.

In the US Trust Study, financial advisors and HNW philanthropists were at different ends of the spectrum in terms of what they considered to be the motivations behind charitable giving.

For instance, 46 percent of financial advisors polled believed their clients donated to charity primarily in order to reduce their tax obligations.

However, only 10 percent of the donors surveyed said they donated to charity for tax benefits. Instead, the motivations they cited included encouraging future generations to give, following religious or spiritual beliefs, or acting on a sense of moral obligation.

Shifting the conversation with your client from “How much would you like to save on taxes?” to “What causes would you like to support?” signals that you’re on the same page as them. Once philanthropic HNWI know you’re genuinely invested in helping them pursue their interests, you’re more likely to hold on to clients—and get new ones via referrals.

Multiple Ways to Give

By far the biggest sea change in HNW philanthropy is the growing popularity of complex charitable assets. Via donor advised funds (DAFs), philanthropists are donating privately-traded stock, real estate,  and even art and collectibles to causes they care about.

If you can find a way to make this possible for your clients, you’ll be keeping them happy while building your book. They may have assets that they’ve never even considered donating. When you make it possible to do so via a DAF, you’re unlocking hidden value in your client.

Need more info? I wrote an article about how donor advisory funds work and how they can help you manage your clients’ donations.

Trends in Philanthropy: What You Need to Know

The Growth of Large Grants

Large donations are becoming increasingly popular, according to Fidelity Charitable’s report. While the amount donated to charity in the form of grants grew at a rate of 14 percent in 2016, grants exceeding $1 million grew at a rate of 26 percent.

Not only is the donation of charitable assets on the rise generally, but HNW philanthropists want to make a bigger impact on the specific causes they care about.

Long-Term Commitment

HNW philanthropists aren’t just making one-time donations when asked. They’re setting up recurring payments to their favourite charities. At Fidelity, half of all donor grants made in 2016 went to the same charities clients supported the year prior. And nearly a quarter of those were scheduled in advance. While clients change their giving habits in response to contemporary events, they still know which causes they care about most—and they support them on an ongoing basis.

The Great Wealth Transfer

As baby boomers reach their twilight years, their children are inheriting their assets. According to John Havens and Paul Schervish from the Center on Wealth and Philanthropy at Boston College, by 2052, baby boomers will hand over roughly $41 trillion to younger generations—the largest inter-generational wealth transfer in US history.

While the numbers will be smaller here in Canada, you can expect the trend will be the same.

When you establish a strong relationship managing your clients’ charitable assets, it increases the likelihood that, in the years to come, you’ll be chosen to continue managing them even after the assets pass on to their inheritors.

Holistic Wealth Management

When you’re advising on all aspects of your client’s finances—including philanthropy—you’re providing them with holistic wealth management.

Here’s a metaphor I like: When you provide your client with holistic wealth management, you’re building a fence around them.

As I mentioned earlier, approximately nine in 10 HNWI are already donating to charity.

Now, suppose you’re only giving your client the “standard package,” without looking after their charitable investments.

There’s no fence around your client. They’re free to roam. They’re donating to charity, and for help and guidance, they’re going to their private banker, their accountant, or their friends—not to you, their trusted financial advisor.

But when you talk to your client about philanthropy, and start managing their charitable assets in addition to more “typical” portfolio items, you’re controlling where your client goes for advice—you’re building the fence. Your client begins to see your services as all-inclusive, and they’re less likely to take their business elsewhere.

Once you’ve decided you’re ready to start managing your clients’ charitable assets, you’ll have a few important questions to ask them. Such as:

  • Are they donating to charity already?
  • Which ones?
  • How much?

I’ve put together an article, How to Have the Philanthropic Conversation, that explains exactly which questions you should ask your client—and how. Check it out, and when you’re ready to start managing charitable assets, book a call with us.