Financial advisors have a significant role to play in helping their high net-worth (HNW) clients create charitable-giving strategies. These investors place more importance on philanthropy as a financial matter than clients who have lower levels of investible assets do, according to recent research from Mississauga, Ont.-based Credo Consulting Inc.
“A strong positive correlation exists between investible assets and the importance of charitable giving,” says Hugh Murphy, managing director with Credo.
When asked to rate the importance of charitable giving as a financial matter on a scale of one to 10, survey participants with $1 million or more in investible assets gave an average rating of 5.34; those with $500,000-$1 million in investible assets gave an average rating of 5.21. In comparison, survey participants with less than $500,000 in investible assets gave an average rating of 4.78.
(This research comes from the Financial Comfort Zone Study, an ongoing national consumer survey that Credo conducts in partnership with Montreal-based TC Media’s investment group. TC Media publishes Investment Executive.)
To be sure, there are clients who are predisposed toward charitable giving and clients who are not – regardless of how much money they have to invest, says Brad Smith, senior wealth advisor with IPC Securities Corp. in Kitchener, Ont.: “Not everybody is naturally charitable. It’s a journey; you have to kind of tap in and see where your client is at.”
However, there are various reasons why HNW individuals may be more drawn toward philanthropy than clients with lower levels of investible assets are, says Craig Hughes, director of advanced financial planning with Investors Group Inc. in Winnipeg.
HNW clients, having prospered financially and benefited from the support of family, friends, neighbours and colleagues along the way, may feel they have a duty, as well as the means, “to help the community that in a sense has helped [these clients] throughout their lives,” Hughes says.
HNW clients also may be interested in charitable giving as a way to cement a legacy – perhaps through a donation to a hospital or school. Says Hughes: “[Clients often] say, ‘I’ve been a prominent member of the society or community, and I want my name to live on after I pass away’.”
Charitable giving also may be a way for clients to pass on personal values to the next generation, says Tony Maiorino, vice president, director and head of wealth- management services, with Royal Bank of Canada in Toronto.
In fact, HNW clients who set up a charitable foundation and involve their children in its management are providing their offspring with valuable experience in managing financial affairs, says Maiorino: “We see a number of HNW families for whom the [charitable] foundation account is the child’s first foray into managing part of that family’s wealth.”
Of course, charitable giving also is an integral part of many tax- and estate-planning strategies that are of particular interest to wealthier clients. Often, HNW clients initially will turn their mind to philanthropy as a way to minimize taxes, but soon find more long-term satisfaction in the sense that they’re making a difference in the world through their charitable giving.
“With a lot of families,” Maiorino says, “[charitable giving] starts off being driven by the tax benefits and ends with the joy of the philanthropic act.”
Thus, if you provide your clients with guidance and advice about charitable giving, you may be putting yourself in a position to build deeper and more enduring relationships with your clients.
Adds Sara Gilbert, founder of Montreal-based Strategist Business Development: “Having a purpose is a fundamental human need. Charitable giving [discussions] go to the question of ‘Where do you want to make a difference?’ That’s where advisors have conversations with clients that are completely different from those about investment portfolios.”
Hughes says he takes a proactive approach in discussing the subject of charitable giving with his clients, raising it with them during the “building significance” part of his firm’s financial planning process.
If a client is in a position that he or she has more than enough money for his or her family’s needs, then there’s an opportunity to discuss charitable giving, Hughes says, not just in terms of tax and estate planning, but as part of helping the client express his or her values.
“There is a massive return on investment [for clients] to give money to a charity,” Hughes says, “and it can’t be measured [solely]in dollars and cents.”
When dealing with clients who haven’t considered charitable giving previously, Hughes suggests that they begin by making modest donations. Hughes then follows up with those clients months later to see how they feel about the charitable giving they’ve done and to see whether they would like to do more.