The Finance Of Charity

Making An Impact With Charitable Giving

Advisors have wholly new opportunities to inform and guide their clients

by Ken Cella

Mr. Cella is a Principal in Branch Development with Edward Jones. Visit www.edwardjones.com.

There’s good news when it comes to investors’ plans to support charitable organizations this year: most American adults (68%) intend to donate a similar amount of money to charity as they did in 2021, according to a recent study by Edward Jones and Morning Consult*. For financial advisors seeking to make a difference, this research should serve as a wake-up call to initiate conversations with clients – particularly at a time of year when investors may be thinking more about giving and could benefit from the counsel of a trusted financial advisor.

It may sound surprising in an unpredictable economic environment, but investors are still eager to give. The study found the barriers preventing people from donating more – whether due to lack of access to excess funds (61%), the need to save money to account for inflation (30%) or another factor – are overshadowed by the desire to give. Many cite altruistic reasons for donating, including helping others in need, making an impact on something that matters and having a positive impact on their community.

Tax & Estate Planning Impacts

Regardless of the reason for giving, investors are looking for ways to maximize the impact of their charitable donations on the organizations they support or on their own financial strategy – or both. Either way, seeking the advice of a financial advisor, along with tax and estate planning professionals, is a critical first step that many investors are missing. The survey found just 23% of respondents reported working with a financial advisor on their charitable giving strategy. This is a missed future opportunity for the industry, too, as younger generations, such as Millennials and GenZers, say they are interested in making charitable giving part of their overall financial strategy.

Clients and prospective clients alike may not understand the role a financial advisor can play in developing a giving strategy, making it even more important for financial advisors to start having conversations and weave charitable giving into the overall financial strategy. To do so, financial advisors should begin by asking these key questions of clients:

  • Why do you give, or want to start giving, to charity? The study found adults are most motivated to give for altruistic reasons. Across all age groups, respondents were more motivated by their potential impact on people, communities or society at large than by their own personal benefit from – or connection to – their charitable giving. One of the first steps in helping an investor make charitable giving part of their financial strategy is finding out these motivations.
  • What are the most important charities or causes to you? While many cite altruistic reasons, respondents have indicated they want to help society in the areas that matter to them, with most choosing charities that benefit a cause that is personally important. Linking motivations for giving to specific causes and organizations helps investors focus their charitable-giving efforts.
  • Are you aware of options to help maximize the impact of your giving? There are tools and strategies available to help investors make a greater impact, yet many are either unaware of their existence or uncertain how – or if – they can leverage them. Exploring these options may uncover new opportunities.

Once the stage has been set by asking these key questions, financial advisors can help investors, both seasoned and new, understand where to start with charitable giving. Many financial advisors begin the process by partnering with clients to create a charitable mission statement, which can help clients identify the causes they are passionate about and better define their charitable-giving goals. Once an investor has identified causes that reflect their personal purpose, a financial advisor can help them understand a variety of options available to help maximize their giving – including setting up a donor-advised fund (DAF), donating non-cash assets or setting up a trust or foundation.

Following are reasons to consider these options: 

Donating non-cash assets such as stock, real estate, business interests, etc., can have a greater positive impact on an investor’s financial situation and the charities they support...

Donor Advised Funds (DAF) – In addition to their short- and long-term tax benefits, DAFs can also help investors involve their families in giving during their lifetime by allowing for joint or supervised charitable giving. DAFs can also help when it comes to leaving a legacy, as they can continue to make grants for a period of time, or they can be named a beneficiary of a will, trust, retirement plan or investment account.

Non-Cash Assets – Donating non-cash assets such as stock, real estate, business interests, etc., can have a greater positive impact on an investor’s financial situation and the charities they support. Respondents working with a financial advisor on charitable giving are more than three times more likely to donate such non-cash assets.

Trusts/Foundations – For higher-net-worth individuals (with contributions of $110K+), this option offers enhanced opportunities for investors to involve their families and maximize their legacy.

Financial advisors should be a part of a team of professionals to help investors understand these options and weigh trade-offs in the context of their overall financial strategy. For purpose-driven financial advisors, partnering to create these strategies can help them create a meaningful difference both with clients and the communities they serve. Our research confirms that investors who work with a financial advisor acknowledged the benefits. They reported being more purposeful with their giving strategies and feeling more successful (35% versus 17%) and excited (34% versus 15%) after donating than those who do not have the support of a financial advisor.

These conversations have long-term, generational effects too. Among those who work with a financial advisor, most respondents said they were interested in including their families in a conversation about their charitable giving strategies. Yet another reason to bring up giving in your next client meeting and offer tips for investors to start these conversations with their loved ones, including:

  • Prepare to share your charitable mission statement or personal purpose to help loved ones understand your motivations for giving and equip them to carry on your legacy.
  • Set aside time during family gatherings – away from the dinner table – so people can talk privately with only the family members they deem necessary.
  • Give family members advance notice, so they can prepare questions and be ready to discuss.

It’s clear – investors are eager to meaningfully give back, but many don’t know where to begin. Financial advisors have an undeniable opportunity to start these important conversations and, in doing so, use their experience to positively impact their clients and communities.

 

 

 

*This survey was conducted by Morning Consult among a national sample of 2,210 adults surveyed from August 11-14, 2022.