Advice for Wealth Advisers: How to Talk With Your Clients About Philanthropy

Wealth advisers know that clients with high net worth typically look to them for guidance on charitable giving. That’s why these professionals often start conversations about philanthropy — especially in the last months of the year.

But there’s a big difference between simply having a conversation and talking with your clients in a way that helps you understand their goals, priorities, and challenges so that you can serve them well.

Traps to Avoid

Based on our experience managing more than 1,500 private-foundation clients, we’ve identified three common pitfalls in offering counsel on giving:

Focusing only on dollars and cents. Wealth managers sometimes assume that when clients ask for philanthropic guidance, they’re mainly interested in tax strategy —reducing income taxes, sheltering capital gains, avoiding estate taxes. But what really interests them about charitable giving — and what they want from you — may have nothing to do with money. They may prefer that you serve as a resource, providing logistical and strategic support for their charitable goals.

Making the conversation seasonal. If you’re discussing philanthropy only during the holidays, you may not be doing it at the right time or often enough. It’s true that interest in charitable giving typically peaks around the year’s end, but some people want to talk about this subject earlier, to allow more time for planning. And many clients want to discuss their giving with you regularly, not just at a year-end meeting.

Going it alone. For clients with complex needs or whose philanthropy represents substantial spending, it makes sense to confer with a specialist in charitable vehicles. A Foundation Source survey of more than 100 wealth managers in 2017 revealed that advisers may have unjustified confidence in their knowledge of private foundations and donor-advised funds.

Checklists for Successful Conversations

Whether or not your clients have a formal giving vehicle — or have even begun to contemplate the need for one — these sets of questions will help you lead productive discussions about charitable giving.

Understand your clients’ motivations. Wealth advisers are used to thinking about the tax-savings or estate-planning aspects of charitable giving, but clients often approach this topic from a personal perspective. Their motivations may include creating a permanent legacy, uniting their family through shared philanthropy, or giving back to their community. So, you might approach this subject by asking what they hope to achieve through giving rather than starting with a technical presentation.

After you’ve opened this dialogue, these questions can help you determine if your client’s charitable aspirations merit a deeper discussion of their options.

• How important is charitable involvement to you at this point in your life?
• Are there any issues or problems facing society that have also touched your family?
• Do you have any personal goals that philanthropic giving could help accomplish?
• What causes or organizations do you support, and why?
• Are there charitable causes or specific organizations you would like to support, but you haven’t had the opportunity or time?
• How would you like to be remembered? What kind of legacy do you want to leave?
• Do you want to engage your family in your philanthropy, or do you envision it as a solo project?

Help identify an appropriate vehicle for giving. At a certain level of wealth, people often want to move from “checkbook philanthropy” to a more formal giving vehicle, one that provides a more organized platform for giving as well as important tax-planning benefits.

Here’s a list of questions that will help you assess your client’s current and future needs and determine which charitable vehicle might be the best fit.

• What motivates you to establish a charitable vehicle?
• Are there certain ones you’re considering?
• Are you planning to include your family in your philanthropy?
• How long do you want your philanthropic legacy to continue? Do you want your family to retain control over your charitable assets for one or two generations, or in perpetuity?
• Is anonymity a must have? For some donations? All donations?
• How important is having control over your investments? Over grant decisions?
• Do you want to be able to reimburse charitable expenses?
• Would you like to hire staff or compensate family members for their philanthropic work?
• Will you want to go beyond traditional giving to creative forms of support, such as loans, international giving, scholarships, awards, and donations to specific individuals and families?
• Do you want to run your own charitable programs (for example, a coat drive)?
• Are you planning major gifts or multiyear commitments that might require a formal agreement with the grantee?
• In what way would you like to give to your charitable vehicle, both initially and in the future? What amount would you like to start with?
• What types of assets do you plan to donate? Do you have highly appreciated personal property or real estate you want to contribute?
• Will your first choice of charitable vehicle be an irrevocable decision? Might future events inspire you to change your mind and move money from this vehicle to another?

Note: If your client is weighing a choice between a private foundation and a donor-advised fund, you should be mindful that while dollars in a private foundation can always be transferred to a donor-advised fund in the future, it is nearly impossible to convert a donor-advised fund into a private foundation. Your advice is crucially important to ensure that your client makes the right decision.

Engage clients who have an established foundation. These clients might seem to have no further need for counsel on their philanthropic needs, but appearances can be deceiving. Even people who have run a foundation for years may have concerns and challenges you could help address.

By asking the following questions about which aspects of their approach are working well and which are less satisfactory, you can engage these clients and assess their needs.

• What motivated you to start your foundation? To what extent is it living up to your original vision?
• How do you administer your foundation? Which parts of running it are easy, and which are more onerous or time-consuming?
• Do you spend more time on administration than you would like? Can you keep up with everything that needs to be done?
• When you need guidance or have a question about funding, compliance, mission, governance, or grant making, whom do you consult?
• Are you undertaking tax-planning measures to help you qualify for a reduced excise-tax rate of 1 percent?
• What steps have you taken to minimize the risk of compliance issues and their potential to harm your reputation?
• How do your family members engage with your foundation? To what degree would you like them to be more involved?
• Are you satisfied with the results of your grant making? Do you feel you’re making a real difference?
• How do you see your foundation changing in the next five years? Do you anticipate any of the following events?
  • Change in foundation leaders (for example, the next generation’s assuming leadership)
  • Influx of assets to endowment from an inheritance or the sale of a business
  • Retirement of a trusted adviser or key staff member
  • Geographic dispersion of family members

Page Snow is chief philanthropic officer of Foundation Source, which provides support services to more than 1,500 private foundations.