A New Edge for Advisors Who Leverage Philanthropy

Smart Philanthropy Boosts Trust and Retention for Advisors

Competition in the financial advisory and wealth management space is intense, and the stakes are increasing every year. The great wealth transfer will see $80-$100 trillion passed down from boomers to younger generations. It is also expected to result in $12 trillion earmarked for charitable giving.

This sea change represents an opportunity and a threat to advisors. Those who find ways to expand their value proposition stand can build trust, strengthen retention, and build a differentiated practice. Those who maintain the status quo are putting their business at risk.

A New Playbook for Advisors

As advisors are seeking ways to differentiate from their peers and AI-powered robo-advisors, one playbook is often overlooked: advising clients on smarter ways to do charitable giving. By educating clients on tax-efficient philanthropy, advisors can add value in ways clients will remember.

A recent report from T. Rowe Price underscores the role of charitable planning: in a survey of high-net-worth investors aged 25 to 49, 100% said their family is likely to continue working with an advisor if the advisor is actively involved in philanthropic planning with them.

Yet, there is a massive gap between what clients want, and what advisors are offering. According to a 2024 article by Investments and Wealth based on research by CEG Insights:

• 87% of advised clients want charitable planning guidance from their advisors
• Only 6% report receiving this service, despite 80% of advisors claiming to offer it

This data underscores a substantial opportunity for financial advisors to address unmet needs.

According to T. Rowe Price, Investors who collaborate with their advisor on charitable giving report higher satisfaction and loyalty from this collaboration:

• 87% say their satisfaction increases
• 85% report greater trust in their advisor
• 88% are more likely to refer others to their advisor
• 92% are more likely to retain their advisor

A formal planning process would generally include a discussion of values, desired impact, organizations to support, desired timing (lifetime vs. legacy gifts) and tax-advantaged vehicles for giving. For those seeking to incorporate philanthropy into their practice, we recommend the Chartered Advisor in Philanthropy or CAP program. That said, you don’t have to get certified to be a better advisor.

The Benefits of Non-Cash Giving

Every advisor can help their clients today, simply by 1) asking about their philanthropic giving strategy and 2) educating them on tax-advantaged ways to give. While a broad range of giving vehicles exists, most investors can benefit immediately by gifting appreciated assets instead of cash, including:

Appreciated securities (stocks, ETFs, mutual funds): allow donor to avoid capital gains and itemize the current value of appreciated securities held more than one year. Even without the itemized deduction, donating securities is a popular tool for harvesting gains and rebalancing portfolios in a tax-free manner.

Cryptocurrency: offers the same tax advantages as securities. As 90% of crypto is owed by the top 1% of crypto investors, the universe of investors with 7-figure accounts is relatively small. However, gifts can be quite large, resulting in significant savings for those sitting on massive gains.

Donor-Advised Funds (DAFs): functioning like a charity savings account, DAFs are excellent vehicles for tax-advantaged giving. The problem is that for every $1.50 contributed to a DAF, only $1.00 is granted to a charity. By reminding clients to use their DAFs vs. their cash, they’ll have greater impact and more money left to invest.

IRA Qualified Charitable Distributions (QCDs): for investors older than 70.5, QCDs are the best way to offset Required Minimum Distributions (RMDs) and reduce adjusted gross income or AGI, which can reduce the donors overall tax rate.

These aren't the only tax-advantaged vehicles but they are applicable to the largest universe of investors. At least one of them can be instrumental for every HNW client.

In summary, advisors and wealth managers can meet evolving client expectations by incorporating philanthropic planning in their client management process. In doing so they can provide valuable assistance that will resonate with clients and their heirs.