If you want to serve something greater than yourself and have the financial resources to do so, what next?
If you would like to serve something greater than yourself and have the financial resources to give to a cause that is really important to you, who do you turn to for guidance? Most of us are solicited daily from a wide variety of nonprofits. We then give to causes that are emotionally appealing, or causes that we have a relationship with. In this blog, we will share some research and insight into the giving of the high-worth donor, including:
- The high net worth donor and their challenges
- The advice these donors are receiving (or don’t receive!)
- How to assess your charitable giving guidance (and find an advisor)
First, as background for you, this research is extracted from the The 2016 U.S. Trust Study of High Net Worth Philanthropy: Charitable Practices and Preferences of Wealthy Households. From here on in this blog, I’ll refer to it as the “ U.S. Trust Study.” “High Net Worth” (HNW) is defined in this study as those with incomes greater than $200,000 and/or a net worth of greater than 1 million dollars (excluding their primary residence). In a nutshell, 98.2% of this group gives financially to charity, with an average annual gift of $25,509. It is also important to understand that despite their financial resources, over 78% of this group consider themselves either novices (48.9%) or somewhat knowledgeable (29.5%). In other words, there is the need for more education and guidance for charitable giving.
Considering that 98.2% of this HNW group gives to charity, the study also looked at the biggest challenges to their giving. This study revealed two major challenges these financial givers face:
- Identifying what I care about and deciding what to donate to (67.3%)
- Understanding how much I can afford to give (49.8%)
Another noteworthy fact from the U.S.Trust Study is that 93.8% of givers would like to be more knowledgeable about their financial giving. As would be expected, the challenges of giving for the HNW group increases with increasing net worth. As noted above, the major challenges to charitable giving are about Why give? and What to donate to? In other words, as a financial donor, you are seeking to identify and align your personal passions with specific causes that are important to you, but are not quite sure how to do that. The second challenge, how much can I give?, is certainly understandable since you, as a financial donor, want to ensure that you and your family’s needs are met and are financially secure.
It is important to note that donors may also have a number of other challenges, such as: When to give? How to Give? What (financially) to give? For the HNW donor, these questions also need to be addressed eventually.
Who does the donor go to for charitable giving advice and who initiates the conversation?
The U.S.Trust Study cites the overall lack of guidance in charitable giving— both in terms of conversation and in overall guidance. Only 23.1% of HNW individuals consulted with an advisor regarding their charitable giving. Of those that consulted with an advisor, only 19.6% of HNW initiated the conversation, while a mere 5.3% were approached by an advisor. If a wealthy donor was to receive guidance, it was most likely to come from an accountant (11.3%) or an independent financial/wealth advisor (9.1%).
Why is there a lack of conversation and guidance when it comes to charitable giving?
I propose that there are 3 main reasons— many times overlapping— for the lack of conversation and guidance regarding charitable giving:
- Lack of expertise
- Discomfort with the charitable conversation
- Conflict of Interest
Lack of Expertise
In looking at professional advisors, many are experts in their field - a field which typically does not include detailed knowledge or skill in charitable giving. This category includes estate attorneys, accountants, financial, insurance and investment professionals. They are all highly skilled in their field, but may not have the expertise to address all the questions necessary. As a professional, they also may not want to admit their lack of expertise, or frankly, do not know what they do not know.
As an example, a donor approaches their personal attorney and wants to “give back to their community.” The estate attorney may have experience in setting up a private foundation and can provide the legal guidance and documents. However, the attorney may not have a meaningful discussion of the pros and cons of ALL the various options (other than a private foundation) available to the owner.
Discomfort with Discussing Charitable Giving
As you would expect, discussing charitable giving is a highly personal conversation. While most professional advisors are comfortable talking within their comfort zone of their expertise, having the skill to approach and discuss charitable giving is totally different - it is much more personal. Many professional advisors may not be comfortable having the conversation with you about what is really important to you and what you care about. Most professional advisors are not trained in approaching and asking questions that address the charitable giving of their clients.
As an example, a donor is discussing their tax situation with their accountant. Of course, the accountant’s expertise is “numbers,” and while the accountant may be comfortable discussing tax saving charitable strategies, a more in-depth conversation on the donor’s charitable giving may be out of the normal “comfort zone” of the accountant.
Conflict of Interest
Lastly, there can be a potential conflict of interest, even amongst fee-only professional advisors in identifying solutions for a client’s charitable giving. For example, a wealth manager who is paid based on assets-under-management may be reluctant to approach and discuss charitable planning. If there was a discussion, and then the client were to give to a charity from the assets being managed by the advisor, it would reduce the compensation of the advisor.
So, how do you, as a donor, assess the charitable giving advice you are receiving?
As a first step, you may want to take a closer look at your own financial situation and charitable giving intent. What is really important to you, and what motivates you to give? How complex is your situation? Can you answer these key financial giving questions: Why (give)? What to give to? What to give (financially)? How to give it? How much can you give? When should you give?
As a second step, you should assess whether your professional advisors (accountant, attorney, financial/wealth advisor) have charitable giving expertise, and if they can expertly address all the questions you have. Are there any potential conflicts of interest? Are both you and your advisor comfortable having the conversation? Has your advisor opened the conversation for you on charitable giving? If not, why?
Lastly, you may want to research and find a fee-only advisor that specializes in charitable giving. At the website of advisors in philanthropy (link here), you can find a professional that has charitable giving expertise; especially those with the Chartered Advisor in Philanthropy® or “CAP®” designation.