Practical analysis for investment professionals
15 December 2011

Getting Your Arms — And Those Of Your Clients — Around Effective Philanthropy

Pop quiz: If your client wants to talk to you about effective giving strategies, are you equipped to handle the discussion?

If not, consider this: Wealthy clients are increasingly expecting their advisers to talk about philanthropy. According to the 2010 Study of High Net Worth Philanthropy by the Center on Philanthropy at Indiana University, nearly 39% of high-net-worth households surveyed in 2009 said they consulted with financial advisers about charitable giving, up from 16.4% in 2005.

And as an article in Registered Rep, points out, “Wealth managers don’t have to be experts when it comes to philanthropy, but they do need to be empathetic and knowledgeable about charitable giving.”

This is not always the case, however.

Jim Coutré, a vice president at the Philanthropic Initiative, a nonprofit that advises donors and increases the impact of philanthropy in society, says that while financial advisers are getting better about discussing philanthropy with clients than they were 10 years ago, there is “still a long way” to go.

“Advisers aren’t raising the philanthropy question like they could be or, some say, should be,” Coutré says. “And they are not doing so because of questions they have around their knowledge of effective philanthropy.”

There is also the fact that philanthropy is sometimes seen as a “soft” issue, and advisers may be uncomfortable broaching the subject. “Philanthropy can be very personal and advisers are often worried about overstepping their boundaries in raising it,” adds Coutré.

But advisers who want to distinguish themselves from their competitors need to embrace philanthropy as part of their practice. This goes to the heart of whether you offer wealth management, which is more holistic, or investment management, which focuses more narrowly on the client’s financial picture. (To learn more about whether wealth managers should advise clients on philanthropy, and if so, how, see Breaking the Philanthropy Barrierin CFA Magazine’s July/August 2010 issue.)

Coutré says financial advisers who can discuss philanthropy better serve their clients by helping them reach more of their goals — not just their financial goals but also their life goals. “It also differentiates their adviser practice,” he said. “Philanthropy can be a marketing tool and an entry point to new relationships. The flip side is that advisers who don’t raise the philanthropy question are at risk of losing relationships to advisers who are looking to talk about philanthropy with their clients.”

Coutré says effective financial advisers are the ones who are able to discuss philanthropy not only from the tax perspective or the charitable vehicle perspective, but also from the perspective of the client’s values, interests, and goals.

Why is this important? A recent study by MarketPsych found that high-growth financial advisers focused on building relationships and understanding their clients’ values.

Coutré says effective philanthropy “begins with a grounding in a donor’s values and interests. When there’s an alignment with their philanthropy, the donor will invest more of themselves in philanthropy.”

Fortunately, there are plenty of resources out there to help financial advisers get their arms around the lingo and concepts of philanthropy. The latest is Rockefeller Philanthropy Advisors’ guide, “Your Philanthropy Roadmap.” It’s the first of about 20 or so free guides that RPA will publish over the coming months, thanks to a grant from the Bill and Melinda Gates Foundation.

Walter Sweet, vice president of RPA, says the booklet is part of an international campaign “to engage and educate donors in planning, implementing and sustaining effective philanthropy programs — with a long-term goal of creating a new culture of great giving.”

“Your Philanthropy Roadmap” doesn’t prescribe a course of action. Instead, it poses a series of questions — what it calls “five milestones” — that would-be philanthropists and their advisers should consider: Why are you giving? What do you want to achieve? How do you think change will happen? How will you assess progress? And, who will join you?

One of the toughest tasks for donors is figuring out what issues to tackle and how to go about it.

The guide recommends a three-step process:

  1. Frame the issues. Think about some of the biggest challenges that are out there — for example, education, climate change, poverty, and disease — and then drill down a bit further. Do you want to focus on a specific community? Or a certain region? Or perhaps a particular type of organization?
  2. Narrow the focus. If you want to work in a field such as education, look at the components of the field — early learning, higher education, etc.
  3. Define the outlook that you want. Says the guide: “Thoughtful philanthropy means not only having a clear focus on the challenge you want to tackle, but also having a clear vision of what change you want to see.”
About the Author(s)
Lauren Foster

Lauren Foster was a content director on the professional learning team at CFA Institute and host of the Take 15 Podcast. She is the former managing editor of Enterprising Investor and co-lead of CFA Institute’s Women in Investment Management initiative. Lauren spent nearly a decade on staff at the Financial Times as a reporter and editor based in the New York bureau, followed by freelance writing for Barron’s and the FT. Lauren holds a BA in political science from the University of Cape Town, and an MS in journalism from Columbia University.

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