How Donor Advised Funds Will Enhance Your Wealth Management Practice
In my previous article, I talked about how philanthropy is not just a good thing to do for the world; it’s also a productive way for a financial advisor to build assets under management (AUM) and for clients to conveniently maximize the impact and flexibility of their goodwill. But how can you make philanthropic tools work for you and your clients?
The Traditional Option
Traditionally, high net worth (HNW) individuals have been encouraged to set up private foundations. Private foundations offer many advantages over chequebook charity: they allow individuals and families to conduct philanthropy, on their own terms, not to mention the tax benefits. But private foundations suffer from a few shortcomings; there are a number of associated costs and fees; there is significant administrative work required, including filing with the Canada Revenue Agency; and they can take six to twelve months to set up. More work for you, more work for the client. No one wins.
What is a Donor Advised Fund?
A Donor Advised Fund (DAF) is your opportunity to give your clients a foundation-like financial instrument that allows them to be more strategic in their charitable giving and is the basis of the Chimp Charitable Investment Account (CIA). A DAF requires a sponsoring charity, in this case Chimp Foundation, that is responsible for receiving and distributing donations. Clients make a contribution to the DAF and are issued a tax receipt immediately. Contributions are held until the client makes a recommendation of where to send the donation, and how much. All registered charities and qualified donees in Canada are eligible recipients.
Contributions made through a DAF remain on your books even though a tax receipt has already been issued, which means you maintain or increase your AUM, rather than losing out when a client donates directly to a charity. Additionally, assets in a DAF can be invested and grown, increasing AUM as well as the amount that can be donated to charity, a bonus for both the advisor and client.
What’s the Best Way to Leverage a DAF?
While conventional DAFs require financial advisors to actively manage distribution, a Chimp CIA allows clients to directly manage their philanthropy. Distribution of funds to charities is accomplished via the client’s Chimp Account, which is like an online bank account for charity: funds are transferred from the CIA to the client’s Chimp Account on an annual basis, transforming administration from a complicated and unpredictable set of duties to a single transaction while eliminating any chance of miscommunication. Clients can then easily send funds to a charity, charities, groups or other Chimp Account holders.
Advantages of a Chimp CIA
For the client, the advantages of a DAF and specifically a Chimp CIA are immediately apparent. Instead of writing a cheque to a charity when asked, clients are able to plan their philanthropy strategically and on their own terms, allowing them the time they may need to research charities and causes. They can choose to give in a tax year that is advantageous and can take advantage of Chimp services such as discovery of places to give, matching, fundraisers, and more. Plus, their contributions grow while under your management, increasing the impact that they have when it comes time to donate to charity.
The Chimp CIA also offers anonymity to donors that they cannot get from a private foundation. In a traditional private foundation, the CRA requires filings that are a matter of public record. In just a few clicks online, I can literally see every cheque ever sent by a private foundation to a charity. This can lead to privacy issues: foundations could end up on mailing lists or calling lists for telefundraisers. But with Chimp, the client’s privacy is protected and they can choose the level of recognition they would like to enjoy.
So Now What?
The Chimp CIA offers a slate of advantages that benefit both the client and the financial advisor. But many financial advisors don’t know how to bring up the issue of philanthropy with their clients, and once they’ve brought it up, they don’t know how to have the conversation. Not to worry, I’ll be discussing the philanthropic conversation in the next installment. Stay tuned.
Based in beautiful Vancouver, Mike is the Director of Charitable Investment Programs for Chimp. He loves the wealth management business but his heart is in philanthropy, so this is his dream job. Mike can be reached at mike.todd@chimp.net
