Why Should a Financial Advisor Care About Philanthropy?
From the point of view of a financial advisor (FA), encouraging your clients to give away their money may sound counterintuitive. Charity couldn’t possibly be good for your bottom line, right?
The truth is, philanthropy is part of the wealth experience and it’s in an advisor’s best interest to pay attention to it for one reason: clients already care. High net worth (HNW) individuals are already engaged in philanthropy, regardless of whether it appears on an advisor’s book, because to these clients, philanthropy is important. After all, according to The U.S. Trust Study of the Philanthropic Conversation, most HNW individuals are discussing philanthropy with someone, if not their advisors. Naturally, they want their financial advisors to be able to speak to their philanthropic interests. But much of the time, that conversation just isn’t happening. And that conversation is good for advisors.
The Disconnect
There is a gap between the needs of philanthropic HNW individuals and the financial advice offered by advisors. According to The U.S. Trust Study, less than half of HNW individuals feel that advisors are proactive at discussing philanthropic goals with them. Advisors are reluctant to have this conversation because they aren’t used to it, yet 90% of HNW individuals feel that the philanthropic discussion should occur within the first few meetings with an advisor.
It’s true that the move toward including philanthropy in a relationship is a shift for advisors, but it’s not a shift for clients. Socially responsible clients are going to make donations regardless of whether the money comes from investment accounts or from their cheque books. But is it really worth an advisor’s valuable time to manage philanthropy?
Everything in its Right Place
Adding philanthropy to an investment portfolio means that all of a client’s assets are managed in one place by the same FA. This holistic mode of wealth management comes with a whole set of attendant benefits. Clients are happy to build a personal relationship with an individual and the financial institution, and the convenience of keeping assets in one spot cannot be overstated. Clients who already invest strategically jump at the opportunity to give strategically as well. Advisors retain happy clients and AUM, and let’s be honest, asset growth is good for everyone.
Growth Going Forward
It is well documented that the nature of the financial industry is changing. What was once a heavily transactional system is moving toward a fee-based model. Advisors benefit significantly from more AUM and holistic wealth management but they also benefit from more clients on their books. HNW individuals are a community like any other and word of mouth travels fast; FAs who offer philanthropic products and advice are likely to experience growth in their client base.
Looking even further down the road, North American society is about to experience the end of a massive population bomb as the Baby Boomers begin to transfer wealth to their heirs. A majority of advisors say that the philanthropic conversation helps build relationships with a client’s extended family, potentially leading to continued management of the same assets as well as the addition of new clients in the future.
What to do Next
Through Chimp, I can offer you a turnkey philanthropic tool that will allow you to help clients to achieve their charitable goals while building and retaining assets — the Charitable Investment Account (CIA). In the next few articles here, I’ll be explaining how CIAs work, how to have the philanthropic conversation, and how to move to a holistic investment system.
For more information, contact me at mike.todd@chimp.net or chimp.net.
