RIAs don't get rich clients’ surprising altruism says Fidelity Charitable study -- and it's costing them

Brooke’s Note: It’s hard-wired into most advisors that their job is to be certain there are more assets, not fewer, in the coffers at the end of each year. Yet consider that studies show that people’s happiness isn’t measurably improved by making more than $75,000. Also, consider that RIAs have long made market share gains by doing right rather than focusing on generating higher fees. With those two things in mind it should, perhaps, not be surprising to RIAs that helping rich people to give away money efficiently is good business. A new Fidelity study supports that view — albeit from a group in the company with a vested interest in those findings.

Advisors and affluent clients aren’t on the same page when it comes to charitable donations, according to a pair of new Fidelity Charitable studies that show that advisors believe 48% of their clients donate to charities annually when in fact the true incidence of high-net-worth clients’ donating to charities is 93%.

Time to talk?

In addition, high-net-worth clients appear to be giving much more than advisors think: Advisors estimated that on average 54% of their clients gave $2,500 or more to charity in the past 12 months. However, 51% of the clients surveyed report they give at least double that amount — between $5,000 and $100,000 — or more to charity each year.

“Charitable giving is a key annual activity for the vast majority of wealthy individuals working with advisors,” Sarah Libbey, president of the Fidelity Charitable Gift Fund, says in a statement. “Advisors who take time to talk about this important financial subject are tapping an opportunity to better understand their clients and their immediate and long-term goals. It’s also an opportunity that can ultimately result in bringing in more assets for the advisors to manage.”

Sarah Libbey: Advisors need to make
the time to talk about giving
with clients.

Fidelity Charitable is an independent public charity, established in 1991. Since its inception, it has helped donors support more than 150,000 nonprofit organizations with more than $12 billion in grants. See: Fidelity and Schwab donor-advised funds boast banner years.

The 2012 Advice & Giving study comprises two surveys, one with 500 financial advisors. The other was with nearly 200 wealthy individuals who use financial advisors — but they are not the clients of the advisors who were canvassed.

Market Probe, an independent global market research firm, conducted this year’s studies. The advisor survey was fielded online between March 15 and March 29 using the Harris Interactive Financial Advisor Intermediary Panel and the advisors surveyed weren’t necessarily Fidelity advisors. The wealthy-individual survey was conducted online March 19 to March 23 among clients who use a paid financial advisor and have at least $100,000 in household income and a minimum of $1 million in investible assets, excluding their primary residence.

Advisors and clients in sync

Kim Laughton: I think advisors are
bringing this issue up more and
more.

However, executives of the Schwab Charitable Fund disagree with Fidelity’s studies and feel that their advisors and clients are on the same page when it comes to charitable donations, says Kim Laughton, chief executive of Schwab Charitable. See: Fidelity Charitable courts advisor business — and competes with Schwab — by making alternative assets OK in its donor-advised fund.

She says Schwab advisors can manage their clients donor-advised funds employing the same system used to manage all accounts, and that it makes for a seamless system for advisors, who can review clients’ investments and charitable donations in the same system. Schwab Charitable has about $3.1 billion in assets under management. Since inception, the donor advised fund has raised about $6 billion, about half of which has been donated to charities. See: Advisors: Help protect precious nonprofits by avoiding these four mistakes.

Laughton allows that her group has not completed a survey comparable to Fidelity’s, but feels that because of the ease of the system, advisors are able to encourage clients to set up a donor-advised fund.

“I think advisors are bringing this issue up more and more,” she says. “We’ve had systems in place that allow advisors to oversee the charitable assets very easily. This has allowed advisors to always know what’s going on with their clients’ charitable accounts.”

Laughton also feels strongly that once clients truly understand the advantages of a donor-advised fund, they’re more likely to pull the trigger.

Cash alternative

This was the first year that Fidelity completed two surveys — one of clients and one of advisors — and the reason was to get a true understanding of both groups’ perspectives, says Amy Danforth, senior vice president of Fidelity Charitable. The results were eye- opening and she feels advisors have a significant opportunity.

Amy Danforth: The right asset to
donate isn’t always cash.

“Donors are saying that it would be helpful to them if their advisor worked with them to talk about charitable giving,” she says.

Danforth says many advisors feel reluctant to bring up charitable giving because they’re not experts in philanthropic matters, but she points out some simple suggestions can easily start the conversation with clients.

While the vast majority of investors donate with checks and cash, Danforth points out that advisors can talk with clients about donor-advised funds as well as donating appreciated stock.

“The right asset to donate isn’t always cash,” she says. “Clients could donate in many different ways. I really feel an advisor can be helpful in engaging the charitable planning discussion surrounding what types of vehicles there are that clients can use.” With a donor-advised fund, advisors can manage assets and earn revenue on money management.

Check, please

Despite the ease of donor-advised funds, says advisor Rick Kahler of The Kahler Financial Group Inc. in Rapid City, S.D., many clients simply prefer writing checks. In fact, when he discusses long-term charitable strategies, he finds many clients simply aren’t interested. His firm manages about $165 million in assets.

Kahler says that the majority of his clients do give annual donations to charities and to churches, but it’s more difficult for him to convince them to complete a charitable estate plan.

It’s a challenge to sway clients to set up specific gifting strategies even while they’re alive, because most are content to write checks out themselves.

“I see people doing more annual giving in their life than I see giving it to charities in their will at their death,” Kahler says.

Gifts vary across the board

Diane Pearson, advisor at Legend Financial Advisors Inc. in Pittsburgh, whose firm manages about $375 million in assets, says she’s been surprised by how little clients do donate to charities.

She brings up the issue of charitable donations frequently with clients and agrees with the advisors surveyed, noting that the vast majority of her clients donate between $2,500 and $5,000 based on their tax forms.

But about 90% of her clients donate annually and the gifts can range dramatically, Pearson says. She tries to convince clients to think of strategies such as donor-advised funds, but doesn’t have any clients utilizing that strategy right now.

Pearson has clients who do give big gifts such as $40,000 annually to a church or even naming a university wing after a deceased child. But she describes those big gifts as “one-offs” saying that many clients with $1 million to $3 million in assets feel more comfortable giving lesser gifts.

She has also had a fair number of clients who have given appreciated stock.

“I think it has something to do with a person’s net worth,” Pearson says. “If you have $1.5 million in retirement, you’re still afraid you could give away money that you would need. But if you have $5 million or $10 million, clients feel they won’t outlive the money and can donate larger amounts.”