An interviewer asked me the other day what I thought were the biggest changes to planned giving and philanthropy over the past decade. With pen and recording device in hand, I could tell he was disappointed by my response: “Nothing’s changed,” I told him. “Clients still don’t understand it, and in many cases, their advisors don’t either.”
I told the interviewer I’ve been using the tools of the planned giving profession since 1989. I haven’t seen any improvement in advisors’ ability to communicate giving concepts to clients. I also said: “They still think the only way for their clients to give is through a donor-advised fund.” I added that most advisors don’t understand complex gifts, how they benefit clients, how to implement them and where to get help.
We still have a chasm of uneducated advisors, and what’s most troubling to me is that they don’t know what they don’t know. This just increases the chances of bad advice being given and bad decisions being made.
Not only must we educate clients, but also we must educate their advisors. If advisors understood how impactful planned giving could be for their clients, I’m sure they would recommend it more readily to their clients. Thus, clients would be much more likely to move forward. But when both sides don’t understand, planned giving remains an outlier in the wealth advisory ecosystem.
I get it. No professional wants to look silly or uninformed in front of their clients. But if you claim to be a fiduciary who’s always acting in your client’s best interests, then you owe it to yourself to counsel them about their planned giving options. And as I mentioned in my recent article, Helping Clients With Charitable Giving Won’t Dent Your AUM.
If you have recently attended any major conferences for wealth managers and estate planners, I doubt you have found many sessions on integrating philanthropic planning into your practice. Maybe there was something on private foundation rules or charitable remainder trusts (CRTs), but not much more. I find that disturbing since an estimated $124 trillion in wealth is expected to transfer between the generations in the next two decades.
Simon Sinek, best-selling author and motivational speaker, said: “It takes courage to admit you don’t know something.” He further argues that the world’s best thinkers and leaders have learned that admitting you don’t understand isn’t about a lack of intelligence; it’s a hallmark of great leadership and wisdom. Socrates, the ancient Greek philosopher, constantly emphasized his lack of knowledge. He once said: “I am wiser than that man. Neither of us probably knows anything worthwhile, but he thinks he does when he does not, and I do not and do not think I do.”
So, I’ll keep on banging the planned giving drum. Once you start to understand the doors that planned giving can open for your practices, you’ll begin to find ways to apply it to more client situations. Even better, once you build confidence in the planned giving area, you create a powerful differentiator from your competition.
Real World Example
Our firm was recently retained to work with a former high-tech company exec who has accumulated $75 million of company stock with essentially no-cost basis. The company pays a minuscule dividend, which doesn’t provide enough income to support his lifestyle. As a California resident, he feels hemmed in by the tax he would pay to diversify his position. Even though the company is extraordinarily successful, his portfolio could benefit from some diversification. We recommended that he take as much as one-third of his shares and transfer them to some type of split-interest trust (CRT or pooled income fund). Then we advised him to sell the shares, pay no capital gains, and likely quadruple his income. Even better, there’s a charitable deduction with a CRT or PIF – something that can’t be taken with, say, an exchange fund. This is an easy strategy for us to recommend, but most advisors don’t know about it.
You can rebrand yourself as a “family office” rather than a wealth advisor. But you’re still asset managers or asset gatherers. What can you bring to the table that the folks across town can’t also bring to the table? If you’re scratching your head, read on.
However, if you have philanthropic planning capabilities that allow clients to avoid capital gains tax and use their assets to make a difference and improve their family situation, you have a real differentiator for your practice.
UHNW Clients May Not Have Planning in Place
Remember that the estate tax exemption limit is set to expire at the end of this year. If clients need to make maneuvers to stay under the exemption limit, don’t wait until the last minute. In fact, it’s almost too late. Every good estate planning and planned-giving professional I know is up to their eyeballs in work. Most aren’t taking on new clients. That means it’s time for you to step up.
Also, just because someone has a $40 million or $50 million net worth doesn’t mean they have all their planning ducks in a row. Many ultra-high-net-worth clients know how to make money, but their planning is not very strong, and often, there are glaring deficiencies. That’s where you come in.
Again, adding the planned giving piece to the puzzle opens all kinds of possibilities in how you serve clients and the next generations of their families. It also gives you a distinct edge over all the firms trying to get their business.
If you’ve read this far, I trust you’re intrigued by planned giving. If you’re unsure how to get started, I suggest registering for the Chartered Advisor in Philanthropy (CAP) program offered by The American College of Financial Services. Also, consider attending or joining your local planned giving council. You will likely find other knowledgeable professionals and lots of helpful resources.
Randy A. Fox, CFP, AEPis the founder of Two Hawks Family Office Services. He is a nationally known wealth strategist, philanthropic estate planner, educator and speaker.