On Philanthropy, Here's What Clients Want (and Don't Get) From Advisors

Advisors and their wealthy clientele are engaging in more frequent conversations about philanthropy, but advisors still fail to fully grasp their clients' motivations and hesitations about charitable giving, U.S. Trust reported Thursday.

A study by U.S. Trust and The Philanthropic Initiative found, for example, that many advisors underestimate their clients' desire to discuss philanthropy early in the advisory relationship and overestimate the importance of tax benefits as a motivation for giving.

Still, clients consider advisors an important source of information about philanthropy, second only to their spouse or partner, the study found.

"Charitable giving is an important dimension of an individual's or family's wealth experience, and the role of the advisor is correspondingly so," Ann Limberg, head of philanthropic solutions and family office at U.S. Trust, said in a statement.

"Therefore, the better advisors are at addressing their clients' philanthropic needs, the more likely they are to enhance their client relationships and grow their business."

The study's findings were based on an online survey Phoenix Marketing International conducted in May of a random sample of 314 advisors — including wealth advisors, trust and estate attorneys, accountants and other tax professionals — and 103 individuals with $3 million or more in investable assets who are actively engaged in charitable giving.

Ninety-one percent of advisors in the survey said discussing charitable giving with their client was important, and 53% said it was very important to do so.

Eighty percent of advisors made it their practice to ask clients about philanthropy, compared with 71% who did so in an initial survey conducted in 2013.

The vast majority of advisors said they discussed philanthropy with some of their clients, and four in 10 discussed it with a majority of their clients.

The survey found that advisors were initiating philanthropic conversations with a mix of technical topics, such as tax benefits and estate planning, and personal topics, such as passions and goals, which align to clients' reported preferences.

Seventy-six percent of clients who discuss philanthropy with their advisor rated their advisor's ability to discuss their personal values and charitable goals as strong, up from 63% in 2013.

"Clients rely heavily on their advisors for guidance with their giving," Claire Costello, national philanthropic practice executive for U.S. Trust, said in the statement.

"Advisors who approach these conversations in a meaningful way — focusing on personal goals and passions as well as the more technical aspects of giving — are more likely to satisfy their clients' philanthropic needs while also growing their business."

The Value of Advice

According to the study, advisors correctly gauge high-net-worth clients' chief motivations for giving, namely, passion for a cause, effect on the community and a desire to give back.

However, they misperceive the importance of reducing taxes and enhancing the family name or business as motivations.

The study looked at the potential effect of the 2017 tax overhaul on giving levels and found that only 7% of donors planned to decrease their giving, compared with 16% of advisors who anticipated a reduction from clients.

Advisors also missed the mark when it came to clients' misgivings about charitable contributions. Clients reported several barriers, such as lack of connection to nonprofit organizations and fear of gifts not being used wisely.

For their part, advisors perceived clients' primary reasons for hesitating to be centered on issues of wealth preservation, including not having enough money for themselves or their heirs.

Ellen Remmer, a senior partner with The Philanthropic Initiative, noted in the statement that advisor misperceptions about clients' motivations and barriers to giving "may result in missed opportunities — for clients who may not be receiving the support they seek and for advisors who may be less able to deepen and retain client relationships."

The survey found that well-off individuals who consult their advisors about their philanthropy are more structured in their giving, and their discussions can enhance the perceived value of the advisor.

Two in five individuals in the survey said they would be likelier to select an advisor who was knowledgeable about charitable giving, and 53% placed more value on information from advisors who themselves are philanthropic.

In addition, 59% of clients said they wanted their advisor to refer them to another professional for complex philanthropic needs beyond their advisor's capabilities.

Three-quarters of advisors surveyed reported experiencing the effect of philanthropic discussions with their clients on their bottom line. These conversations have helped 60% of advisors to establish new clients, 74% to deepen existing relationships and 63% to build relationships with clients' extended families.

Opportunities for Advisors

Although 54% of wealthy individuals in the survey said they were somewhat satisfied with the philanthropic discussions with their advisors, only 45% purported to be fully satisfied.

The study identified a number of ways advisors could improve the conversation.

Timing is one. More than 80% of advisors said they waited to discuss philanthropy until they had detailed knowledge about their client's financial picture or personal life, whereas the majority of clients said they wanted to have philanthropic conversations at their first meeting or within the first few meetings.

A more balanced initial conversation is another. The survey found that ongoing philanthropic conversations tend to skew toward technical versus personal topics.

Advisors can also improve their knowledge and use of structured giving vehicles. Only 53% of advisors rated themselves as very familiar with charitable trusts, 42% with donor-advised funds and 38% with private foundations.

Likewise with nonprofit organizations. The survey identified a gap in advisors' self-rated knowledge of nonprofits versus client perceptions of their knowledge.

— Check out Charities to Lose Billions in Donations Due to New Tax Law: AEI on ThinkAdvisor.