How and when should philanthropic advice become a part of the client relationship? Simon Mumme investigates.
“It isn’t at the forefront of a financial planner’s mind to tell a client how to give money away,” Tim Hardy, philanthropy consultant with Enrich Australia, says. But for many advisers, gifting clients’ money in agreement with their aims deserves a regular place in the planning structure – it is also good business.
Raising the question, “Have you ever thought about giving to charity?” unsettles some advisers, who contend that financial planning should deal with wealth accumulation, not dispersion. Other planners’ reluctance to ask the question stems from lack of training and knowledge; they want and need more information about the charity sector and how to engage it.
For Stacey Martin, an adviser with NAB Private Bank, philanthropy is a growth area within the high net-worth client population: it exhibits clients’ values, broadens the scope of an adviser’s service and, crucially, is good business. Although charitable giving is not built into the fact-find checklist at NAB financial planning, Martin says that the subject usually “comes up in values-based conversations”.
The Value of Charity
For Martin’s clients, philanthropy provides a potential “transfer of values” from high net-worth clients to their children, who “have only seen good”. If clients have allocated a sufficient amount of money towards their retirement and to their kids’ inheritances, some of the extra can be distributed by them among charities. As Martin suggests, “a charity can be an extra child”.
Because strategic giving presents an alternative way to disperse tax money to deductible gift recipients, it is cited by proponents of philanthropic advice as grounds for bringing charity into discussions with clients. “If a financial planner doesn’t ask that question, they aren’t giving complete tax advice,” Michael Perkins, special counsel with Cutler Hughes and Harris and estate planning educator at University of Technology Sydney, says.
“Philanthropy is a part of advice,” Perkins says. “Philanthropy reappraises the relationship between a financial planner and their client: it’s not about financial products and services;
Martin has found that many high net-worth clients are already active in the community: some sit on the boards of not-for-profit organisations and others do voluntary charity work or donate. “Most clients have a good idea of what they want to give to,” she says.
For Bruce Christie, financial adviser with Centric Wealth, strategic giving is an important part of his business with high net-worth clients. He says that the question should be asked if and when the adviser feels it is appropriate. “If they’ve got great wealth, their retirement is well-funded and the kids have been looked after, we ask what other objectives there are that they have.”
Centric is currently monitoring client viewpoints of the firm’s ability to deliver good philanthropic advice. Questionnaires have been issued to selected clients, asking whether the advice they received was helpful and appropriate. “This is all about whether we’re asking the right questions about strategic giving,” Christie says. So far, the respondents have said the information conveyed by advisers has been too technical, at times “overpowering”. The feedback is helpful: “if you want to work in a particular area, you need people that you can talk with about whether you’re tackling this the right way”.
Enrich’s Tim Hardy says many advisers are waiting to see how the emergent field of strategic-giving advice progresses before learning about the composition and use of philanthropic investment vehicles. “A lot of them will wait to see the value in it because they are already very busy …. If they see the value in it, they will go ahead with it.”
Despite movements from within the financial planning profession to implement philanthropic advice, it appears that, to date, there is quite a way to go.
“The leaders of the financial planning profession haven’t sent a signal of best practice [regarding philanthropy],” Perkins says.
In 2004 – 2005, deductible gifts constituted 6.47 percent of all personal taxpayer deductions.
In 2004 – 2005, 38.38 percent of Australian taxpayers (4.3 million in total) made and claimed tax-deductible donations; an amount that has increased 33 percent over the past decade.
*These figures are from the QUT Centre of Philanthropy and Nonprofit Studies