A case for sophistication in philanthropy plans

CEO and head of business development explain why more clients expect philanthropy plans and how advisors can manage everything that comes after a gift

A case for sophistication in philanthropy plans

There is a growing need for philanthropy planning in advisory practices. High net worth (HNW) and ultra high net worth clients (UHNW) are using more charitable vehicles and they are using them more often. As the great wealth transfer continues, more millennials and women are inheriting wealth — two demographics who have shown a distinct interest in philanthropy. US market researcher Cerulli Associates estimates 33 percent of overall heirs and 42 percent of millennial heirs are more likely to stay with their benefactor’s advisor if they have helped with family philanthropy.

Today, however, many advisors approach philanthropy as a tax strategy, first and foremost. While tax considerations are key to an advisor’s philanthropy planning services, Nicholas Palahnuk argues that it can’t end there. Palahnuk is the founder and CEO of PhilanthPro, a philanthropy management platform. He is also a financial advisor with firsthand experience managing his and his clients’ giving. He says that while advisors are well versed in setting up a gift and managing the tax implications, they often overlook the considerable amount of work that follows.

“After setting up a giving plan or strategy, clients tell that us advisors overlook their continued need for support,” Palahnuk says. “Together with their advisor, they set up a basic plan and created a donor advised fund or foundation. They’ve made a first deposit into their charitable account. But they’re not receiving a lot of guidance to help align their grantmaking decisions with their philanthropic goals and values.”

While advisors already provide a lot of value in setting up these vehicles and managing their immediate tax implications, its those later stages where clients feel less well supported. Palahnuk offers an example whereby a client set up a foundation with their advisor’s help, but now they are left with choices as to who will run the foundation, who they will grant funds to, and how many commitments they will make. Philanthropic giving on this level will also often involve other family members, who may have different priorities.

PhilanthPro, Palahnuk says, offers advisors a tech tool they can use to manage the ‘what comes next’ work of philanthropy planning. He says the software can help the client determine exactly what size and nature of grants they can make and give them a full picture of what they can do with the funds they’ve contributed. That’s the part of the philanthropic work that many clients find the most fun and engaging and an area where Palahnuk believes advisors can add value

Why should advisors do more philanthropy planning?

“Your wealthiest clients are often your most philanthropic clients. They are the clients who are most important to you, and you need to be the most important to them,” says Josh Diamond, head of business development at PhilanthPro. “When you engage with them on the things that they actually care about, the causes and issues that matter to them, it becomes a stickier, healthier, and closer relationship.”

Diamond cites a few surveys and studies — largely of US advisors — which demonstrate some of that point. An analysis of over 1,200 US RIAs and family offices found that those who offer charitable planning had 6x the median assets, 3x the median organic growth and 1.3x the median new money per investor as compared to advisors who don’t. Gen Z and gen Y investors have also said that they would be more willing to work with an advisor if that advisor helps them with their charitable goals, according to fidelity.

Perhaps most importantly, the more assets an investor has, the more likely they are to use a giving vehicle. A 2021 bank of America study found that 18.1 per cent of clients with assets below $1 million use a giving vehicle. 34.4 per cent of clients with assets between $1 million and $5 million will use a similar vehicle, while 59.1 per cent of clients with assets above $5 million use a giving vehicle.

A tool for philanthropy plans

Palahnuk explains that his platform divides the work of philanthropic planning into three core pillars: philanthropic financial planning, real time grant planning, and organization and management tools. The philanthropic financial planning work allows advisors to connect philanthropic giving with their clients’ wider financial plans. The grant planning elements allow for management of the philanthropic enterprise in and of itself, which will be informed by the philanthropic financial plan. Organization and management tools allow for clear communication and coordination around grant distributions, objectives, benchmarks, and accomplishments.

Palahnuk believes that now is exactly the time that advisors should be paying close attention to their philanthropy plans. In the midst of the greatest transfer of wealth in history, philanthropy is playing a central role for families and could become a key aspect of advisors’ strategies.

“Donor advised funds are growing at a 23 per cent compounded annual growth rate, which is a hair faster than mutual funds were growing in the 90s,” Palahnuk says. “There’s growth and interest in these philanthropic vehicles. We’re seeing families involving their children and grandchildren in the philanthropic aspects of the family’s finances before they bring in the rest of the financial picture. The wealth transfer that’s unfolding now is creating interest in these conversations.”