Advisors significantly underestimate how many of their wealthy clients contribute regularly to charities and how much they give. This gap represents a missed opportunity not only for advisors but also their clients whose charitable contributions would go much further if they were better integrated into their overall financial planning.
That’s the crux of Fidelity Charitable’s 2012 Advice & Giving study, which compares the findings of two separate surveys: one with 146 financial advisors with clients averaging at least $1 million in investable assets and the other with 183 individuals who use a financial advisor and have at least $100,000 in household income and a minimum of $1 million in investable assets.
Advisors estimate that less than half of their wealthy clients (48%) makes charitable giving an annual activity or financial goal. In the survey of wealthy individuals, however, more than nine in 10 (93%) said they did.
Advisors also underestimate how much their wealthy clients give to charity. Advisors estimate that 54% of their wealthy clients gave $2,500 or more to charity in the past 12 month. In reality, they gave many times more than that. Half of the clients reported that they give between $5,000 and $100,000 or more to charity each year.
Wealth management has evolved along with charitable planning, Amy Danforth, senior vice president of Fidelity Charitable, said in a telephone interview. Wealthy clients might be more inclined to raise their charitable giving with their accountants and estate planning attorneys and not view their wealth managers as helpful in this conversation, a misperception that needs to be addressed, Danforth said.
“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, president of Fidelity Charitable, said in a press release.
Advisors and clients alike see the benefit of charitable planning, according to the study. Clients report that integrating charitable planning into an overall financial plan facilitates tax planning (76%) and enables them to give more money to charity (47%). Not surprisingly, the majority of advisors with wealthy clients (72%) report that offering financial strategies for charitable giving is a relationship builder with 57% saying it helps position them as a broad financial expert. In addition, 37% said such discussions lead to a multi-generational relationship with their clients and also can be a referral source (35%).
Clients consulting their advisors on charitable giving were found to make considerably better gift-giving decisions. For example, they were more likely to fund donations with appreciated securities rather than with cash, which “may be the least tax-advantaged way to give,” according to Fidelity Charitable.
Advisors are also off the mark in their estimate of how many of their wealthy clients own complex assets, such as private C-corp and S-corp stock, limited partnership interests, real estate and other assets, as part of their overall wealth portfolio. Advisors believe that less than one in four of their wealthy clients (24%) own these types of assets. In reality, more than one in three wealthy clients (34%) report owning complex assets.
This miscalculation is important because complex assets, much like appreciated securities, can present a strategic, tax-advantaged way to maximize giving, according to Fidelity Charitable.
“With such a high percentage of Americans’ – and especially baby boomers’—wealth tied up in privately held business interests, the opportunity is huge for both clients and advisors as this group seeks help monetizing these assets for key life goals,” Libbey said in a statement.
The study was conducted by Market Probe, an independent global market research firm. The surveys were conducted in March.