How wealth management firms can become a more powerful force for charitable giving

By Joe Fisher

As tax time fast approaches, it’s one of the best times to look at how financial institutions and their advisors can add additional philanthropic planning services to their offerings in order to bring even more value to their clients while also expanding business.

While cementing a reputation for a more comprehensive approach to financial planning, wealth management firms can also use some of the latest giving tools, especially donor-advised funds (DAFs), to boost their relationships with clients. This also gives them the opportunity to play a growing role in the philanthropic ecosystem that benefits countless causes throughout the United States each year.

What is a DAF?

As one of the country’s fastest-growing giving vehicles, DAFs enable individuals and families to place irrevocable gifts into a DAF account and receive an immediate tax deduction. The DAF account is legally controlled by a qualified public charity, but it arms the individual donor or their representatives with the ability to maintain advisory privileges surrounding the distribution of grants as well as the investment of its assets. Financial advisors can suggest a DAF to their clients to bring a powerful mix of tax advantages as well as the ability to provide a powerful path toward easy and consistent giving processes.

Who DAFs serve best

Nearly anyone with a desire to begin or grow their philanthropic giving, even in small steps, can use a DAF. And it can be especially appealing for both advisors and their clients because it brings an abundance of opportunities, including:

• Keeping more assets under management
• Better meet the needs of clients
• Usher in a new generation of wealth
• Foster deeper advisor-client relationships

Expanding their assets under management, financial institutions are also using DAFs to enable their clients to avoid capital gains tax on appreciated assets or estate taxes while still preserving their clients’ meaningful level of involvement in the growth of the fund and distribution of its charitable grants. This can be a notable and especially appealing factor for clients because grant recommendations can be made to causes that are as local as a nearby charity in their community or to a national organization in a time of great need due to natural disasters or other events. It’s a philanthropic enablement tool that can also be faster and more organized than other paths or one-off gifts.

Another appealing feature of a DAF allows donors to contribute several types of assets other than cash or cash equivalents, including securities and mutual fund shares, restricted shares, most types of real estate, equity in a business, and even cryptocurrencies. This flexibility can bring a rich mixture of asset type flexibility and generational wealth considerations – as future generations can be named to continue DAF grant recommendations throughout the remainder of their lives, their children’s lives, and so on.

A quick look at some of the top DAF advantages

• Upon the donation of cash, the donor can typically receive an income tax deduction of up to 60% of AGI.
• If donating long-term appreciated securities, donors can receive an income tax deduction of their full market value up to 30% of AGI.
• Growth of the DAF is tax-free and uniquely enables donors to build the fund over time and empowers them to recommend larger grants in the future.

Wealth management firms’ advisors can harness these many attractive advantages and the flexibility to create an opportunity to play an even more meaningful part in their clients’ lives and perhaps even work with additional family members or representatives that may ultimately succeed them in making their DAF grant recommendations for decades to come. During tax time and related meetings with clients, consider looking at DAFs to introduce this generational giving approach that’s easy and can begin with donations both large and small.

Joe Fisher is the President and CEO of Ren (www.reninc.com), a leading independent provider of philanthropic services.