Financial Advisors

As Clients Change Wealth Firms, Facilitating Charitable Giving Could Make the Difference

Did you know that one third of clients changed their wealth management provider in the past three years and an additional third intend to in the next three years?

Clients with the greatest risk of leaving are those that tend to be the wealthiest: high-net-worth and ultra-high-net-worth individuals. Advisors should be intentional in how they capture the needs of this segment in order to retain clients and AUM. With charitable giving continuing to be a priority for this key group of clients, advisors should consider how solutions in this area may benefit their practice.

What are clients looking for?

Key trends reveal what clients are looking for, particularly among wealthy clients, per a recent EY Global Wealth Research Report:

  • Better experience: 52% of clients are looking for experience-related features. This includes better digital services, accessible and consolidated view of all financial products, more personalized recommendations, and a larger variety of products.
  • Aligned with sense of purpose: 78% of clients have sustainability goals and 62% have legacy goals.
    • 35% of clients who have sustainability goals are looking to switch wealth managers in the next three years, double the amount of clients without sustainability goals.
    • 25% of Millennial clients consider sustainable investment opportunities the most important factor in choosing a new financial advisor.
  • Consolidated view of wealth: 62% of US clients would prefer to, or already do, use one single financial provider.

Leveraging Purpose to Deepen Relationships?

Did you know that nearly $1 out of every $3 of professionally managed assets is invested in sustainable pools? Personalizing purpose may be a way to differentiate and grow your practice.

Yet many RIAs miss the mark when it comes to proactively serving unique client goals.

While 75% of mass affluent clients have sustainability goals, less than half feel that their advisors fully understand those goals. This deficit is even more striking among ultra-high-net-worth clients, 93% of whom have sustainability goals, while 47% feel that their advisors could do more to understand those priorities.

Across generations, clients want to incorporate purpose into their financial plans. Beyond investing directly into purpose funds, advisors can align client philanthropic and financial goals by investing charitable assets in values-aligned models.

Advisors can introduce donor advised funds (DAFs) to altruistic clients and advise values-aligned investments in thematic portfolios that are reflective of clients' unique giving goals, compounding the impact of each dollar.

Combined with the movement in favor of digital services, firms find a key area of opportunity in modernizing, personalizing, and diversifying services to provide a more holistic wealth management experience.

According to EY, “The better that providers understand the full richness of their clients’ goals and beliefs, the easier they will find it to personalize their offerings, strengthen their relationships and drive enhanced financial and non-financial performance for the benefit of all stakeholder.”

Further, as charitable giving becomes increasingly intertwined with clients’ other financial goals, particularly those of affluent clients, there is an opportunity for firms to introduce philanthropic planning as the critical component of a wealth management plan.

Fidelity Charitable, for example, found that firms that offer philanthropic planning have 81% share of wallet for their clients, compared to 76% share for those that did not.

Advisors who incorporate philanthropic planning have six times the median assets of those that do not, with three times the median organic growth. They also have a higher share of clients with at least one million USD in managed assets, with 33% of their clients having at least one million, compared to 18% of clients for those who did not include charitable planning.

Enter The Digital Donor Advised Fund

One potential solution to efficiently incorporating digital philanthropy into an advisor’s practice would be digital Donor Advised Funds.

Few RIAs have introduced donor advised funds (DAFs) as their primary charitable offering, but that is changing as the popularity of the philanthropic vehicle continues to grow. In fact, the use of DAFs by affluent households increased from 4.5% in 2017 to 6.6% in 2020.

Advisors can manage charitable assets on behalf of clients – and potentially earn fees – as they would with any non-charitable assets through a digital DAF solution. As tax-optimized giving vehicles, DAFs are a convenient and inexpensive alternative to private foundations and other charitable services. Once a client contributes to an account, those assets can be invested in values-aligned pools and potentially grow prior to granting to charities.

“Firms make the same money on managing donor advised fund assets as they do with other accounts. Plus, when you incorporate charitable giving, it’s so personal that it fosters a next level of intimacy with that client, which translates to stickiness and a broader share of wallet,” said Cor Hoekstra, General Manager of TIFIN Give.

Assets in DAFs are exceeding $160 billion. Advisors who haven’t already adopted a DAF solution should consider a scalable, digital DAF platform as a means of retaining clients through personalized service aligned with their clients’ sense of purpose.

Disclaimer: Advisory services are offered through Tifin Give, LLC an SEC Registered Investment Advisor. Being registered as an investment adviser does not imply a certain level of skill or training. The information contained herein should in no way be construed or interpreted as a solicitation to sell or offer to sell advisory services. All content is for information purposes only. It is not intended to provide any tax or legal advice or provide the basis for any financial decisions. Nor is it intended to be a projection of current or future performance or indication of future results. Moreover, this material has been derived from sources believed to be reliable but is not guaranteed as to accuracy and completeness and does not purport to be a complete analysis of the materials discussed. Investing always involves risk and possible loss of capital. Opinions expressed herein are solely those of Tifin Give LLC and our editorial staff. All information and ideas should be discussed in detail with your individual adviser prior to implementation. 

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