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Charitable Connections: Want to build stronger ties to clients? Attract new ones? Here are 12 ways your charitable instincts can serve you and others. November 1, 2004 Americans are big givers. Last year alone, according to the American Association of Fundraising Council, individuals, foundations and corporations gave $241 billion. Among households with at least $1 million in net worth, some 97 percent were charitable givers. Couple this widespread
generosity with Americans' legendary practicality and you create a demand for
philanthropic expertise. Brokers possessing such knowledge can distinguish
themselves from their peers as well as from the many attorneys, planners,
accountants and others all converging on the same prime HNW candidates. As a
starting point, here are a dozen ideas to increase your charitable giving
practice. They consist of activities directed toward forming and solidifying
relationships, as well as an outline of major transfer vehicles. 1 Join Nonprofit Boards Go where the money is.
Contributing time and effort to charities at the board level can accomplish
multiple objectives: networking among prime HNW prospects, raising your
visibility, honing and demonstrating your expertise, and strengthening local
community ties. Vance Falbaum and
Richard Schaefer, both Tucson-based financial consultants with RBC Dain
Rauscher,
have been active board participants for many years. "To be frank, one
motivation is to generate business," Schaefer admits. "I want to get
my name out to people with investible assets." Having been invited to
join the foundation board for the largest hospital in Falbaum, who is on the boards of the local Boys and Girls Club
and the American Cancer Society, emphasizes that a sincere interest should
dictate which charities to join. While the boards provide an ideal, neutral
environment for interacting at an intimate level with HNW board members,
"Those people are not dumb," he says. They realize that some brokers
show up with predominantly commercial motivations. He and Schaefer agree that
it is key
to earn respect slowly and never to solicit directly. Patience is critical for
building trust and relationships. Local involvement offers
an added benefit. A commitment to a community charity indicates that a broker
fully intends to keep roots there. Clients, who generally do not like to
disrupt their financial arrangements, may be wondering whether their financial
advisors could jump ship or relocate. Schaefer, a rare third-generation Tucsonian,
has no thoughts of moving. He believes his local board participation reassures
clients of that. 2. Be a Benefactor "Practice what you
preach, and set up your own plans for charitable giving," suggests Bruce Fenton,
president of Atlantic Financial Inc., an investment firm in Donating money leads both
to networking and useful information. Donors frequently receive invitations to
events with guest speakers and to private receptions. On these occasions, the
board chairman may discuss the challenges and pressures the charity is facing,
and you will learn more about gift strategies and who is contributing. If you and your
colleagues agree, you can make a bigger splash by combining your efforts. Mary
Rodgers, a senior financial advisor at Merrill Lynch in "As a group, we
agreed that we would equitably share the spoils' of community involvement,"
Rodgers explains. As a result, all seven brokers are getting to know the 200
members of the horticultural organization. 3. Pro Bono Services In addition to time and
money, you can offer your professional services and expertise. If your charity
has funds to invest, you may be able to demonstrate your competence. But be
careful! If you serve on the charity's board, you run the risk of a conflict of
interest. Remember that laws relating to competency levels govern in most
states. Under the Uniform Prudent Investor Act, if you volunteer to oversee the
charity's investments, you may be held to a higher standard of business acumen
and fiduciary duty than anyone else in the room. Entire brokerage firms
may participate in pro bono work. At Muriel Siebert & Co., programs
recently have been established to benefit the victims of this summer's
catastrophic hurricanes. The firm has volunteered to handle sale transactions
at no cost for donors who give fully- paid stock to hurricane charities,
including the Red Cross, the Greater Miami Jewish Federation and the "It's a very good
calling card," says Muriel Siebert, chairwoman and president. "But we
do it because it's the right thing to do." She points out if you do not
happen to own or run the firm, you might need to ask for permission. 4. Deepening the
Relationship What could be a better
way of getting to know your clients than learning about their real passions and
interests? Most clients truly enjoy discussing favorite causes, which they feel
define an important aspect of themselves. Schaefer, of RBC Dain
Rauscher,
recalls his initial meetings with a business owner who was seeking a retirement
plan. The broker, in routine fashion, handed over his own basic bio, which
happened to mention his hands-on involvement with Tunidito
Children and Family Services, a local children's hospice. Soon, the two were
engaged in a warm and animated discussion of the hospice. The prospective client
proceeded to write out a $10,000 check to Tunidito on
the spot and declined any recognition for his generosity. Brokers also can use
philanthropy to convert a negative -- taxes -- into a positive. Understandably,
clients do not particularly enjoy talking about taxes. But by turning the
subject around, you can recast tax deductions as a reflection of clients'
commitments to their communities, rather than as a necessary evil. 5. A Bridge to Future
Generations Most brokers and advisors
have built their relationships with an individual client or possibly a couple.
As these clients die, few brokers have a mechanism in place for continuing
their ties. Philanthropic activities provide a platform for maintaining the
family relationship beyond the lifetime of the primary client. Many parents are eager
that their children and grandchildren perpetuate their values and traditions of
giving. By advising on multigenerational activity, you can strengthen your
connections now and avoid losing a relationship later. At the same time, never
assume that a widow will automatically pick up her late husband's pattern of
giving. Score some big points by making your first question, "What are
your goals and vision?" Women who inherit wealth
commonly feel resentment toward charities that previously treated the husband
as the major decision maker, notes Renata Rafferty, author of
"Don't Just Give It Away: How to Make the Most of Your Charitable
Giving." Many organizations, such as universities, may never have
approached the wife on her own but only talked to the husband or the couple
together. Perhaps they went after the husband for the seven-figure gift and the
wife for the $5,000 table sponsorship at the gala. Rafferty adds,
"Divorced women may be even angrier about any kudos or public esteem their
ex-husbands received. How do you imagine they feel when their broker suggests
that their ex knew what he was doing, and they should stick with it?" 6. Create Competitive
Advantage By adding charitable
giving to your repertoire, you can avoid becoming typecast. "Some clients will
pigeonhole advisors as the managed account guy' or the insurance woman,'
depending on what service or services you have previously performed for
them," says Fenton. One of his managed account clients, for instance, once
innocently asked him whether he knew of anyone who could sell "a few old
shares of Microsoft" for her. If you have decided to
hone your philanthropic skills, King McGlaughon, professor of
philanthropic studies at The American College, offers some specific tips. "You will need both
to read books and scour the continuing education market," he advises. He
suggests starting with some of the 670 local community foundations around the Brokers learn to navigate
both good and bad environments, and must build their own business models to
withstand the vagaries of the marketplace. McGlaughon
offers a ray of comfort: Over the past 40 years, total charitable giving has
risen in every year but one -- 1988, as a result of the previous year's stock
market crash. 7. Give Seminars "Offer to give a
seminar at a local charity or your alma mater and have them invite their top
benefactors," Fenton proposes. Alternatively, if you enjoy an
"in" with a board member, you might propose writing an article for
their corporate newsletter or making a presentation at a dinner. Topics can be
simple or sophisticated, and you can always brush up on the fine points ahead
of time with an accountant or attorney. One basic idea would be to give away
used goods, like computers, instead of jettisoning them. Another interesting
seminar subject might be the issue of [fund] abuse and fraud at charitable
organizations. "Donors need to know
who is minding the store for them," says Rafferty. "The
larger the organization, the more opportunities for internal controls and
systems to break down." Under section 4958 of the IRS Code, a
charity cannot enter into a transaction that pays more than fair market value
with a "disqualified" person, such as a board member, high-level
staff member, or possibly even a major donor. 8. Small Business During the late 1990s, entrepreneurs
comprised the fastest growing segment of donors, reports McGlaughon.
Philanthropic groups assembled, like social clubs, in high-tech havens
including For their entrepreneur
clients, brokers might create a philanthropic strategy leveraging their
business assets. Entrepreneurs who started off with $5,000 in a garage and now
run million-dollar privately owned companies, for instance, may be able to
donate their shares to charity, then buy the shares back, thereby raising the cost
basis and creating a market reference point for a future sale. 9. Donor Advised Funds Donor Advised Funds (DAFs)
are an inexpensive, straightforward way for clients to make charitable
contributions in either cash or securities, while they earn a tax deduction.
Donors simply fill out a gift agreement by December 31, advise on
which charities to support, write a check to the DAF, and take an immediate
deduction -- although the money need not be disbursed until later. It is then
up to the DAF to ensure that the recommended charity qualifies for the
deduction under section 509A of the IRS code. DAFs offer many other benefits. The money can grow tax-free in
the account, creating a charitable kitty. There is no time pressure for
selecting or making grants, and donors can choose the amounts to give.
Administration is streamlined, a boon for both advisors and clients who no
longer need to track multiple receipts. "Unlike private
foundations, which are legally required to make their grants public, DAF donors
can give anonymously," says Abby Tucker, director of marketing and donor
relations at the Jewish Communal Fund. Brokers can help clients
choose an acceptable DAF, based on criteria such costs, levels of service and
net returns. However, they should keep in mind one potential downside: Once
assets are moved into the DAF, they may risk losing a share of those under
their own management. Most DAFs offer a choice of fewer
than a dozen managed or index funds, tailored along a spectrum toward growth or
income. It is hard to charge much for such basic selection services. Clients with generous
inclinations who are not sure exactly which charity would suit their intentions
may not be right for a DAF, which will not select a particular organization.
Such clients might be more suited to community funds, which resemble DAFs
but offer more research in selecting donor recipients. 10. Charitable Remainder
Trusts Charitable Remainder
Trusts, or CRTs, are a popular strategy for "doing well by doing good,"
explains Patrick Smith, director of estate and business planning at Hartford
Life. By gifting real estate, stock or other valuables, donors receive a tax
deduction for part of the transfer, as well as an income stream during their
lifetime. These vehicles work particularly well, says Smith, for "clients
who have appreciated assets, the desire for significant current tax deductions
and charitable motivations, as well as for those who require a stipulated
income." An example is a For the widow's three
adult children, who effectively lost their inheritance, the widow was able to
purchase a life insurance policy that replaced the value for their benefit. "Her local broker
was delighted," reports Smith. "Although she had been a relatively
minor client of his, the church now turned to him to invest the million
dollars." 11. Life Insurance Life insurance not only
works well in conjunction with a Charitable Remainder Trust but also can
function as a vehicle for charitable wealth transfers. Brokers can suggest it
for clients over 70, who have a pre-existing policy, charitable intentions and
no heirs. In other words, older clients may find they no longer need a large
insurance contract and would like to donate it. As an incentive, they can
deduct the premium payments on the policy from their taxes. The client will
continue to pay the premiums, or the charity can take them over. Either way,
the principle of leverage enables a number of small premium amounts to pay off
in a large eventual sum. Alternatively, clients can exercise charitable
intentions by allocating the dividends paid by the policy to a charity, which
also results in a tax deduction. "If they choose to
use a life settlement to liquidate their policies instead, they can receive up
to three times the amount of the cash value," suggests Larry Simon,
president of LSS, a life settlement broker. 12. Private Foundations Creating private
foundations requires substantial time, effort and money. Nevertheless, they may
be suitable for wealthy clients who are ready for the commitment and additional
structure that goes beyond a tax deduction. "Many of our clients
feel that philanthropy is an important part of their lives and would like to
see their entire families involved," says Doug Moore, national director of
estate and charitable planning at Citigroup Private Bank. Foundations "are
likely to be treated seriously," counsels "We see the broker's
role as helping the client focus on whichever structure is most
appropriate," says Vanessa Drucker
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