Give to Live: Why Advisors Should Be More Involved in Their Clients’ Philanthropy

Editor’s note:In this edition of What’s Working Now, an AdvisorRADIO feature in which Horsesmouth members tell us about recent success they have had running and growing their businesses, we hear from CFP Arlene Cogen, who works with nonprofits, foundations, families, and advisors to increase knowledge about charitable giving.

The following article includes edited excerpts of Arlene’s comments, or you can listen to the full interview below.

How did I get started on my path? It’s a great story. I’m a Certified Financial Planner and started off on Wall Street in New York City. I worked for a number of large banking institutions like U.S. Trust of New York, Citibank, and First Union.

Then my family moved from the East Coast to the West Coast—to Portland, Oregon—to be closer to family. And looking at my two daughters, things gelled for me. I had experienced sexual harassment, the glass ceiling, and wage discrimination. The last thing I wanted my daughters to do was have to experience any of that B.S. So after we moved, I stayed home with my kids for a few years and knew that I couldn’t go back to large financial institutions.

Making money and enjoying it

So I saw a career coach and we worked through all the things I liked and didn’t like about my job. In the end, philanthropy and benevolence rose to the top as things I enjoyed. I looked squarely into my career coach’s eyes and said, “How do you make money at that?” Lo and behold, I networked and found a position with the Oregon Community Foundation, which is the ninth largest community foundation in the country. They had a larger budget and could afford my salary.

It was a dream job. I got to help people make a difference in the world. During that time, I noticed that most people were referred to me through their professional advisors—estate planning attorneys, CPAs, financial advisors, etc. There was a huge disconnect in terms of people understanding how philanthropy can solve personal, financial, and legacy issues. It had never been explained in a basic way for people to understand.

That’s when I decided to strike out on my own. One, I could probably make more money than working for nonprofits, but two, there was an educational gap. Advisors don’t know how to integrate philanthropy into their practices in a way that benefits their clients, their community, and their bottom line. I wanted to show them how to do it, and that’s what led me to go out on my own.

The majority of my work now is directly with advisors and their clients. I train advisors on identifying core values, and educate them on the philanthropic tools they can implement in their practices to provide multigenerational advising.

When I work with clients, it’s really about the client and their interest. I don’t do a lot of work with nonprofits directly, although I do speak to groups to motivate them to give to the cause. I find that it’s much easier to start off with a blank slate, letting clients or donors articulate their values and goals, and the core organizations that mean something to them. I don’t come with an agenda. I’m truly there for the client, to facilitate their giving.

Charity and taxes

After the new tax law, we’ve seen that giving is starting to consolidate at the top. There are less people giving, which is unfortunate, because they aren’t getting to experience the joy and gratitude of giving. The dollar amount of charitable giving has increased, but it’s only a handful of people who are giving more. Other people are not able to give where they once did. There is a direct effect from the tax changes.

The tax deduction is important for wealthy people. But generally, when you talk to donors and look at the studies from U.S. Trust, most people really do give for altruistic reasons. That is the real core of why people give. Then taxes and other reasons come in second.

Why advisors should get involved in philanthropy

The reason more advisors don’t get involved in philanthropy really boils down to one issue, one I heard over and over at the Community Foundation. “If we recommend that our clients give money to charity, we lose a revenue stream not just this year, but next year and the year after that.” What they don’t realize is that many of these philanthropic tools can be set up in a way that allows the advisor to manage the charity vehicle and at the same time start to build the relationship with the next generation.

We know that betweeen 60% and 90% of heirs will fire the advisor within the first year of the former client’s death—60% to 90% is a staggering statistic. We all know it’s easier to develop a relationship with an heir wile the parent is living, instead of trying to build that relationship to retain those assets while the child is dealing with the grief and chaos of the parent’s death. We have to start now, developing those relationships with the next generation, and philanthropy is the best way to do that. It brings out our best selves.

Advisors get caught up on the fact that they’re going to lose the revenue. Once they understand and see how they can integrate philanthropy in a way which allows them to keep managing assets, whether it be in a charitable vehicle or by engaging the next generation and starting an investment account with them, it’s a win-win. It’s a win for the client, who solves personal, financial, and legacy problems. It’s a benefit for the community, which gets charitable dollars put into it. And it’s a benefit to the advisor’s bottom line. It’s just learning the tools to do this.

Donor-advised funds

The most common charitable vehicle, which really allows advisors and clients to engage multiple generations, is a donor-advised fund (DAF). DAFs are like mini foundations. They have all the fun of philanthropy, without any of the headache of administration, due diligence, or grants. The organization housing your DAF does all that for you. You have the fun of choosing where to grant money and have people assist you doing it.

And DAFs start at many different levels. At some organizations you can start a fund with $5,000. Some go higher. Advisors also need to check which organizations allow you to manage the DAF and at what level. The bigger wire houses—Schwab, Fidelity, etc.—require a $25,000 commitment (gift) for the advisor to manage the fund. However, community foundations and other organizations may have lower numbers than that.

Nonprofits

For advisors, getting involved in philanthropy a way to demonstrate your expertise and distinguish yourself from other advisors. If you’re working with a client who’s interested in a nonprofit, you can help them do due diligence. Are they strong financially? Do they have a solid board? What does that look like, and what information can you provide to your client? They might like the cause, but not know a lot about the organization. You the advisor can bring valuable information regarding the healthiness of a nonprofit and whether the gift would be a good investment.

A simple, easy place to look for information is GuideStar or Charity Navigator. You can look at the 990 filed by the nonprofit and see exactly what their finances look like, what the salaries of the executives are, and where they are using their money. Or, of course, you could call them up and meet with them. There’s nothing a nonprofit wants more than to highlight the great work they are doing, reassuring the advisor and a potential donor that it’s a good investment.

Community foundations

Your third option is to talk to a community foundation. Community foundations are an amazing resource to any community, and there are hundreds around the country. They are usually very gracious in sharing due diligence that they’ve done on nonprofits.

Community foundations go back over one hundred years ago. There were a bunch of wealthy individuals who created trusts for a specific mission, and the mission was no longer relevant. For example, they wanted to make sure there were troughs with water for horses in front of municipal buildings. Well, now that’s an electric charging station, you know what I’m saying?

The bank with that trust decided they would petition for and create variance power, which meant they could slightly alter or modify the objective to have a useful purpose. This would extend the lifetime of that gift without having to go to court and spend a lot of money. Community foundations were created for people in the community to come together and have some flexibility as times changed.

You can donate outright to a nonprofit, but they usually have a specific vision and a mission that is focused on one thing. Community foundations focus on many things and have those donor-advised funds to people can give to any cause they care about—art, the environment, education, etc. You can grant to any other nonprofit through a community foundation. You get your tax deduction upfront and grant money afterward, whereas when you give directly to a regular nonprofit, you grant the money once and that’s it.

Clients are unsure of what they want

Not only do advisors face a knowledge gap, but clients have limited understand of charitable giving, not as robust as we’d like to see. Many people I would meet with wanted to set up a fund for when they passed away. They’d say something like, “When I die, I want my money to go to the fund, and it will support the following five organizations on an ongoing basis.”

We call that a designated fund. People would create these designated funds with two or five of their favorite organizations, and then I’d encourage them, “Why don’t you create a donor-advised fund now?”

We’d look at their pattern of giving and consolidate it all into one place, the donor-advised fund. Then two years later we would look at current giving versus what they wanted for future giving when they died. It’s a complete disconnect. People think they know what they’re giving and what causes they care about, but there tends to be a huge disconnect.

I like to say that philanthropy is a muscle, and you have to exercise it and track it to see what you’re actually doing and if it feels right. Does my giving make sense? Is it actually what I want to do?

More people come in thinking they know what they want, but not really knowing, and having to relearn or teach themselves or drill down deeper. It really is a process, and a muscle, and it’s ongoing and changes over time.

Telling stories and making a difference

Through my work with the National Speakers Association, and even in sales at the bank or creating funds at the Oregon Community Foundation, I learned that people love stories. They relate to stories and see themselves. As most financial advisors know, there are a lot of resources on how to tell stories to engage your clients or prospective clients.

That’s why I decided to structure my book, Give to Live: Make a Charitable Gift You Never Imagined, with stories. They’re informative, and I added personal reflection sections at the end of each story so readers could start to identify their values and develop their own giving plans. Ultimately, I point them right back to their advisor. The last chapter, “How to Choose and Work With an Advisor” emphasizes that it could be a financial advisor, it could be an attorney, it could be a CPA, but you want to find someone you know, like and trust. (Note: To order the book with a customized logo and/or foreward, email Arlene at arlene@arlenecogen.com to order the book with a customized logo and/or foreword.)

The response to Give to Live has been overwhelmingly positive, more than I ever imagined it would be. I’ve done some training on “lead by example” for nonprofits, where I speak to the board members about how they should be giving large gifts. Then the nonprofits purchase my book and give it to their board members. And advisors use it strategically by giving it to top clients to open up the conversation and start engaging other generations. It’s also a great way to say, “I’m already doing personal and financial planning. To really do comprehensive planning, let’s get this charitable piece included.”

How to gain more expertise

If you want to get more involved in philanthropy and gain more expertise, a great place to start is with your professional organization. I love that many organizations always have continuing education courses. And you should look in your town to see if they have a planned giving organization, because that’s where they really drill down into charitable trusts and other vehicles, where planning and expertise are needed. Another way is to bring me in to train you and your team on these philanthropic tools and how to effectively use them with your clients.

To get involved in a partnership with a nonprofit or community foundation, reach out and start at the top. Call the president, call the executive director, call the person in charge of development or advancement. These are the ones who want to speak to you and find a way to include you. They will tell you how you can volunteer or share your expertise in relation to what they do.

Nonprofits are always looking for professionals to sit on their boards. And financial advisors, whether they serve as treasurers or overseeing membership, bring ten-fold value with their skill set. Nonprofits are always looking for board members with skills in financial services. It’s a huge benefit. Also, other than the spouse, the financial advisor is the one who helps decide whether someone does or doesn’t make a gift. They are critical in terms of donations.