Advisors can assist clients in building sustainable, long-term strategies that may include a private foundation or donor-advised funds, which are being used increasingly.donald_gruener/iStockPhoto / Getty Images
People often have charitable giving on their minds during the holiday season, and advisors can play a role in determining the impact of those donations and ensuing tax credits on their clients’ overall financial health. Yet, this time of year also presents an opportunity for advisors to discuss how clients’ wealth could have a greater impact through long-term philanthropic strategies.
“Charitable giving typically involves being contacted by a charity and providing a gift by cheque, cash or credit,” says Lydia Potocnik, vice-president, philanthropic advisory services at BMO Wealth Management in Toronto. “But strategic philanthropy is really about sitting down and assessing what clients’ values are as individuals and as families so they can make a bigger, longer-lasting impact.”
It’s likely a lot of clients are open to the discussion too given Canadians are generally, and perennially generous, she adds.
Statistics Canada data show an average of more than five million Canadians donate annually. For the most part, donations are small – although the amount increases with age as donors who are at least 65 years of age and older gave an average of more than $2,800 in 2019.
Yet, it’s likely many could and would do more with a little more help and insight. After all, Canadians are wealthier than ever. Statscan figures show the nation’s collective household wealth reached $14.2-trillion in the second quarter of this year, up more than 19 per cent from 2020. Canada’s wealthiest people – about 20 per cent of all households – own more than two-thirds of that amount.
Advisors have helped many families manage, grow and preserve a large portion of that wealth.
Here lies an opportunity for them to help more Canadians create philanthropic legacies while assisting in determining assets to donate and how best to give them, says Michelle Connolly, senior vice-president of advanced wealth planning at Wellington-Altus Private Wealth Inc. in Toronto.
“It really comes down to asking two questions,” says Ms. Connolly, a trust and estate practitioner (TEP). “How do you want to live? And to whom do you want to give?”
After helping clients accumulate and understand they have enough assets to fund their retirements and even support loved ones financially – while alive and after they die – strategic giving should be the next conversation, she adds.
Private foundations and DAFs
Advice involves not only helping clients maximize tax credits and overall tax efficiency associated with, for example, donating securities in-kind. Increasingly, advisors should be able to assist clients in building sustainable, long-term strategies that may include a private foundation or donor-advised funds (DAFs).
Nicola Elkins, chief executive officer and founder of Benefaction Foundation in Montreal, private foundations are the gold standard of philanthropy, allowing families to set aside significant sums – generally several million dollars – to disperse over time to various causes.
“For clients who want to involve their families more in philanthropy with them as board members of the foundation and have total control over investment decisions [among other considerations] … then a private foundation is the way to go,” Ms. Elkins says.
In contrast DAFs are offered, for example, through community foundations like the Winnipeg Foundation, financial institutions, or umbrella organizations like Benefaction Foundation. They’re used more commonly than foundations because they provide many benefits of private foundations at a smaller scale, with reduced complexity and less responsibility for donors.
“It’s like having your own private foundation without the accompanying cost and administration,” says Ms. Elkins, adding that DAFs can be set up for as little as $10,000 in some cases.
Depending on the organization, assets in the DAF can remain under the advisor’s control, often serving as an important link between clients and their families, says William Petruck, president and CEO of Funding Matters Inc. in Toronto.
“It becomes a smart way to involve children with philanthropic goals,” while forging a broader relationship between the advisor and the next generation.
Building that relationship is important considering these adult children are likely to inherit significant sums in coming years, he adds.
A J.D. Power survey released in May shows that almost $700-billion in assets in Canada will transfer from one generation to the next by 2026. That represents a challenge and opportunity for advisors. On one hand, advisors with aging clients stand to lose assets under management when those clients pass away, Mr. Petruck says.
On the other hand, advisors, who bring clients’ adult children into conversations about wealth and philanthropy are establishing a relationship that may lead to those younger family members becoming clients, too.
How to bring up philanthropy with clients
In this respect, strategic giving discussions with families can be facilitated using a growing crop of sophisticated online tools. Among them is a web-based philanthropy calculator that Funding Matters offers called the “Giftabulator,” Mr. Petruck says.
“People are visual learners, and that’s why we created this tool, so they can see the difference in impact between donating cash and different assets in the portfolio, and how strategies involving DAFs or a foundation can create a meaningful legacy,” he says.
“It’s also a subtle way to bring up philanthropy,” Mr. Petruck says. “Advisors can e-mail the link so clients can play around with it.”
Indeed, broaching the subject can feel awkward for advisors typically more at ease discussing retirement planning and portfolio allocation, Ms. Connolly says.
“But once you’ve had that experience a few times, it becomes a very comfortable discussion.”
Another issue involves knowledge of the mechanics of philanthropic strategies surrounding foundations and DAFs.
Consequently, more advisors are seeking additional education, including a TEP designation, or a master of financial advisor in philanthropy that’s offered in partnership by the Canadian Association of Gift Planners, the Knowledge Bureau Inc., and the Donor Motivation Program Canada, says Ms. Elkins, who has both designations.
Advisors with a deeper knowledge of this space are often able to serve clients better, especially as their client roster ages alongside swelling investment portfolios, Ms. Potocnik says. Many clients themselves now recognize they have more than enough and want to give back.
“Clients are wealthier and more financially sophisticated than ever before,” she says. “They’re reading about philanthropy in the news, and so they’re often asking advisors more and more about it.”