It’s no secret, if your business is not growing, it will soon be extinct. In a recent Forbes Magazine study of 803 financial advisors, 91% of them cited their number one concern as how to grow their asset base. It makes sense, we all know what happens to our client’s portfolios when they pass away, or when clients need cash flow at retirement, or one of the myriad reasons assets go out the door. What makes pursuing new assets more challenging is that 88% of those surveyed reported there is intense competition for wealthy clients. There is not only the efficiency of more assets per individual, but there are more options to generate revenue from non-investment solutions.
Many advisors are chasing new assets the hard way – referrals, seminars, and networking. Though these methods can and will pay off, it takes a while to see results. To attract wealthy individuals, many advisors are adopting a planning-based practice and placing less emphasis on investment management. Based on Financial Planning Association’s Research and Practice Institutes 2016 Trends in Practice Management, 65% of respondents said they consider themselves to be either a Financial Planner or a Wealth Planner. Another 10% said they plan on changing to a planning-based business model in the next five years. However, according to recent comments by John Bowen, founder of CEG Advantage, only a quarter of these advisors are discussing advanced planning strategies with affluent clients. In other words, a majority of advisors say they have a financial planning practice, but they are still focused on investment performance.
Each year US Bank, partners with IUPUI Lilly Family School of Philanthropy, to conduct a study on High Net Worth (HNW) Philanthropy. In their 2016 Report, from the HNW investors perspective, “23.1% consulted with at least one advisor regarding charitable giving. 19.6% initiated the conversation, while 5.3% were approached by an advisor. A smaller percentage of wealthy individuals (1.8%) both approached and were approached by an advisor.” The study goes on to say, “Although few HNW investors reported receiving services or advice related to charitable giving, if they were to receive such advice, it most often came from an accountant (11.3%) or independent financial/wealth advisor (9.1%).”
What’s more compelling, based on that same study, 14.4% of HNW investors have at least one charitable planning instrument (charitable trust, donor-advised fund, private foundation), while 91% say they donate to charities, 55.1% plan to give the same amount over the next three years, and 28.8% plan to increase their level of charitable giving. Educating these investors on the options for charitable planning could open doors for continued growth. Donor-advised funds have seen positive growth year-over-year since 2010. From 2015 to 2016 the dollar amount of assets that flowed into DAFs grew 9.7% to $85.15 Billion and the number of DAF accounts grew 6.9%.
This screams opportunity opportunity to attract new assets. Aligning financial goals and personal values gets to the heart of wealth management. If an advisor can connect what matters most to each client with the investment experience, they will be offering a more holistic approach to wealth management. Ren can provide assistance with the tools and resources any advisor could use. Here are a few scenarios we have recently encountered that could better illustrate how Ren can help:
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- Recently an institutional advisor with one of the larger wire houses was consulting with one of their non-profit clients on how to expand their donor base and attract more donations to meet the needs of their missions. The advisor suggested a donor-advised fund program and contacted Ren. We partnered with the advisor and the organization to launch their own White Label Donor-Advised Fund Program. They are now attracting more donations and donors and the advisor is managing the investments that house those donations.
- As the year wound down, an independent advisor had a client with $6 million in Bitcoin he wanted to redeem, but avoid capital gains tax. The client purchased the Bitcoin three years prior and was going to be hit with significant tax consequences. The client did not need any income from the transaction so the advisor partnered with Ren to open a Donor-Advised Fund for the client. The client now has a charitable legacy account and the advisor is managing the assets that were once illiquid.
- An advisor contacted Ren regarding their client who had just sold their business for over $9 million. Knowing the tax liabilities that the client would incur, the advisor set-up a Charitable Lead Trust for the client and Ren was the administrator of the trust to ensure disbursements went to the charities the client designated, file the necessary tax returns on behalf of the trust, and provide the client and advisor with periodic statements. The advisor retains the management of the assets.
We also understand that it can be difficult to determine which charitable planning avenue is best in each unique situation. That is why we’ve developed a helpful website, RenTools.com, to learn more about how charitable planning works and which path may be right for you. Financial professionals can navigate the various charitable gift vehicles their clients should explore to reduce their potential tax liabilities while focusing on increasing their lifetime benefits, charitable gifts, and benefits to heirs.
Contact us to find answers to any of your other charitable planning questions.
