When and how do you incorporate charitable giving into your client’s financial plan
Most people want to give to charity in a meaningful and heartfelt way.
Introduction
There is clear evidence to show that high net wealth clients are increasingly interested in giving. Charitable giving is dominated by wealthy Australians, with over 40% of donations[1] in Australia given by the top 1% income earners. Not only that, wealthy Australians are giving more as time progresses. Since 2015, there has been a steady increase in giving by high income earners, with the average gift increasing almost 300%[2] over that time. Some suggest[3] that these substantial increases in giving by the affluent are a reflection of an undercurrent of changes in the way people demonstrate their status.
Despite these trends, there is a general hesitation among financial advisers to talk to their clients about giving to charity. Advisers are not typically equipped to know how to answer questions about charities. They don’t want to impose their values onto their clients. Importantly, they don’t want to damage the client relationship by putting their clients in a position where they have to say “no”.
Financial advisers can shy away from talking about giving, or can build an expertise in the area and use it to their advantage. By gaining the skills to tactfully and confidently speak about giving, they will be better positioned to:
- provide a complete suite of investment advice
- engage the younger generation of wealthy Australians
- assist with preparing wills, and
- improve employee retention and engagement.
This article will outline the giving context in Australia and will present some tips on when and how to incorporate charitable giving into your client’s financial plan.
How much do people give to charity?
Over 80%[4] of Australians report that they give to charity. There are a range of motivations for why people give. There can be an implicit obligation and responsibility of those “with” to give to those “without”. Religious protocols may provide them with expectation of giving to charity. Families may see shared giving as an opportunity to unite and come together. Finally, there are obvious tax benefits. The higher the income bracket, the greater the possible tax return from a charitable donation (see chart below).
Analysis of taxpayer data[5] by the Australian Centre for Philanthropic and Nonprofit Studies (ACPNS) provides further detail on giving in Australia. In Australia, the greater the wealth and income of an individual or family, the more they give. Those earning less than $250,000 per year give about 0.25% per year. In contrast, those earning more than $250,000 per year give more than double that, giving at least 0.5% of their taxable income per year (see the ACPNS chart below).
Those living in the most affluent suburbs give more. The average amount donated in Peppermint Grove, Western Australia and Darlington, New South Wales, in the last reported financial year was substantial, at $348,000 and $104,000 respectively. In affluent suburbs in other states, the average gifts are still significant, although not as large. On Gold Coast, Queensland, the average gift was $19,000, in Toorak, Victoria, the average gift was $14,000 and in Rose Park, South Australia, the average gift was $13,000.
Occupation and age also play a role in how much people give. Those in executive positions towards the end of their career giving proportionately more. CEO’s give an average 1.3% of their taxable income and the value of gifts to charity peaks in the 55-59 age bracket.
Understanding charities in Australia
Many people have had poor experiences with charity as a consequence of a mismatch of expectations. For instance, a client might want their money to go “straight to the cause” but donate to a large multinational organisation where it is difficult to track how money is used. Alternatively, they might give their money to a volunteer-run organisation but are then disappointed with the lack of donor services (e.g. getting a tax receipt).
Generally, you can easily characterise a charity into one of the following three categories:
- Blue chip: charities that have been operating for more than 15 years, have established systems and ways of doing things and a solid financial base. These charities have a high degree of predictability over their outcomes but may have poor administration ratios.
- Start up: charities that have been operating for less than 15 years, are driven by the power and passion of the founder, are experimenting with the best source of funds and operational model. These charities can deliver a great bang for your buck, have aspirations for growth, but may have unpredictable donor services and outcomes.
- Grassroots: charities that are consciously focused on delivering a service to a niche problem and/or geographic area and have usually operated for a long time. These charities usually rely heavily on volunteers and are conservative with how they use their money. They don’t tend to have aspirations for growth and can get bogged down in personalities and politics. Having said that, it is usually easy to understand how your money will be used.
Understanding charity quality
Charities vary substantially in quality. On the outset it can be difficult to determine which organisations are strong performers. The good news for advisers is that understanding the quality of a charity is similar to analysing stocks or investment funds. A high performing charity will have:
- high quality leadership and governance
- financial integrity.
In addition to that, they will have a clear strategic direction and a method for measuring their performance over time. Quality charities will measure KPIs, and/or implement sophisticated evaluation and improvement systems. They will be consciously monitoring their outcomes and sharing the results of their work with their broader network.
When to introduce the charity conversation?
Once you hold a foundational level of knowledge on charities, it’s possible to start introducing the conversation of giving to clients. Provide clients with a clear statement that demonstrates philanthropic advice is an area of expertise, should they require it.
Ways of introducing your services include:
- in their annual financial statements, include a flyer that indicates that you provide philanthropic services
- on your website, indicate that you provide philanthropic services
- for all new clients, during the fact find, ask them to tick a box if they are interested in advice on giving to charity and/or philanthropic services
- in newsletter correspondence, include sections on philanthropy to demonstrate that this is an area that you specialise in – keep the content technical so not to impose your preferred value and/or charities on others.
How to introduce giving into financial plans
When a client indicates they are interested in giving, introduce giving into financial plans by following these steps:
- Understand the clients’ giving goals: Get an understanding of their values and risk profile. Understand their hesitations and fears about giving. Some charities are awful. They can be aggressive and corner you into a position where it’s hard to say no. Reassure clients that the charities carefully selected for them are different: they treat donors with respect and courtesy.
- Present 3-4 charity options: Once it is clear the kind of charity a client is interested in, download the Australian Charities and Not-for-profits Commission(ACNC)[6] database of charities and apply relevant filters to identify matched charities. Conduct due diligence on each relevant charity option. Present the options to the client in a way that tugs at the heartstrings like videos and testimonials as giving is a heartfelt decision, but also validate your recommendations with data and facts. There are philanthropic advisers that can help with this research.
- Execute the transaction: offer the option of executing the transaction on their behalf. Corresponding with charities can be a time-consuming process. By providing this service, you can add significant value to your client.
Conclusion
Most people want to give to charity in a meaningful and heartfelt way. However, very few actually know how to give to charity. Identifying high performing charities is a skill any confident Financial Adviser can learn. Look for quality management, financial integrity and a clear strategy – features of any quality investment. Use technical language to position yourself as an impartial adviser. By gaining the skills to be a trusted adviser, you can uniquely position your services in a way that improves client relationships and assists with the ongoing succession of your business into new generations.
By Jessica Bowman, Co-Founder
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