Survey Finds Proactive Charitable Vehicle Counseling May Increase AUM for Wealth Managers

Date:

Categories: Press Releases

Yet advisors may have gaps in their philanthropic knowledge

FAIRFIELD, CT –April 20, 2017–Foundation Source announced today the results of a survey of wealth managers and advisors showing how their philanthropic knowledge, recommendations, and guidance around private foundations and donor-advised funds (DAFs) might impact their practices. The survey found a correlation between advisors’ guidance to clients around these vehicles and potential increases in assets under management.

Specifically, survey findings revealed that it’s more common for respondents to manage the assets of their clients’ private foundations than those in their clients’ DAFs: 44% say they manage the assets for more than half of their clients with private foundations, but only 21% manage the same proportion of their clients’ DAFs.

The survey also found that respondents generally perceive their clients as charitable and have incorporated philanthropy into their practices. Ninety-seven percent said they discuss philanthropy with their clients, and 66% said they do so “often” or “at most every client meeting.” Moreover, 87% said these conversations have enabled them to meet their clients’ spouses and families.

“Conversations around philanthropy can yield more than just introductions,” says Foundation Source Chief Distribution Officer Joseph Fuschillo. “Whether advisors manage those assets seems to be correlated to who came up with the idea initially, the client or the advisor.”

Fifty-seven percent of advisors who said they originated the idea of a private foundation also manage those assets, and 29% of wealth managers who originated the idea of starting a donor-advised fund also reported that they manage the assets in those accounts.

Although the likelihood of managing the assets in the client’s charitable vehicle was greater with a private foundation, respondents were nearly twice as likely to proactively recommend a DAF (60%) to their clients compared to a private foundation (32%). This finding is striking when one considers the potential difference in asset size between the two vehicles. As reported by 2015 IRS data, the average size of a private foundation is $5M whereas National Philanthropic Trust reported that the average size of a DAF account currently stands at $292,000.

Mind the Knowledge Gap

Additional findings revealed that advisors may have misplaced confidence in their knowledge of private foundations and donor-advised funds, which could affect the quality of their counsel around charitable vehicles. They consider themselves relatively well informed about their knowledge of both charitable vehicles: 78% said they had a thorough understanding of donor-advised funds, and 63% said they were as well-versed in private foundations. However, survey findings suggest that respondents may have gaps in their knowledge or inaccurate assumptions.

When asked to assess whether specific statements regarding these two charitable vehicles were true or false, a significant percentage of respondents gave incorrect answers. For example:

  • A third (33%) said it was “true” that their client needed “at least $5M in funding to set up a private foundation,” even though, as per IRS data, 66 % of the private foundations in existence today have assets under $1 million.
    A quarter (25%) were unaware that “donor-advised fund sponsors must approve their donors’ gift recommendations.”
  • Nearly half (48%) were under the impression that a donor-advised fund could be converted into a private foundation—a misconception that might lead to unforeseen consequences. Although the IRS does not prohibit funds flowing from a DAF to a private foundation, DAF sponsors invariably have rules against it. One can convert a private foundation to a DAF but not vice-versa.
  • Notably, 78% said they were “interested” or “very interested” in developing their knowledge around philanthropy.

“These findings point to both a need and appetite for increased advisor education,” says Fuschillo. “In order to provide the best philanthropic advice, it is important for advisors to thoroughly understand the capabilities and benefits that these two most popular charitable giving vehicles offer.”

Survey Methodology

Foundation Source conducted this online survey of 106 wealth managers across the country working with small, midsize, and large (national or global) financial institutions and registered independent advisors, as well as family offices and philanthropic consultants. Of the respondents, the majority were registered independent advisors (55%), and a majority of respondents (64%) had more than 20 years of experience in the field. Those taking the survey appear to have a substantial client base of high-net-worth individuals: 69% indicated that the majority of their clients have at least $1 million in investable assets.

The full report may be downloaded here.

About Foundation Source (www.foundationsource.com)
Foundation Source is the nation’s largest provider of comprehensive support services for private foundations. The company’s administrative services, online foundation management tools, compliance, and philanthropic advisory services provide a complete outsourced solution, including the creation of new foundations. Our clients supply the vision; we provide everything else.
Now in our second decade, Foundation Source provides its services to more than 1,300 family, corporate, and professionally staffed foundations, of all sizes, nationwide. We work in partnership with wealth management firms, law firms, accounting firms, and family offices as well as directly with individuals and families. Foundation Source is headquartered in Fairfield, Connecticut.