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As we partner with wealth advisors to help them better support their affluent clients through philanthropy, we’re finding it valuable to discuss the emotional and rational aspects of charitable giving. Advisors who can help their clients realize both types of benefits and balance them accordingly will ultimately provide more effective, impactful and fulfilling wealth management.

Emotional vs. Rational Benefits

Let’s first define what we mean by “emotional versus rational” when it comes to philanthropy and wealth management. Essentially, it means weighing the “feel good” benefits of giving (e.g., effecting positive change in the world, uniting members of a family around a charitable cause, pursuing a personal passion) with the financial benefits (e.g., tax savings, wealth transfer).

Depending on the interests and preferences of advisors and clients alike, wealth management plans – if they include charitable giving at all – typically skew heavily to the rational (financial) benefits, which can be significant, especially when donations are made to a formal charitable giving vehicle such as a private foundation or donor-advised fund which offer attractive deductions. Visit our Resource Hub to understand, for example, the tax benefits of creating a private foundation.

What we hope for more advisors to realize, however, are the many emotional benefits of philanthropy that their affluent clients may also find appealing, especially clients with families and multigenerational wealth who place importance on creating a meaningful legacy. Also bear in mind that younger next-gen clients (Millennials and Gen Z), having come of age amid intense focus on things like sustainability, mental health, social entrepreneurship, diversity and equity, deem it important – and their responsibility – to create positive impact in the world through their actions, professions and decisions, including financial ones. Advisors who understand and appreciate how philanthropy can help their clients meet their respective priorities will be able to create deeper connections that can lead to further engagement and referrals.

Consider these emotional benefits of charitable giving. It can help clients:

• Identify and orient around their core values
• Surface shared goals and passions
• Increase multigenerational collaboration and strengthen family ties
• Deploy assets in a way that is consistent with personal priorities
• Share their philanthropic vision with others
• Create a plan for change and witness – in real time – the positive impact it achieves
• Observe and learn from the amazing charitable efforts of nonprofit organizations
• Align investments with intention
• Help younger generations develop skills that prepare them for bigger roles in a family foundation or business

Discussing these emotional advantages in tandem with philanthropy’s rational/financial aspects will provide clients with a comprehensive view of all that’s possible to achieve with their wealth through giving.

Philanthropy: A Key Component of Holistic Wealth Management

Earlier in this blog, we allude to the unfortunate fact that charitable giving isn’t widely considered an essential element of wealth management. For instance, while research of wealthy investors shows that nearly 74% consider themselves charitable or very charitable, 73% have not received formal philanthropic guidance. Such incongruity underscores the tremendous untapped opportunity that philanthropy offers wealth advisors to expand and enhance their practice to offer more holistic guidance – guidance that consolidates and coordinates all aspects of one’s financial picture: investment philosophy, tax savings and wealth preservation, asset growth, personal goals, charitable aspirations and family dynamics.

Impactful Giving Requires Insight and Expertise

It’s important for advisors to help wealthy investors make smart decisions with their giving – and provide them with more than just an explanation of various charitable giving vehicles. This is where an in-depth understanding of the emotional and rational aspects of philanthropy comes into play. Advisors who possess such expertise are equipped to have meaningful conversations with their clients from which they can gauge their priorities for giving and provide expert and holistic guidance accordingly.

One of our long-time clients initially established their foundation to help reduce an income tax liability. Years later, however, after selling their family business, the family became more interested in aligning its fortune with its values and began to take a more active role in the foundation. Ultimately, their focus expanded from using the foundation to achieve financial goals to addressing the emotional objectives of “doing good” and effecting positive change in the world. It’s a fairly common illustration of how a client’s priorities can evolve over time and how philanthropy can play a key role in addressing both the financial and emotional needs that motivate and define individuals.

As we did with our client, wealth advisors with philanthropic expertise can take a high-level view of their clients’ entire financial landscape – including their giving priorities – and provide more comprehensive guidance. They can spot inconsistencies and opportunities. For instance, they can weigh when it might be better for a client to invest instead of give, so there will be more wealth for the client to give later. They can also help clients avoid impulsive decisions that might feel right in the short term but may be detrimental in the long term.

Next Steps for Advisors

Understanding that philanthropic expertise is essential to providing holistic wealth management, we encourage advisors to consistently incorporate it into their client conversations and remember to discuss both the rational and emotional aspects of giving. Advisors can increase their knowledge of philanthropy through educational resources such as those from Foundation Source and by partnering with philanthropic experts when needed. We are always here to help.

Learn More About How We Support Advisors
Schedule a call or reach us at 800-839-0054 to learn how we can best support your clients who are passionate about philanthropy. Together, let’s #begiving.

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