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Written by: Hannah Shaw Grove
The “holistic” approach to financial planning has gained a foothold in the wealth management industry in recent years. While on the surface, “holistic” is arguably just a modern-day buzzword, the notion of considering all aspects of a person and their individual circumstances has always been important for certain types of advisors. Extending your offerings beyond traditional investment advisory expertise and taking the bigger picture into account allows you to deepen existing relationships by getting to know clients on a more personal level.
In practice, philanthropic planning is a natural area to extend to; in discussing clients’ charitable goals, you’re likely to uncover their interests, passions, and values for themselves and their families. In turn, you’ll gain a more well-rounded understanding of their needs so that you can provide better, more targeted services.
Philanthropy: A Key Component of Holistic Wealth Management
As it stands, 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. Consolidating and coordinating all aspects of one’s financial picture, from investment philosophy, tax savings, wealth preservation, and asset growth, to personal goals, charitable aspirations, and family dynamics, can yield valuable insights and create efficiencies in planning.
Recognize Both Emotional and Rational Aspects of Philanthropy
Let’s first define what we mean by “emotional” vs. “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 / tax) benefits. These benefits 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.
However, there are many emotional benefits of philanthropy that 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, having come of age amid intense focus on things like sustainability, mental health, social entrepreneurship, and diversity and equity, feel responsible for creating 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 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
An effective holistic approach considers emotional advantages in tandem with philanthropy’s rational/financial benefits, providing clients with a comprehensive view of all that’s possible to achieve with their wealth through giving.
Holistic Guidance Requires Deeper Insights and Expertise
Moreover, an in-depth understanding of the emotional and rational aspects of philanthropy can help wealthy investors make smart decisions with their giving. 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.
For example, one of our long-time clients initially established their foundation to help reduce 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 nuanced 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.
What Advisors Should Do Next
Understanding that philanthropic expertise is essential to providing holistic wealth management, advisors should consider incorporating it into their client conversations more consistently and remember to discuss both the rational and emotional benefits of giving. By dedicating time to learning and partnering with the many expert voices on philanthropy, you’ll be better prepared for these conversations to include the broader capabilities that clients have come to expect.