Supporting Client Philanthropy in Affluent Households

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Charitable giving continues to be a priority for affluent households, and we believe their financial advisors would be remiss to overlook its importance when it comes to deepening key client relationships. 

The 2021 Bank of America Study of Philanthropy: Charitable Giving by Affluent Households, created in partnership by Bank of America and Indiana University Lilly Family School of Philanthropy, revealed notable insights that advisors can leverage to better serve the charitable needs of their clients.

The study surveyed over 1,600 households with net worth exceeding $1 million or have annual household income of at least $200,000. It provides new insight into how affluent households engage in philanthropy. Of note:

  • Affluent households remained consistently generous in their giving.
  • Nearly 90% of affluent households gave to nonprofit organizations in 2020, compared to nearly 50% of the general population who give.
  • The average amount donated increased by 48% from 2017. By contrast, members of the general population give just under $2,500 on average, or 5 times less.
  • Roughly half of affluent donors donated primarily based on cause, rather than organization.
  • Sustainable and impact investing participation has doubled since 2017.
  • More affluent donors used giving vehicles to reach their charitable goals (i.e. donor advised funds). 

How can advisors leverage these insights to support their clients’ philanthropic pursuits?

Despite the financial implications of the pandemic, charitable activity increased in assets donated, with 90% of affluent households contributing to charitable organizations. Advisors have an opportunity to start conversations on what matters most to clients and explore how they can incorporate it into each client’s financial planning. There’s also an opportunity to use these conversations to start engaging with younger generations as technology allows whole families to participate in the giving process. 

And remember the motivation for client charitable activity, of course, encompasses more than just tax-optimization. While this can be an added incentive for affluent clients to engage in philanthropy, most do not view it as the sole motivator. In fact, 72% of respondents say their charitable giving would stay the same, even without income tax deductions. 

Charitable conversations should center a more holistic vision of financial wellness.

By proactively initiating conversations that explore the values and causes that mean the most to their clients, advisors can better understand and advance their clients’ charitable needs.

However, there are two primary challenges most commonly faced by affluent donors:

  1. Identifying what they care about and deciding where to donate (40%)
  2. Understanding how much they can afford to give (32%)

In order to effectively help clients navigate these challenges, advisors should feel empowered and prepared to initiate conversations about philanthropic priorities.

Among affluent donors, there is a growing trend toward cause-based giving.

Specifically, 45% of affluent donors gave in line with a specific organization, a decrease from 54% in 2017. By contrast, 44% say they gave based on the issues that an organization addresses, an increase from 31% in 2017. Issues-based philanthropy is becoming the future of giving, particularly among Millennial and Gen Z donors. Over half (55%) give based on causes they consider important, while 35% base giving on specific organizations.

When advisors proactively seek to understand the motivations and interest areas for donating, they strengthen client bonds, increasing retention of clients and assets in turn. By probing clients to identify the causes, geographies, and impact they care about the most, advisors can help them make informed philanthropic decisions.

Advisors can leverage current events and philanthropic trends as a conversation guide.

In 2020, many affluent donors turned their attention to navigating the pandemic as well as social and racial justice. One in three households increased their giving to support needs related to the pandemic. Among those who gave, 90% supported their local communities by giving to basic needs locally. The study further revealed that one in five affluent households supported social and racial justice causes through their giving and 11% said social justice was among their top three most important causes.

Another emerging trend is the parallel growth in charitable giving and sustainable investing.

Affluent households are increasingly interested in sustainable investing – that which generates financial returns as well as environmental and social benefits. While only 7.2% participated in sustainable investing in 2017, that has increased to 13.2% in 2020.

Notably, nearly 60% of donors shared that their sustainable investments were supplemental to charitable contributions. Financial advisors can simultaneously support both areas by investing charitable assets in values-aligned pools. Through this practice, charitable donor advised fund (DAF) assets can potentially grow in investment pools before granting to recipient non-profit organizations. This intentional alignment of money management helps clients stretch the impact of each dollar.

“Financially empowered and technology-enabled, these affluent donors are looking to deepen their impact, using a range of tools and vehicles available to them to advance the issues they are passionate about,” said Una Osili Professor of Economics and Philanthropic Studies and Associate Dean for Research and International Programs at Indiana University, in a review of the study.

Giving is trending digital, and RIAs should as well.

Technology played a critical role in affluent households supporting causes and organizations in 2020 with 56% of donors giving through a non-profit’s website, 18% participating in crowdfunding, 17% using a payment processing app, and 13% contributing via a social media tool. The usage of digital giving platforms is expected to continue to grow in the future. 

A growing proportion of affluent households use giving vehicles. For example, 7% use donor advised funds compared to 5% in 2017. This growth can be expected to continue in coming years. In recent years, DAFs have grown in popularity across income brackets, with the number of accounts growing by 19.4% from 2018 to 2019.

As more affluent donors leverage charitable vehicles, advisors should consider growing the use of digital DAFs within their practices, which makes DAF administration more effective, efficient, and impactful. By bringing an increasingly popular tool in-house, advisors can strengthen relationships with affluent clients.

From aligning giving with sustainable investing to adopting digital strategies with giving vehicles, there are many lessons to be learned from the charitable interests of affluent clients.

Acting on Study Findings

Advisors looking to implement the recommendations from the study should consider implementing a digital DAF strategy such as TIFIN Give.

Interested in learning more? Book a demo with a member of our team.

 

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