by Susan Chenoweth
Head of Elston Philanthropic Services

The demand for philanthropic advice has never been greater, and yet many advisers are reluctant to introduce the topic of structured giving.

What are the opportunities they’re missing? Why are some advisers more comfortable steering clear of these key discussions? And what do they feel they need to know before they’re qualified to ditch the L Plates and start driving the conversation around philanthropy?

To get the answers to these questions, Elston recently undertook national research with advisers and givers. This article provides an overview of the results. It highlights the main factors that are inhibiting some advisers from discussing philanthropy with their clients. It also reveals clients’ motivations for giving – and how they can differ from their adviser’s sense of what’s most important.

Millions of conversations on the horizon

The intergenerational transfer of wealth is nothing new. But it’s never been seen on this scale before. Over the next two decades, it has been estimated that around 3.5 trillion dollars will pass from one generation to the next.¹ This mass movement of assets is unprecedented.

This is certainly going to trigger many conversations with clients who want to make sure children and grandchildren are ready to take on the responsibility of extra wealth. They could also be looking to create a lasting legacy, and perhaps even establish an ongoing charitable structure that the next generation can manage.

Our research objectives were simple

We know that legal and financial advisers who discuss philanthropy with their clients often build closer, more holistic, relationships with their clients. But research from overseas has indicated that some advisers are reluctant to start the conversation.

• Our first objective was to find out if the same was true in Australia. We also wanted to understand why advisers felt this way.
• Our second objective was to see why people gave. What were their motivations, and how much did the tax benefits of philanthropy play a part?
• Thirdly, we wanted to see how we might be able to assist advisers. What kinds of tools and training might be most useful to them?

Survey Sample

Professional Advisers: We received responses from 54 advisers – the vast majority of whom were financial advisers (4 respondents were from the legal and accounting professions).

HNW Philanthropic Clients: Nine High Net Worth (HNW) individuals who are actively engaged in philanthropic giving responded to the online survey. In this research, HNW was defined as an investor with greater than $3 million in investible assets.

All responses were collected from an online survey conducted between August to October 2023.

Trusted advisers are in a unique position

Many advisers have the access and opportunity to influence the way their clients think about, use, and allocate their wealth. The estate planner working on a will, the financial adviser sorting through investment strategies, and the family business adviser helping a family prepare for succession, have multiple reasons to raise the subject of philanthropy with their clients.

The challenge that many trusted advisers face when supporting their clients’ philanthropy needs is a lack of understanding of philanthropic structures, and often misperceptions about the services and advice HNW clients are seeking.

Elston is well-placed to support professional advisers to facilitate client philanthropy. We have established working relationships with self-licensed financial advisers, accountants and lawyers, as well as relationships with several investment platforms.

We are committed to providing expertise and services to professional advisers to support their clients’ philanthropy. This research is driven by that commitment. Through this research, we were seeking to:

• Contribute to what is known about the adviser’s role in supporting client philanthropy.
• Identify strengths and weaknesses in current adviser practices (how does this compare with what HNW clients want from their adviser).
• Identify strategies for further adviser education, training and support around strategic philanthropy and its practice (to better service the needs of their clients).
• Draw on the experience of HNW donors in order to provide new insights to advisers about how they can effectively support their clients’ philanthropy needs.
• Contribute to the national dialogue among advisers, donors, and philanthropy professionals.

Thousands of professionals have a role to play

The number of financial advisers in Australia is considerable. In fact, there are currently around 15,000 people working in this role. The strong demand for model portfolios and managed accounts confirms the growing appeal of outsourcing investment management to professionals, with advisers re-thinking how they operate more efficiently and where they can add the most value to their clients.

Beyond this group are the considerable number of estate planning and not-for-profit (NFP) lawyers. Accountants that advise HNW families and NFPs also have significant influence. There are over 139,000 chartered accountants globally.

The professional adviser can play an important role in adding to Australia’s social capital, through their technical role in facilitating effective giving structures and strategies, as part of their advice process.

Many advisers understand the importance of strengthening their role, thereby better serving their client, deepening the client-adviser relationship, and becoming more competitive in an increasingly competitive environment.

Advisers to the wealthy have a unique opportunity to help leverage their clients’ philanthropic potential. They can provide the tools that will help their clients meet their personal, financial and tax-planning needs, and potentially help clients convert personal wealth into social capital. Advisers can help clients make a difference both in society and in their personal lives, through effective giving.

Advisers face multiple challenges

Professional advisers today face multiple challenges in advising clients on philanthropy planning. The findings of our research targeting professional advisers indicates that many advisers report that they do not have the skills and expertise to offer philanthropic advice, many feel ill-equipped to introduce the topic into their advice conversations.

This can mean that, despite advisers’ best intentions, not all clients will necessarily receive the quality advice that will equip and motivate them to achieve their philanthropic aspirations.

Our research is aimed at better understanding how well advisers are meeting their clients’ philanthropic needs and informing the development of tools and resources to support them to advise their clients more effectively.

Results

HNW online survey

• Average age of 50 – range of ages from 24 to 67.
• 80% female.
• 78% reported they gave a significant amount to charity with 25% having used either a Private Ancillary Fund (PAF) or Sub-fund to structure their giving. However, all responded they gave directly to charity.
• Those that held charitable funds within a PAF, held between $5-$10m.
• Those that held funds in a Sub-fund held up to $5m in there.

The results show us how engaged they are

Approximately 43% of all respondents intend to leave a charitable bequest.

Those that were involved in structured giving were far more likely to make a charitable bequest – 100% of respondents holding funds within a PAF and 67% holding funds in a Sub-fund indicated this intention.

All respondents reported that they engaged an accountant, and two thirds engaged a financial adviser.

One-third of clients reported that philanthropy was only discussed with their adviser when they proactively brought it up themselves.

Encouragingly, two thirds reported that their advisers often brought up the topic of philanthropic interests.

Many were interested in the technical and financial aspects of structured giving – the types of structures (67%) and the tax benefits.

100% of respondents wanted their adviser to discuss the tax benefits of structured giving.

The results showed that clients wanted their advisers to discuss the following aspects around giving:

• 83% want to discuss creating a family legacy.
• 100% want to discuss estate planning.
• 67% wanted to involve their family in discussions around giving.
• 83% wanted to discuss their passion for a cause.

How important is tax?

The financial aspects of structured giving are certainly important to clients. However, in terms of motivation for giving, reasons such as tax were further down the priority list than some advisers might have expected.

The top responses given were:

• To make a difference
• To support a cause they care greatly about
• To share family values

All respondents were actively giving through a structure or directly. When asked to rate possible barriers to being engaged in philanthropy, none were strong deterrents. It should be noted that the highest rated risk was that, through giving, there would not be enough funds left for their own needs.

You only need as little as $25,000 to start a structured giving program

It appears that many people don’t realise how accessible structured giving is.

Around one third of respondents were not sure how much they would need to get involved with structured giving.

All respondents believed $500,000 or more in assets is required before someone can consider charitable giving through a philanthropic structure.

Professional adviser responses

Our survey sample included financial advisers, lawyers, accountants and bankers. However, the overwhelming majority (95%) of responses came from financial advisers. Respondents were aged between 24 and 72. 75% of those who participated in the survey were male.

85% of respondents looked after clients with investible assets of over $2 million, and were the primary adviser for the client.

Advisers are not in the habit of talking to their clients about charitable giving.

Only 37% reported that it was their practice to ask clients about their interest in charitable giving.

In practice, however, even fewer actively discussed the topic. Only 15% discuss it with all their clients, and most either do not discuss it at all, or only discuss it with a small proportion of their client base.

 

70% of advisers responded that their clients did not use an ancillary fund for their giving. 8% unsure if their clients used ancillary funds for their giving.

Many advisers are in the dark about their clients’ giving practices.

As the chart shows, one fifth (20%) of advisers didn’t know if their clients were giving significant amounts to charity.

It’s an important thing to know because when a client is giving significant amounts to charity it indicates that they could be very interested in philanthropy. If the adviser is unaware of this interest, they will probably miss the opportunity to add value through a structure. They are also missing the opportunity to discuss something with their client that means a great deal to them.

A staggering one third were not sure whether their clients intended to make a charitable bequest at their death.

Strengthening relationships with clients

Some of the respondents that did have clients with ancillary funds, reported positive impact on the relationship they held with their clients. They reported they knew their clients better and understood more about their client’s values and what is important to them.

So why are they not having the conversation with their clients?

The most frequently cited reasons for not raising the topic of charitable giving and structured philanthropy are:

• I don’t have a working relationship with a philanthropic specialist who I know and trust (63% at least somewhat agreed with this statement).
• I don’t have an adequate understanding of structured giving through ancillary funds and charitable trusts (67% at least somewhat agreed with this statement).
• My clients have not expressed interest in philanthropy in the past (49% at least somewhat agreed with this statement). This is an important factor. 71% of responding advisers acknowledge that they only discuss philanthropy if their clients bring it up first.

Advisers overestimate the financial aspects of giving, tax and level of wealth

When advisers do bring up the topic of structured giving, it is often financially driven rather than to help the client achieve their personal or legacy goals.

61% of advisers say they will bring up the topic of philanthropy if there is a high level of tax to be offset, or if the adviser is confident that their client has accumulated far more assets than they need. When asked at what asset level they would encourage clients to consider charitable giving, they considered $5 million and over.

Why do they think clients are motivated to give?

Interestingly, advisers rated tax reduction as a far higher motivator than clients themselves do. Otherwise, they recognise that clients are motivated to give back to make a difference, and that they care greatly about a cause.

How can we support the advice sector to facilitate client philanthropy?

Advisers have told us that they want to upskill and improve their knowledge. At the top of their list was resources that could help them work with their clients more effectively.

75% of the advisers who develop strategies for clients to engage in structured giving refer the client to other professionals to help them with such tasks.

Summary of research findings

Often, conversations around giving only happen when:

• The client raises the topic
• A major tax event triggers action
• The adviser believes the client has wealth beyond their needs

Advisers tend to think of tax as the motivator for philanthropy, and yet there are often other powerful motivators that are more important to clients.

Many advisers are reluctant to discuss philanthropy with clients mostly because of a lack of three things:

• A relationship with a philanthropic specialist they can confidently refer to
• Philanthropic training in structured giving
• Resources they can share with clients

Elston has worked with a number of advisers, accountants and legal professionals who work collaboratively with their clients and provide advice on structured giving. We also run training workshops that teach not just the what and why, but how. These practical initiatives, paired with simple tools and resources, have been welcomed by a number of advisers around the country.

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References:

1. Wealth Transfers and Their Economic Effects Research Paper by Productivity Commission. https://www.pc.gov.au/research/completed/wealth-transfers/wealth-transfers.pdf

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If you’d like to know more about Elston Philanthropic Services, contact Susan here.