The amount of new capital being transferred into private foundations has exceeded $20 billion per year since 2000, says King McGlaughon of Foundation Source, which provides back-room support for foundations. Here, McGlaughon tells contributor Michelle Lodge how a financial advisor's knowledge of philanthropy gives him or her an edge.
1. Why do financial advisors need to know about charitable giving?
They should understand that philanthropy is a core financial behavior of most of their clients, most of whom give money to charities every year. The higher the client's net worth, the more likely it is that they are making substantial contributions to charitable organizations each year: 95% of clients with a net worth of $1 million or more give to charity each year; 98% of clients with a net worth of $5 million or more do so. That being the case, financial advisors need to understand charitable giving with as much insight and knowledge as they have about financial planning, retirement planning, investment management and planning, and overall wealth planning. Clients are seeking and want the same level of strategic and tactical advice and planning around their philanthropy as they do advice and planning in the other core areas of their financial lives.
2. What is one of the biggest misconceptions about family foundations?
Many believe that operating a foundation is too complex and costly to make sense or to be managed effectively. That belief is dated, at best, and ignores 40 or more years of knowledge and experience gained by advisors and those with foundations since the adoption of the current set of rules and regulations that govern private foundations (enacted, for the most part, in 1969), as well as ignoring the significant technological and service advances over the past 15 years in providing administrative and strategic support to private foundations.
3. What do clients want to learn about running a foundation?
They want to understand the various tools, tactics and strategies, such as CRTs [charitable remainder trusts], CLTs [charitable lead trusts], charitable gift annuities, private foundations and donor-advised funds, that will allow them to maintain and increase their support of organizations they value or community issues they wish to address without undermining or reducing their own financial security or disrupting their overall wealth planning goals and objectives. In general, they do not want direction or advice on what charities to support.
4. How affluent do you have to be to fund a family foundation?
Clients often believe that they are "not wealthy enough" to have a foundation; that's something that Fords, Rockefellers, Gateses or Buffetts have, they think, not my family. Or, they feel that they can't set aside enough money. The fact is, the vast majority of private foundations in the U.S. are of fairly modest size, under $1 million in assets.
5. How do you manage gender differences in giving?
Values, attitudes and ways of communicating can vary dramatically among family members of different generations and genders, as can their knowledge of new tools, networks and strategies. Generally, women give away 10% to 15% more of wealth both year-to-year and over time and tend to see their philanthropic activities as a series of engagements within a longer-term relationship with an organization, cause or served population. Men tend to treat charitable gifts as transactions that take place relatively quickly and effectively at various points in time. Men tend to be more focused on the financial and tax benefits of a charitable gift than women.