During this year’s season of giving, advisors have an opportunity to be valuable resources to their clients and catalysts for greater contributions, particularly as a recent poll by Fidelity Charitable indicates that donors plan to contribute more this year, given concerns about nonprofits and recession fears.
In addition, advisors might view an increase in end-of-year inquiries on charitable donations as an opportunity to differentiate their advisory practice by bolstering end-of-year giving and tax strategies.
It’s no secret that the major benefit of donor-advised funds (DAF) is the ability to take an immediate tax deduction on the amount contributed. Another benefit is that DAFs can hold funds indefinitely.
Furthermore, DAFs can help clients that may not have crossed the itemization threshold. The 2022 standard deduction is $12,950 for single filers or $25,900 for joint filers. DAF holders can use a bunching strategy to increase contributions–and tax benefits–in one year and disperse them to charities over time. This is particularly beneficial for clients who may have had a windfall year, such as following an inheritance or sale of a business.
DAFs also track client contributions as well as provide a single tax document, which is a major improvement over days of old when donors had to track checks and receipts. Now all the information is all in one place, and the DAF sponsor will make sure the donation goes to a qualified charity that is registered as a 501(c)3 organization with the IRS.
Ironically, even as DAFs have simplified and improved charitable giving while offering new tax strategies, the biggest obstacle to adoption is not client interest but rather a lack of awareness among financial professionals.
Shifting the Advisor to the Center of the DAF Conversation
A study last year from Brigham Young University on DAFs found that most advisors are unaware of them, suggesting more investors would be giving in this time of need with greater advisor awareness. Of those donors using DAFs, surveys show that most people heard about them from places other than a financial advisor.
Further, the study shows that donors have primarily learned about DAFs at their place of work, their involvement in philanthropic institutions, or from family and friends. Notably, professional advisors were less frequently cited as points of DAF introduction.
The study revealed that once advisors set up donors, there is a significant commitment to charitable giving over time. While DAFs were historically costly, inefficient, and labor-intensive to administer, new technological solutions have made it easier for advisors to lead this critical part of a client’s financial life. While the initial setup may require a certain time commitment, the study showed that these vehicles require minimal support afterward.
The impact to advisors of not leading this conversation is to miss an opportunity to meaningfully discover how clients’ values related to their investments, giving an adviser a fuller, more comprehensive picture of how they can help their clients, bolstering the relationship.
Importantly, advisors may earn advisory fees on charitable assets, just as they would for other assets under management. While some larger custodians limit the ability to earn fees on investments of over $250k, TIFIN Give’s technology, for example, uniquely enables advisors to earn a fee no matter what the DAF size.
An Easier Way to Lead the DAF Conversation
Modernized giving platforms have changed the game when it comes to helping clients access the benefits of DAFs.
TIFIN Give was developed with the idea of fundamentally shifting the DAF experience by introducing a more usable digital giving platform. The AI-powered platform adds the next level of personalization, and thematic portfolios can algorithmically adjust DAF investments to reflect giving priorities, making it easier to show clients how to find the charities they are most passionate about and also align their investments with their values.
But it all starts with advisors educating their clients, empowering them, and recognizing their important role in making the world a better place.