Identifying significant hurdles in the charitable planning world

By Brent Enders

USA Financial


"Once people get introduced to donor-advised funds, they typically will give more. There’s certainly a greater tax benefit that they can achieve and it’s a whole lot easier."

During a recent interview with Wealthnetic’s CMO, Mark Mersman, we discussed donor advisor funds and the niche that can be created when advisors get involved in charitable planning. Mark explains the complexities of charitable planning and how to overcome them, as well as how to begin having conversations with your clients and prospects on the topic of donor advised funds. The following is a transcript of our conversation:

Enders: Mark, one of the things we’re going to chat about today is our experiences in working with charitable giving, and particularly in the donor-advised funds arena. But as we and our advisors have been going through this process, we’ve been learning a lot. Both good things, but also challenges and hurdles in that world, and thought it’d be helpful to share so others who are working in that arena or want to they, too, can understand some of the things that we’ve learned.

Mersman: Yeah. I think from an advisor perspective, one of the challenges at the advisor level is the appearance of the complexity behind getting involved in charitable planning. We’ve worked with advisors on numerous cases as it relates to charitable remainder trust, charitable remainder annuity trust, unitrust, that sort of thing. Having conversations with advisors, if there’s not a lot of familiarity there, that leads to not having a lot of confidence in it, and a lack of confidence is not going to go well when you’re sitting down with a consumer.

So I think, as it relates to some of the more complex charitable giving and planning in that arena, sometimes that can really become a difficult world to enter, which is the beautiful thing about our excitement and ultimately why we’ve gravitated to this donor-advised fund idea as a great arrow to have in the quiver, so to speak.

So, the familiarity of and understanding, especially as a donor with a donor-advised fund, the simplicity of it. It’s very easy for an advisor to wrap their arms around and it thus becomes very easy for them to be able to communicate to the consumer once that confidence is there. So that’s the first thing, is understanding that you don’t have to be scared of this concept and you don’t need to be scared of having that conversation.

Enders: Right. The other thing that’s encouraging, too, Mark, is a lot of consumers don’t want it to be complicated like that, either. They are not interested and sometimes willing to get into some of the complex estate planning because of the time, the costs ... As soon as somebody starts trying to wow them with some of this high-end estate planning, they say, “That’s just too complicated.”

Mersman: It’s the fear of the unknown. And I think to boil it down even more, the reality is that consumers want to purchase things and be involved in things that they understand. And if you can present them solutions that are easy for them to understand, they’re going to easily gravitate to it a whole lot more.

Today, we really wanted to talk about some of the challenges in working in this world, either with individuals, if you've got individual investors that you’re talking to; what are the challenges, what things do you watch for, look for to help that conversation go easier and better; also what happens if you’re working with organizations, non-profits, foundations, churches ... because there are things you need to know in that world if you’re going to try to open up those doors, too. Just some base knowledge that I think will help people.

Mersman: I guess we’re kind of looking at it both from a challenge standpoint as well as an opportunity. If I’m sitting with you and I make the commitment and I say, “I want to become more and more involved in donor-advised funds. Where do I start and what do I need to be on the lookout for?” the first place that you have to start is with your own client base.

I think that a lot of advisors might think if they’re going to get into this planning they need to go out and secure a new client, which isn’t the case. You have the opportunity to have a very different conversation with your existing clients, just through your annual reviews; to sit down with them, especially if you see their tax returns and you identify that they certainly give money to various charities or their church or whatever it may be, to simply make the comment, “I see that you give X amount of dollars. You gave X amount of dollars last year to these various charities. Curious. Why didn’t you do it through your donor-advised fund?”

Now you’ve got a launching pad into a conversation that you’re bringing a valuable resource to them.
Enders: I think you’re right. One of the mistakes advisors make is what you said, is thinking it’s for new prospects only. And when you dig and ask advisors, “Well, why do you feel that way? Why don’t you go to your existing clients first?” Some of the answers you hear are, “Well, you know, I’ve never had that conversation before. So to have it now I feel awkward because it’s like I shortchanged them and we didn’t talk about it years ago.”

Our argument would be, “Well, don’t run away from it. Just talk about it. I’ve been really learning and reading and educating myself on things along the way throughout my career in the business, and there’s something that we’ve never talked about before that I think’s important to introduce you to. And if I don’t, I feel like I'd be shortchanging you on the relationship side."

Take a different approach. Don’t feel bad or apologize that you didn’t know what these were and didn’t talk to them about it. But you've got to go back to them. Because if you don’t, I do think you run the risk of losing clients later. Somebody might talk to them, and if you didn’t, then they might question why. So don’t allow yourself to get caught in that. And then, also, don’t think that, “Well, gee, I just don’t want to rock the boat. The relationship is good.”

Mersman: I think it a lot of it comes down to the basics of knowing your client. And I think if you don’t know whether or not they’re involved in the charitable arena, don’t just assume that they are. One thing that you may also see as you’re going through a conversation with clients is, especially as you’re working with seniors, they may not all of them have a lot of money to make donations with. They may be participating and volunteering at a charity or two that, if you have this conversation with them, it may open up a door of opportunity that you just didn’t know about or hadn’t thought about.

So even if the person that doesn’t give any dollars to a charity, they may be time, and that could equally be as valuable to you, to them and the charity.

Enders: Getting back to that tax return comment, if you know a person well enough, you certainly have earned the right to look at their tax returns if you haven’t been. And a lot of advisors, it’s just part of the practice. They’ve got the tax planning included. You can even do this with prospects. If you want to identify early on if they are charitably minded and you haven’t quite got to the point yet where it seems appropriate or acceptable to ask to look at tax returns, even when you’re just doing a fact finder and just asking about their investments and their holdings and their assets and their policies, if they own annuities, you simply ask the question, “Well, Mr. and Mrs Smith, is this live-on money or leave-on money?”

Then they’ll ask, “Well, what does that mean?” Just like if you ask, “Well, have you ever used donor-advised funds?”

“Well, what is that?” So, that will let you have a conversation earlier, if you haven’t had a chance to look at the tax returns yet.

Mersman: As you’re going through initial meetings with potential clients, one of the things that we’ve emphasized at various consulting sessions and group sessions that we’ve done is the fact that you’re auditioning for the job as their new advisor. And in doing so, it’s your job to create that wedge between the incumbent advisor and you. What better wedge question to ask than, “Did your advisor set you up with a donor-advised fund?”

99 percent of the time the answer will be no.

You’ve immediately created a wedge because that consumer’s thinking, “Why didn’t I get introduced to this?” Once people get introduced to donor-advised funds, they typically will give more. There’s certainly a greater tax benefit that they can achieve and it’s a whole lot easier.