Tough questions surround philanthropy

Margaret Franklin is president and CEO of Kinsale Private Wealth and chair of the global Board of Governors of the CFA Institute. Anne Brayley, vice president of professional advisory services at the Toronto Community Foundation, spoke with her about how she discusses philanthropy with her clients.

Brayley: What role does philanthropy play in your client conversations?

Franklin: Once clients achieve financial independence, they begin to think about their legacy. They sometimes struggle with how much of their wealth to leave to their children, and that is often the time when leaving a philanthropic legacy also comes into the discussion.

Brayley: What things are generally on a client’s mind about philanthropy?

Franklin: Wealthy clients are always being asked to give. For many it is overwhelming, and they are concerned about the efficacy of their giving. These things combined are causing them to take a more strategic approach to their philanthropy. They are looking for ways to filter information, so when they are asked to give they can respond with an articulate answer that matches their specific philanthropic goals.

Brayley: How do you help your clients create those filters?

Franklin: We show clients how they can apply to philanthropy the same framework they use with their other investment decisions. We ask about a client’s time horizon, their unique circumstances, tax situation, risk and return objectives and asset liquidity. By applying these principles, it creates a focused philanthropic profile. Clients become more confident in the process.

Brayley: Where do endowments fit into the discussion?

Franklin: Clients can think about the long-term legacy an endowment will create once they have financial independence. Clients want to have flexibility within the endowment so they can change the direction of their giving if their priorities change. Flexibility is also important when thinking about successors for future generations. The client’s family may or may not want to be involved, and it’s best to think about this ahead of time.

Brayley: Many clients set up private foundations to achieve that flexibility. Are there other options?

Franklin: One of the best options is to create a donor-advised fund under the umbrella of a public foundation like a community foundation. This achieves all the client’s flexibility goals, and also takes away the administrative burden of running the foundation. Most important, though, is the knowledge and advice a community foundation provides — it can help guide the strategic direction of the client’s philanthropy. Typically, community foundations have done in-depth research on key issues, and can also point clients to a wide variety of charitable organizations in their areas of interest. Much like analysts in the investment industry, community foundations provide a breadth of information and due diligence on the organizations a client may be considering for their donations.

Brayley: How does the philanthropic discussion enhance your client relationships?

Franklin: Philanthropic giving is part of a client’s range of choices in wealth management. If advisors understand the psychology of their clients, they have an opportunity to engage in a creative discussion that touches them deeply. It’s also an opportunity to help clients move from philanthropy by default to philanthropy by design.

Brayley: How can an advisor add the most value to a client in the philanthropic discussion?

Franklin: Clients have three reasons for giving: their friends and family have asked; they feel they should contribute to a larger social cause; and they are passionate about the cause and want to give. I think the best thing we can do for clients is help them make strategic decisions about where they most want to give, and then help them manage the process of giving.