Generosity is trending amongst affluent households. Their wealth management advisors should pay attention in order to best support clients’ charitable objectives.
Bank of America and Indiana University Lilly Family School of Philanthropy partnered to produce the 2021 Bank of America Study of Philanthropy: Charitable Giving by Affluent Households. The study offers notable insights that wealth management advisors can leverage to better serve the charitable needs of their clients.
The study surveyed over 1,600 households with net worth exceeding $1 million or have annual household income of at least $200,000. It provides new insight into how affluent households engage in philanthropy. Of note:
- Affluent households remained consistently generous in their giving.
- Nearly 90% of affluent households gave to nonprofit organizations in 2020, compared to 50% of the general population who give.
- The average amount donated increased by 48% from 2017, from $29,000 to $43,000. By contrast, members of the general population give just under $2,500 on average, or 5 times less.
- Roughly half of affluent donors donated primarily based on cause, rather than organization.
- Sustainable and impact investing participation has doubled since 2017.
- More affluent donors used giving vehicles to reach their charitable goals (i.e. donor-advised funds).
How can advisors leverage these insights to support their clients’ philanthropic pursuits?
Despite the financial implications of the pandemic, charitable activity increased in amount donated, with 90% of affluent households contributing to non-profit organizations.
Advisors should know that the motivation for client charitable activity is more complex than lowering a client’s taxable income. While tax-optimization is an added incentive for affluent clients to engage in philanthropy, for most it is not the sole motivation. In fact, 72% of respondents say their charitable giving would stay the same, even without income tax deductions.
Thus, charitable conversations should not center exclusively on financial benefits to sharing wealth, but rather a more holistic vision of financial wellness.
By proactively initiating conversations that explore the values and causes that mean the most to their clients, advisors can better understand and advance their clients’ charitable needs.
However, there are two primary challenges most commonly faced by affluent donors:
- Identifying what they care about and deciding where to donate (40%)
- Understanding how much they can afford to give (32%)
Financial advisory firms can help clients navigate these challenges. Their advisors should be prepared to have conversations about philanthropic priorities with their clients.
Amongst affluent donors, there is a growing trend toward cause-based giving.
Specifically, 45% of affluent donors gave in line with a specific organization, a decrease from 54% in 2017. By contrast, 44% say they gave based on the issues that an organization addresses, an increase from 31% in 2017. Issues-based philanthropy is becoming the future of giving, particularly among Millennial and Gen Z donors. Over half (55%) give based on causes they consider important, while 35% base giving on specific organizations.
When advisors proactively seek to understand the motivations and areas of interest for donating, they strengthen the bond with clients, increasing retention in turn. By probing clients to identify the causes, geographies, and impact they care about the most, advisors can help them make informed decisions about where to donate.
"Charitable activities last year and into this year reflect unwavering commitments by philanthropists to give in good times and bad, and to address societal issues as well as challenges faced in their local communities," said Katy Knox, President of Bank of America Private Bank.
Advisors should pay attention to current events and philanthropic trends to guide client conversations.
In 2020, many affluent donors turned their attention to navigating the pandemic as well as social and racial justice. One in three households increased their giving to support needs related to the pandemic. Among those who gave, 90% supported their local communities by giving to basic needs locally.
“One in five affluent households supported social and racial justice causes through their giving. And 11% said social justice was one of their top three most important cause/issue areas, and 19% wanted to know more about this area, indicating potential room for growth,” says Bill Jarvis, a philanthropic executive at Bank of America.
Another emerging trend is the parallel growth in charitable giving and sustainable investing.
Affluent households are increasingly interested in sustainable investing–that which generates financial returns as well as environmental and social benefits. While only 7.2% participated in sustainable investing in 2017, that has increased to 13.2% in 2020.
Notably, nearly 60% of donors shared that their sustainable investments were supplemental to charitable contributions. Financial advisors can simultaneously support both areas of interest by investing charitable assets in ESG pools. Through this practice, assets earmarked for non-profit organizations can grow in investment pools, such as those affiliated with donor-advised funds (DAFs), before granting to recipient non-profits. This poses an opportunity for advisors to help clients stretch the impact of each dollar.
"Innovative forms of giving are being embraced by a diverse donor population whose influence, expectations and priorities are expanding traditional notions of philanthropy," said Una Osili, Ph.D., Efroymson Chair in Philanthropy, Professor of Economics and Philanthropic Studies and Associate Dean for Research and International Programs at the Indiana University Lilly Family School of Philanthropy. "Financially empowered and technology-enabled, these affluent donors are looking to deepen their impact, using a range of tools and vehicles available to them to advance the issues they are passionate about.”
Giving is trending digital, and advisory firms should too.
Technology was a crucial for affluent households to support causes and organizations in 2020 with 56% of donors giving through a non-profit’s website, 18% participated in crowdfunding, 17% used a payment processing app, and 13% contributed via a social media tool. The increased usage of digital platforms to enable charitable giving is expected to continue in the future.
Additionally, a growing proportion of affluent households are leveraging giving vehicles. For example, 7% use donor-advised funds compared to 5% in 2017. This growth can be expected to continue in coming years. In recent years, donor-advised funds have grown in popularity across income brackets, with the number of accounts growing by 19.4% from 2018 to 2019.
As more affluent donors leverage charitable vehicles, advisors should consider growing the use of donor-advised funds within their practices. By bringing an increasingly popular tool in-house, advisors will strengthen relationships with affluent clients.
From aligning giving with ESG investing to adopting digital strategies to supporting the use of giving vehicles, there are many lessons to be learned from the charitable interests of affluent clients.
How will your advisory firm take these trends under consideration to support clients’ comprehensive financial goals?
Download this use case to learn more about serving the philanthropic interests of wealthy clients.