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How to Meaningfully Integrate Philanthropy into Your Practice

More strategic and action-oriented than charitable giving, philanthropy demands thoughtful consideration on how to incorporate it into client discussions.
December 2019
December 2019

As more strategic and action-oriented than charitable giving, philanthropy demands thoughtful consideration on how to incorporate the practice into client discussions, especially now as Canada’s wealthy baby boomer generation moves past its mid-60s. Marvi Ricker, Vice President and Managing Director, Philanthropic Services at BMO Wealth Management, shares her insights on how to engage in the meaningful conversations that clients want.

Resolving the Disconnect

The integration of philanthropy into wealth management extends beyond asking clients which charities they would like to support each year. Philanthropy is an approach that’s very much based on an individual’s values – and legacy they want to create – executed in such a way that is measurable, and designed to have a lasting impact. There’s often a misperception that someone has to be Bill Gates to even consider the idea, but this simply isn’t the case. Often, engaging in a passion project, and giving strategically within one’s means, encourages further donation because of the ability to identify with a cause, and see the results.

And we know that Canadians have the desire to give: according to a recent study by the Rideau Hall Foundation, total donations claimed have increased by approximately 150% in real terms over the past three decades to $9.6 billion.1 Notably, however, another research report showed that nearly half of the Canadian participants had no actual process for determining the size of their annual charitable allocation, lacking any intentionality or meaning.2

In fact, BMO-sponsored research showed a stark disconnect between what Advisors perceive, and what clients want; 91% of financial Advisors surveyed said they discussed the subject of philanthropy/charitable giving with their high-net-worth (HNW) clients, while only 13% of the HNW individuals said they had the same discussion.3 And only a third of those said it was meaningful. On top of this, reducing taxes was not a strong giving motivator, contrary to the perceptions of these Advisors. Instead, impact, passion and the desire to give back were at the top of these clients’ incentives.

Quote image

Giving money away is easy. Giving money away well is fiendishly difficult.

Warren Buffet

Starting a Meaningful Giving Conversation

To help bridge this gap, I often remind Advisors that they know their clients, which should allow them to broach the subject gently, without feeling nervous or awkward about the situation. There’s also no reason to fear not having enough knowledge on the topic, because the ability to refer your clients to a specialist engenders further trust in the relationship, and assures them you’re someone they can rely on for sound advice.

David Rockefeller, in instructing his children when giving them allowance, said to use three piggy banks: one for future savings, another for spending now and the last for giving to charity. Advisors should be involved with ALL THREE of these elements.

As a starting point, you have direct access to your clients’ income tax returns, so you would at least know – from the get-go – how they’re currently spending their money. If there’s any charitable giving happening, it can be the perfect hook to ask if they’re happy with the results, or if there is a specific issue/cause to which they’d like to donate with their family. As their long-term partner, it’s always in your best interest to unite a family around any issues of earning, growing or giving money because once the parents are no longer clients, it will facilitate a smooth transfer of wealth to the next generation. Importantly, philanthropy can also be a vehicle for educating younger children about the responsibilities of wealth, and can create a multi-generational sense of identity – both externally to the outside world, and internally, as the family grows.

Hand-in-Hand: Planning and Philanthropy

It’s vital to always frame the philanthropy conversation within a holistic planning context, especially if there isn’t any action on that front currently, since it provides a sense of comfort for clients to understand how much they can actually afford. A safe, open-ended question to probe the discussion is “what do you plan to do with your wealth?” Sometimes, the answer may be that they’re not certain, but they know they don’t want to leave it all to their children. That is a direct opening to ask whether they’ve thought about giving to a cause they’re passionate about, or if they’d like to explore the topic further with the help of an expert. Through wealth projections, Advisors can provide the full picture and the implications of giving, so current needs are accounted for, and clients can see what assets they will have left later in life. Another consideration is whether philanthropy is accomplished through the will, or now – with the latter choice providing an opportunity to involve children into the process. Ultimately, it requires courage to give – and your client needs to be able to see the consequences of that donation on paper, and that it was accomplished both carefully, and methodically.

Charitable Giving vs. Philanthropy

Charitable Giving
Immediate one-time relief to problem
Lengthy process focused on root causes of problems
Personal and emotionally driven
Setting long term strategic goals
No ongoing relationship
Rational strategic decision making
No opportunity to influence disbursement of funds
Ongoing monitoring & assessment

Source: BMO Wealth Management, 2019.

Understanding Structures: Donor-Advised Funds vs. Private Foundation

To help integrate a more strategic approach, there is a need to raise the level of awareness about the changing landscape of philanthropy. For example, first introduced in the U.S. in the 1990s, donor-advised funds (DAF) are becoming increasingly popular in Canada, with some 30,000 Advisors having direct access to a DAF program as a necessary part of the wealth management tool box. Think of DAF, a structured giving vehicle, as a mini-foundation for affluent Canadians who don’t want to be directly involved in the issues, or who may not have an ability, or interest, in establishing a private foundation.

The choice between DAF, or a private foundation, really boils down to a lifestyle situation: I often use the analogy of a house versus a condominium to explain the concept. The house is like a private foundation in that you own and assume responsibility for it, with complete latitude as to what decisions are made. Meanwhile, DAFs are like a condo in that you only own space in the building, with no command over its structure or appearance. I advise clients that while there’s no actual legislation, anything shy of $1 million is not ideally suited for a private foundation, while at BMO Wealth Management, the DAF program begins at $100,000. DAFs are more targeted for individuals or families who have a list of organizations they give to each year, as opposed to those focused on delving into the issues and leaving a lasting footprint. Tax benefits are the same, whether a client gives directly to a charitable organization, or to a public, or private foundation. However, it is much more tax advantageous to give appreciated publicly-traded shares versus cash, because the donation is calculated at market value, so any capital gains that have occurred are not taxed.

Looking Beyond Tax Savings to Create an Impact

Still, to successfully broaden your practice into philanthropy, it’s essential to see beyond the lens of investments and tax-savings to get to the heart of how you can help clients think strategically – and meaningfully – about their future wealth plans. While taxes are part of the consideration, they should only dictate how much people give – and when, but not whether they donate. In fact, research increasingly shows that Canadians actually want to be encouraged by their Advisors to envision what they can achieve as civic or community-minded people, and supported in their desire to make a profound societal impact.

To learn more, or for other ideas to enrich your practice and add value for clients, contact your BMO Regional Sales Representative.

As with all tax-related decisions, your clients should consult with a professional tax advisor to determine which unique strategies make the most sense for them.

Also in the December 2019 Issue of Insights:

2 The Personal Philanthropy Project. Imagine Canada. February 2017.

3 BMO Wealth Management, October 2014.

BMO Wealth Management Disclosure:

BMO Wealth Management provides this publication for informational purposes only and it is not and should not be construed as professional advice to any individual. The information contained in this publication is based on material believed to be reliable at the time of publication, but BMO Wealth Management cannot guarantee the information is accurate or complete. Individuals should contact their BMO representative for professional advice regarding their personal circumstances and/or financial position. The comments included in this publication are not intended to be a definitive analysis of tax applicability or trust and estates law. The comments are general in nature and professional advice regarding an individual’s particular tax position should be obtained in respect of any person’s specific circumstances. BMO Wealth Management is a brand name that refers to Bank of Montreal and certain of its affiliates in providing wealth management products and services. Not all products and services are offered by all legal entities within BMO Wealth Management. BMO Private Banking is part of BMO Wealth Management. Banking services are offered through Bank of Montreal. Investment management services are offered through BMO Private Investment Counsel Inc., an indirect subsidiary of Bank of Montreal. Estate, trust, planning and custodial services are offered through BMO Trust Company, a wholly owned subsidiary of Bank of Montreal. BMO Nesbitt Burns Inc. provides comprehensive investment services and is a wholly owned subsidiary of Bank of Montreal. If you are already a client of BMO Nesbitt Burns Inc., please contact your Investment Advisor for more information. All insurance products and advice are offered through BMO Estate Insurance Advisory Services Inc. by licensed life insurance agents, and, in Quebec, by financial security advisors. ®“BMO (M-bar Roundel symbol)” is a registered trade-mark of Bank of Montreal, used under licence. ®“Nesbitt Burns” is a registered trade-mark of BMO Nesbitt Burns Inc. All rights are reserved. No part of this publication may be reproduced in any form, or referred to in any other publication, without the express written permission of BMO Wealth Management.

BMO Global Asset Management Disclosures:

This article is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party. Investments should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance. Any statement that necessarily depends on future events may be a forward-looking statement. Past performance is no guarantee of future results. Investments should be evaluated according to the individual’s investment objectives. Professional advice should be obtained with respect to any circumstance.

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