Advisers help find donor advised funds for clients' charitable dollars

The funds provide donors an immediate tax deduction and an opportunity to guide the funds' investments and their eventual dispersal to charities

Dec 14, 2016 @ 12:13 pm

By Liz Skinner

Financial advisers with clients interested in impact investing may want to help them put their philanthropic dollars to work supporting their social missions before they commit resources designed to secure their financial futures.

One way to use charitable dollars to invest in projects that promise positive social or environmental impacts as well as a monetary return, is through donor advised funds, which provide donors an immediate tax deduction and an opportunity to guide the funds' investments and their eventual dispersal to charities.

(More: A donor advised fund can benefit clients as well as charity)

Donor advised funds, the fastest growing charitable vehicle in the country, don't require 5% annual grant distributions like charitable foundations do. They offer the biggest tax benefits and also allow for anonymous donations.

Certain companies that provide donor advised funds have more experience supporting impactful projects, such as Impact Assets, RSF Social Finance and Tides. The first two of these have low $5,000 minimums.

“Many of our clients are very charitable and get excited about using their donor fund in such a way to further the impact they want to have on the world,” said Michael Lent, founding principal and chief investment officer of Veris Wealth Partners.

It's specific to the particular donor advised fund, but the investment options range from investments that consider environmental, social and governance criteria of public companies to community investment notes and other private investments, he said.

The largest DAF is Fidelity Charitable Gift Fund, which has about $15 billion in assets. It offers one impact investing pool with TIAA-CREF Social Choice Equity fund as the underlying investment.

Scott Nance, head of business development at ImpactAssets, a nonprofit financial services firm that spun off the Calvert Foundation, said people often view their capital differently once they've contributed it to charity.

They want to make sure the funds are secure and have some growth before they are ultimately granted to non-profit organizations, but they aren't focused on attaining a particular rate of return. It seems easier for them to think about investing that capital for good, he said.

GATEWAY TO IMPACT

The experience can yield further interest in impact investing.

“Once investors have opened that fund and have seen the returns they can get, and have seen the opportunities available, they often want to do things differently in their taxable portfolio,” Mr. Nance said.

Helping clients align their charitable gifting with their personal values also can help advisers deepen their relationships with these clients and give advisers more experience with impact investing, a growing space being driven by demand from women and younger investors.

(More: RIAs making investments to attract socially responsible clients)

Assets in sustainable, responsible and impact investment strategies equal about $8.7 trillion in the U.S., according to a US SIF Foundation report released last month. That's up 33% from $6.57 trillion in 2014.

Matthew Weatherley-White, managing director at the Caprock Group, said several of his clients have used DAFs to fund impact investments, and that “experimenting with charitable capital helps expose investors to what impact investing offers."

One of his clients, an 80-year-old widow, collapsed her family foundation into a DAF that is focused on improving the environment and boosting the empowerment of women.

0
Comments

What do you think?

View comments

Recommended for you

Upcoming Event

Mar 13

Conference

WOMEN to WATCH

InvestmentNews is honoring female financial advisers and industry executives who are distinguished leaders at their firms. These women have advanced the business of providing advice through their passion, creativity, inclusive approach and... Learn more

Featured video

Events

Vanderbilt's Distante: Storytelling and ESG Investing

Many investors and advisers want to make a difference with their investments. This means ESG investing is about telling the right stories to the right investors who want to make a difference. Vanderbilt's Stephen Distante, offers his perspective.

Video Spotlight

Help Clients Be Prepared, Not Surprised

Sponsored by Prudential

Recommended Video

Path to growth

Latest news & opinion

Brace for steepest rate hikes since 2006 in new year

Citigroup, JPMorgan Chase predict average interest rates across advanced economies will climb to at least 1 percent in 2018.

Why private equity wants a piece of the RIA market

Several factors, including consolidation in the independent advice industry and PE's own growing mountain of cash, are fueling the zeal to invest.

Finra bars former UBS rep for private securities transactions

Regulator says Kenneth Tyrrell engaged in undisclosed trades worth $13 million.

Stripped of fat commissions, nontraded REIT sales tank

The "income, diversify and interest rate" pitch was never the main draw for brokers.

Morgan Stanley fires former Congressman Harold Ford for misconduct

Allegations against the wirehouse's former managing director include sexual harassment, which Ford denies.

X

Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print