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.


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.


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