With the help of financial advisers, baby boomers are putting more money into donor-advised funds.
Seventy-eight percent of Americans who set up charitable vehicles and trusts do so on the recommendation of a financial adviser, according to the National Philanthropic Trust, an independent public charity that promotes charitable giving.
Assets in donor-advised funds climbed 24% to $21.65 billion last year, making the funds the fastest-growing charitable vehicle, the NPT said.
Last year, the average account in a donor-advised fund had $201,865 in assets, a 16% jump from the amount in 2005, according to the NPT, which is based in Jenkintown, Pa.
By 2010, donor-advised funds will likely become the most popular charitable-giving tool in the United States, holding more assets than pooled-income funds, charitable-remainder-annuity trusts and charitable-lead trusts combined, the NPT said in a report released Aug. 24.
“In the coming decades, charitable growth in general, and donor-advised funds in particular, will be fueled by an intergenerational transfer of wealth expected to result in $21 trillion to $55 trillion in charitable gifts,” the report said.
The popularity of donor-advised funds has risen in recent years, particularly as advisers and their clients have become more familiar with them. A donor-advised fund, set up under the tax umbrella of a public charity, provides tax breaks to donors.
“We work very closely with advisers to assist them in helping their clients who are looking at being philanthropic and creating a donor-advised fund,” said Andrew Hastings, vice president of the NPT.
More education needed
Even so, more education about donor-advised funds is needed, according to advisers.
In the past, non-profits haven’t done a good job of explaining to advisers how donor-advised funds work, said Rita Robbins, New York-based president of Invescor Advisory Services Inc. in Madison Heights, Mich.
While that is changing, she still worries that many advisers fail to consider donor-advised funds when assembling financial plans for their clients.
“I would say the most common mistake is that advisers don’t even talk about this with their clients. Most advisers don’t bring it up even if they’re doing a full-blown holistic plan,” Ms. Robbins said. “It tends not to be discussed.”
Part of the problem is that advisers often lose control of assets once they are directed into a donor-advised fund, said David Strege, a senior wealth coach with Syverson Strege & Co. in West Des Moines, Iowa.
“Many donor-advised funds take over the investment work, and it cuts out the adviser,” he said.
However, more charities are now encouraging partnership with advisers, Mr. Strege said.
Environmental Defense, for example, created a donor-advised fund in January that allows advisers to continue managing client assets in the fund, said Anne Doyle, director of planned giving at the New York-based advocacy group.
“Ours is unique among advocacy groups because we allow financial advisers to continue to work with us,” she said. “Their funds aren’t divorced from them; they work in partnership with us.”
Trusted advisers
Donors also like the idea of keeping their adviser involved, Ms. Doyle said.
“A lot of people trust their financial adviser,” she said. “The financial adviser is part of their family.”
Marc B. Schindler, an adviser with Pivot Point Advisors LLC of Bellaire, Texas, has no problem recommending donor-advised funds — provided it’s in the clients’ best interests.
“I think that there are a lot of things other advisers should be telling clients, but they don’t, because they don’t make any money on it. And this takes money away from advisers,” Mr. Schindler said.
He thinks it is in his long-term best interest to give the client the best advice, even if it means losing assets.
As more non-profits introduce donor-advised funds, advisers can look forward to a host of new features aimed to compete better with the big commercial donor-advised funds offered by such companies as Boston-based
Fidelity Investments, said Beth Gamel, a certified public accountant with Pillar Financial Advisors Inc. in Waltham, Mass.
“I’d say unless it’s a fairly unsophisticated charity, they’ve all begun to add these bells and whistles, because they had to,” she said.
