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Randy Fox Interviews Claire Costello, part 2
Part two of the interview with Claire Costello provides further insights into the needs of the affluent donor and provides advisors with a clear path to follow to improve the philanthropic aspect of their planning process.
Randy: There was a lot that was just said, so let me just summarize ... not summarize, but reinforce some of the key things that you said. Which is, for advisors ... again, this is not intended to leave out donors, but for advisors, really beginning the conversation, because donors struggle with finding out where they want to give, and how they want to give. We always want to tell them how to give, but if they don't know where to give, or what they believe in, it is a challenge for them. Also, for us as advisors, for the advisor community, to get out in the community, and to begin to understand the opportunities that are out there so we can help direct the people that are coming to us for that advice. This is beyond logical. It just makes perfect sense for those advisors that really want to participate in philanthropy as part of their practice, in my opinion, it should be all advisors, but it never will be-
Claire: I think community foundations are a great place to start for those who are fortunate enough to live in a community which has a community foundation. It's really a hub of both donors and nonprofit organizations, and it's a great place to find your way. I commend to all of you a looksy at your local community foundation, and perhaps start there to try to figure out how to best get some traction in the space, and begin to build your network.
Randy: That's great advice, as well. I'm very tied into the local community foundation here, and have been for a number of years, have great relationships. They're a great organization, really serve their community well, and it's great to see that kind of leadership on a local basis. They need advisors. They need the help. That's where their donations come from.
Claire: The other thing I think would be important to your audience is that one of the other top learning opportunities and challenges identified by the wealthy donors that we polled is the challenge in bringing younger family members, children, grandchildren, and so forth, into the fold. We found that relatively few do it. A quick however, is that among those that do, they report a 77% fulfillment for having engaged younger family members. Fascinating to me was when we asked those who did not engage younger family members why they did not, 62% indicated that they didn't even try. A healthy percentage also indicated that they didn't know how. It seems to me that there's a huge role in there for advisors, as well, to really begin to expand the philanthropic conversation across generations.
We understand every day at the bank that we are in the midst of the largest intergenerational transfer of wealth ever seen in this post industrialized world. Currently estimated to be about 59 trillion dollars. It's moving quickly, and there is great concern that we see among wealthy households, and senior generations, about passing this wealth without restriction, and its potential corrupting force, or its ability to damp down potential on their children and grandchildren. Often, they're looking to structure that giving, restrict it in some way, but in a way that fosters the development and the good citizenry, and the value set, and financial acumen, and so on and so forth, of the younger family member. There's no other vehicle than philanthropy that can do all of those things in one shot.
At risk of dubbing it to be a cure-all, it really is a go-to alternative, and if you oversimplify the planning process ... and I don't mean to belittle your audience in doing this, but you essentially have three buckets. You have Uncle Sam, you've got your heirs, and you've got charity. If you're going to begin to question, as Warren Buffet so famously said, "I want to leave enough to my children such that they can do anything, but not so much such that they can do nothing." Of course, that line is going to be different in every family. It's going to be contingent, to some extent, on the developmental needs of the child, and so on. But this notion of passing unrestricted buckets of money is becoming less and less appealing to a lot of wealthy households.
Being able to talk to them with some fluency around philanthropic alternatives, or about how to educate their children, not only about the worth of a dollar in terms of what it can buy, but also in terms of the good it can do. Philanthropy is a way to do that. Even if they don't ultimately restrict the dollars, they may feel better about having shared values with their children through sharing philanthropy, having taught them this alternative measurement of a dollar, showing them the good it can do. Then, when they pass, in an unrestricted way, they may feel more comfortable, or they may wish to pass it through a donor advised fund, or to initiate a private family foundation, and bring the children in on board activities, and other activities, governance activities, so that they're well-poised then to manage the enterprise after the passing of the founders.
There's a lot of ways in which philanthropy can help you reach the next generation, but also to placate some anxieties that we're seeing in the current generation of wealth holders. It's an important tool. Above and beyond bettering society, it's just an important family tool that advisors don't examine as closely as they could, leaving that initiation to the family as opposed to perhaps adding value by helping the family do it. Because as I've said, they've told us they don't know how. They've told us they didn't try. Perhaps a jump start from their advisor could better enable them to do that which we know to be very rewarding.
Randy: Exactly. I'm aware, also, of some anecdotal evidence, some long-term studies done by groups of psychologists, that families who do participate in giving together remain closer, stay happier, have less stress, communicate better, and are generally just better human beings. It's also for the good of the family as a whole, as well as the good of society. I think it's just a can't miss opportunity. I think many of the advisors just don't feel equipped about how to do this, or where to start. Nor do they know how to get paid for it at some level, and that holds them back. I'm aware of a number of different ways they can get trained to get better at those very tasks that you've been talking about.
Claire: Also, when we talk to advisors as we do, we've got a program called Asking the Philanthropic Question that acquaints advisors with the opportunity, with a why bother framework, and then giving them some basic tools about how to initiate the conversation. How to seek their comfort level, and when to hand it off, and that of course will vary from advisor to advisor. In having those conversations, we see the reluctance on the part of the advisors, and as long ... As I said earlier, our other research shows as long as you've got a network in place, and you have someone to hand the conversation off to if you feel out of your depth, that is fine. You're not going to get dinged for that.
What we have seen is, the best preparation for these conversations is a questionnaire that we use to help the advisor, him or herself, to do their own personal assessment. It's certainly not to determine how charitable an individual they may be, but rather to get them acquainted with the level of thought and consideration that it takes to have a conversation at this level. If the advisor did his or her own self assessment about what matters to them, about what they'd like to see for their community, what's their headline twenty years out for their own philanthropy in terms of cure for cancer, meteor flight identified ... There are people that are devoting their money to science to determine the path of the next meteor. Like what is your vision? One hundred percent literacy around the world? What is it?
Once you do that, you then back down from there, and build strategies that will get you there, and then align with partner organizations that can fulfill those strategies and goals, and so forth. You monitor along the way, and then you adjust should you not hit your mark, and on and on. My point is, if an advisor does that level of preparation around his or her own philanthropy, family involvement, and so on, it will equip you like nothing else to then have that conversation with your client. It's very hard to go from a standstill if you've not asked yourself the same questions, to then have this meaningful conversation with your clients.
Randy: If you have a knowledge of yourself ... it's very important. If you've been through a process yourself, you understand, and can feel more competent about how that process revealed something to you, it's sure to reveal something to someone else. There's a level of comfort. I don't expect anybody to go from a standing start to being really excellent at this, but if they don't ever start, they're never going to get good. They just have to find ... there are lots of tools with which to get comfortable. I would suggest that everybody begin down that path however way they find their way there. Because it's so important to relate to families at a different level so that you can become the best advisor you can be to them, which is fulfilling not only their financial goals, but also their family and philanthropic goals. It's so important. It's been frustrating for so many years that so many people don't see this. Claire, anything in conclusion before I let you go? This has just been incredible. I'm so pleased that I was able to catch up with you. Any last words of wisdom for us?
Claire: There's so much wisdom from which to choose in this survey that I'd be hard pressed to pick a closing pearl. I guess I would just summarize by saying that we know that wealthy donors have a disproportionate sway over what happens socially, environmentally, and so forth, and what those agendas look like, because of their disproportionate generosity. To frame that up, 91% of high net worth households give as compared to 59% of general population households. On average, they give ten times more than the general population on an annual basis. They volunteer on a ratio of two to one as compared to the general population. There's a huge amount of commitment of energy, of dollars, and so on, flowing into the philanthropic sector coming from wealthy clients. The more educated, informed, and engaged they are, the more effectively deployed will be those energies, the time, those dollars.
I think it's incumbent upon all of us, as advisors, to provide that guidance to clients so that they can get the biggest bang for their philanthropic buck, so that the world can be bettered by their efforts. If you align it, or compare it, to any for profit investment, you wouldn't go headlong into something without doing due diligence, without looking back and assessing the performance of the portfolio, or the company, or what have you. It's the same thing on the philanthropic side. Clients get in the game to make a difference, yet they don't often ... in fact, the shocking percentage, 78%, don't do any kind of formal monitoring, or evaluation. Another great area where an advisor could be of assistance. Really just helping donors up their game. They just want to be good at this, they just want to affect the change that got them in there to begin with, and anything that you can do to foster that level of engagement, and foster that level of informed giving, there's nothing ... there's a big difference between a dollar given and an informed dollar given. I think it's our job to make sure there's much more of the latter than the former.
Randy: On that brilliant remark, I just want to thank you for spending the time with me today. Maybe we could do this again and revisit some additional things that we can uncover. I really appreciate your time today, Claire. Thanks so much.
Claire: Sure, not at all. Thank you for the opportunity again, Randy. Good to be with you.