By Ken Nopar, VP-Senior Philanthropic Advisor
This column originally appeared in Financial Advisor.
The number and size of donor advised fund (DAF) accounts continue to grow. Many clients establish them when their financial, legal and tax advisors inform them of the benefits both to them as well as the charities they support.
Many financial advisors have realized over the past decade that offering DAF accounts has enabled them to attract new clients, retain existing ones, and increase their assets under management. Though the portion of assets in clients’ donor advised fund accounts may or may not be large, by discussing charitable planning and opening these accounts, advisors are able to often manage these DAF assets plus the much larger portion of clients’ remaining assets.
Advisors have shared numerous scenarios in which opening DAFs have led to increased AUM. Some of these include:
- Advisors have encouraged clients to donate unmanaged assets to create or fund a DAF account. When donated to a DAF sponsor that allows advisors to manage the assets in their clients’ DAF accounts, the advisors can then determine how these assets, once liquidated, should be invested. Most advisors charge on these assets, and clients are pleased their trusted advisors are selecting and managing these charitable assets.
- Clients have donated long-held outside assets that have greatly appreciated to DAF sponsors and have received the fair market value for the donation. This eliminates the need to determine the exact cost basis of the assets, which would have been difficult if not impossible to determine if the assets had been sold.
- Many advisors have worked with older clients to fund and establish one fund for the entire family or separate DAFs for their clients’ children, enabling the advisor to gain exposure to and work with the children before the passing of the parents.
- Some advisors have worked with younger clients whose aging parents were wealthy and charitably minded. They opened DAFs for the parents, which enabled them to then manage the parents’ other assets since until that point, the parents had managed their own investments or worked with another advisor who never discussed donor advised funds.
- Numerous advisors have worked with clients who were about to sell their business (or other illiquid assets), and encouraged them to donate some of the privately held stock before the sale to reduce the capital gains taxes they would have had to pay if they donated the stock post-sale. After the sales, the advisors could then invest and manage the assets once liquidated.
- Since some clients established DAF accounts on their own with DAF sponsors that offered limited investment choices, many advisors have helped clients transfer these outside accounts to DAF sponsors that allowed the advisors to manage the assets. The advisors were able to invest and grow the assets so the clients would be able to donate more in the future.
- Many client referrals have occurred because clients have shared with philanthropic friends, family members and colleagues that their advisor discussed charitable planning and opened DAF accounts for them. Advisors have recognized that if they do not discuss charitable planning with clients, other advisors will.
- Because so many estate planning attorneys and accountants now recommend donor advised funds instead of private foundations at nearly all levels, many financial advisors have informed their clients’ other advisors that they can open and manage the assets in the clients’ DAF accounts. This prevents the other advisors from suggesting another DAF sponsor that the financial advisor is unable to work with.
- Advisors who create DAF accounts for clients help make their own operation much more efficient, especially during the peak charitable season, since the advisors’ associates only have to donate stock to one DAF sponsor instead of to numerous charities. Though this may not bring in additional assets, the associates’ workload will be reduced, the clients will only have to keep track of one tax receipt, and the accountants will not have to hound their clients for an accurate accounting of all of their donations.
- Some advisors offer to submit their clients’ grant recommendations to the DAF sponsor. This has helped certain clients who may not be technology–savvy to overcome their reluctance to open and fund donor advised fund accounts.
DAFs have enabled many advisors to get to know the spouse and children of their clients, since often these other family members are even more charitably minded than the wealth creator and will become the successor donor advisors on the DAF accounts. This holds true for clients who are not married or do not have children, as relatives or friends become the successor advisors on these accounts when donors want these funds to continue after their passing. DAFs enable financial advisors to remain in their role on these and their other accounts for many years.
Not all DAF sponsors allow advisors to manage the assets in their clients’ donor advised fund accounts, so it is important to determine the most appropriate DAF sponsor. While advisors want to and should be able to manage the investments in the DAF accounts, they also understand that by discussing charitable planning with clients, their clients and their favorite charities will also benefit.
At American Endowment Foundation, we look forward to discussing you and your clients’ needs and determine how an AEF donor advised fund can serve you best. Contact us or call 1-888-660-4508.