Randy Fox Interviews Claire Costello, part 1

Randy Fox Interviews Claire Costello, part 1

Article posted in General, Values-Based on 22 November 2016| comments
audience: National Publication, Two Hawks Consulting, LLC | last updated: 23 November 2016
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Summary

U.S. Trust has published the results of their current survey of high net worth philanthropy. I had the opportunity to discuss these results with Claire Costello, Managing Director and National Philanthropic Specialist of the Private Bank of U. S. Trust. The interview reveals the overwhelming need that the affluent have for advisors to provide them with philanthropic guidance that will help them find their best philanthropic passions, enable them to give more effectively and act more proactively. The time is now for advisors to step up....

Click here to listen to the audio version of this interview.

Randy:     Good morning. This is Randy Fox, Editor in Chief of the Planned Giving Design Center. I am thrilled, and delighted, and honored to have with me today Claire Costello. Claire is the managing director of the National Philanthropic Arm of US Trust, Bank of America's private wealth management division. The 800 pound gorilla in the world. We are here today to discuss the most recent study that US Trust has created, surveying the affluent about their thinking about philanthropy, and about their relationships with advisors. After that mouthful ... Welcome Claire, and thank you.

Claire:     Thank you very much, Randy. I appreciate being with you. Thank you for the opportunity.

Randy:     Anything before we dig into my really difficult questions? Anything you want to say as a preamble about the survey, or about why US Trust does this on a regular basis?

Claire:     Sure, happy to lay some framework. This is the longest-running, and most comprehensive study of its kind, focusing on high net worth philanthropy, looking not only at the demographics, how much they have, and where they distribute it to, but also what we call the psycho graphics. Why they give where they give, how they feel about giving, who they consult when doing so, and so forth. We have conducted this research in partnership with the Lilly Family School of Philanthropy at Indiana University. They've been our research partner since 2006 on this study. We conduct it on an every other year basis. We've just released our latest version in the last week of October of 2016. It's pretty hot off the press.

Randy:     That's why I wanted to get to you right away, so that we can get the information out there so that we advisors can better understand the donors we're talking to, and meet them where they're at.

Claire:     Exactly right. I should also say, for a point of reference, that this study focuses on wealthy households across America, and one of the virtues of the study, since its inception, is that it is a random sample. That is to say that we don't poll our clients as some might assume. We have, up until this iteration of the study, emailed paper surveys to high net worth zip codes, and again, kept the methodology as random as possible. That tended to yield a fairly homogenized cohort. Largely male, white, and often older wealthy. This time we took advantage of some more recent developments in the survey science. We have generated a cohort, this time around, that is significantly larger, more than 200% larger than past, coming in at 1,435 respondents. Not only is it random, but it is also more representative.

What I mean when I say that is, using the new survey technology, we were able to generate a cohort for our survey that better resembles the national census data. What I mean by that is, we have representative samples in our survey sample of younger wealthy, women, African American, Hispanics, Asian American, and LGBTQ individuals. We now have a more diverse, and I would think, robust sample using this enhanced methodology. That brings to us a greater ability to look at statistically significant differences, and how some of these subgroups behave with respect to their philanthropy.

All of that is revealed in our 114 page report, which is publicly available to anyone. We post it on our website, as does Indiana University. In our case, it can be found on our site. Therein, you'll also see that the working definition that we use for wealth, for the purposes of this study, which has been the same since 2006, is $200,000 of annual income and/or a million dollars of investible assets excluding the primary residence. Some may pause and think that that's a relatively low definition of wealth ... It certainly is when you look at the average income and wealth levels of our cohorts, which over time, have always come in quite a bit higher than that definitional level. We continue to use it as a baseline for comparison over time, but also because there were other surveyors and aggregators, including the IRS that used that definition. If we adhere to that as our bottom cut off, it better enables us to make comparisons across other studies and research. That is the definition we use. Having said that, this sample cohort came in this time around with an average net worth of $16.8 million, and an average income level of $331,156. Again, quite a bit higher than our definition. That's been consistent over time, that we come in higher than the definition.

Randy:     That's a lot of information, and it's very useful information. You also surveyed a sampling of advisors, as well?

Claire:     We did not for the purposes of this survey. This survey looks only at high net worth households. You may be referencing a piece of research that we conducted in 2013 in partnership with The Philanthropic Initiative based in Boston. That research was directed at advisors. Particularly what we call traditional advisors, trust and estate attorneys, accountants, and financial advisors, looking quite granularly at their interchange with their clients around the subject of philanthropy. It does a 360 on the philanthropic interchange. That also appears on our website at the same URL that I previously gave.

That really looks at the degree to which advisors are discussing philanthropy at all with their clients. There is a difference of opinion when the clients were asked as opposed to when the advisors were asked. Virtually all of the advisors said yes, we do have this conversation on a regular basis. Whereas only fifty plus percent of the clients agreed. Even in the instance where the clients indicated that they were having a philanthropic conversation, it was more typically initiated by them than by their advisor. Finally, it was determined that even when those conversations were being had, there was a very high dissatisfaction rate with those conversations. The reason being that advisors, quite understandably, default to their expertise to the more technical ... having a tax conversation, or a tactical conversation, doubling for the philanthropic conversation. What that research reveals is that that's not acceptable to clients. They really want a very meaningful, personal, goals-based, values-based conversation.

Fascinating, 34% of clients want that conversation to be had inside their first meeting with their advisors. As many as 90% want that conversation to be had no later than the third meeting with their advisors. There is quite an expectation, quite a need, and a want, from wealthy clients with respect to their advisors. Given how meaningful philanthropy is to the over arching wealth experience, and we've seen this time and time again, it really behooves advisors to make sure that they meaningfully engage their clients around this conversation.

I will also say that we learned in that other research from 2013 that even if the advisor was not him or herself a philanthropic expert, or fluent in all things philanthropy, it was sufficient for them to have a network to whom they could refer their client, and that clients did not ding them, for lack of a better word, in any ways. It did not accrue to their business bottom line as a negative. In fact, it was still an acceptable, and a positive view of the advisor so long as the conversation was raised, and they had the resources either within their own professional practice, or had an expanded network that could help service the philanthropic needs of their clients. There's really no excuse, given the demand, for an advisor to not broach this conversation in a meaningful way.

Randy:     You sound like you're talking like me all the time. It's so interesting. It behooves every advisor to bring up philanthropy with all of their clients, and yet as I go around the country and I ask people to just raise their hands, and no one raises their hand. It's astonishing to me.

Claire:     We like to think of it as being a triple win. What we mean when we say that is, it's obviously great for the client, because they want to be charitably engaged, and they want it to be meaningful, and they want to make a difference, which is one of the primary motivations for being a giver. It's great for the advisor. That other piece of research references various ways in which it accrues to the advisors bottom line. It helps deepen relationships with the client, it helps extend those relationships across generational bounds, it helps to lead to referrals. It also could, in the nonprofit context, in a personal way, get you engaged with certain nonprofits, and perhaps serve on boards, and so on. It's all good for advisors, as well. Ultimately, the third triple win is that at the end of the day, the ultimate beneficiary is the community or the broader world which receives the generosity of the client donor. The triple win is what we're going for, and to that extent, we're all aligned in interest in that regard.

Randy:     That's wonderful. Claire, would it be okay if we gave a link in this article to the survey? We're happy to do that.

Claire:     Absolutely. You can feel free to use that URL. There's also an executive summary available. Whatever's posted on our website, you're more than welcome to link to.

Randy:     I've already downloaded, and of course, read the reports and the executive summary. We'd be happy to include it. We'll make it as easy as possible for everyone to get this information. It's so important.

The U.S. Trust Study of The Philanthropic Conversation: Understanding Advisor Approaches & Client Expectations

The 2016 U.S. Trust Study of High Net Worth Philanthropy Report

2016 U.S. Trust Insights on Wealth And Worth Survey

Claire:     That's great. I should just foreshadow the fact that collateral is still coming out of the chute for us contemporaneously, with the release of the survey. There will be a highlight sheet of sorts aimed at advisors in particular. We will be pulling down some of the key findings, and inserting some practice tips that may be of help to advisors. If it's not on the website, it will be in the coming weeks.

Randy:     I keep going to your website looking for new information. When I find it, I'll just take it, and make it available to our readership as well. What do you see as the main differences in results between the prior survey two years ago and the survey that just emerged a few weeks ago?

Claire:     Not a lot of revelational differences. I would say that the methodology is key. It really changes the landscape, and I think the depth of the analysis that we're able to perform in bringing the diversity that we have into this study cohort. I think, too, for the advisors, it might be interesting to know what we've always known, which is that tax benefits are really not a motivation for giving. They certainly play a role, and are an influencing factor on when to give, and how to give ... that is to say whether you're giving through a particular giving vehicle, private foundation donor, donor advised fund, and so forth. They play a relatively minor role in whether to give. What we have seen this time around is that when we ask about motivations for giving ... in 2014 we asked, and taxes came in at about 34%, which was somewhere tenth, twelfth, down in the list. This time, the role of taxes dropped to 18%. Again, that hearkens back to the research from 2013 that I mentioned, where so many advisors mistake that tax conversation to be one about philanthropy. It really does not get you there.

We looked at the role of tax benefits, and tax policy from another angle, as well, as we have done each time we've done this study, which is to ask respondents straight up, if the estate tax is repealed, if the income tax deduction was eliminated, would your giving change? We saw minor changes in both directions. Yes, my giving would go up or down, but the vast majority would keep their giving the same. Another way of testing this notion that taxes really do not play the role that many assume they do in the giving decision, and the giving profile of a wealthy donor. Seeing taxes as a motivation drop from 34 to 18% was significant.

We also polled around volunteerism and giving, and the relative fulfillment therefrom. We found that 63% reported being personally fulfilled by their volunteerism, which is more than those 42% who indicated that their greatest fulfillment was from giving. This notion of engagement is threaded throughout the survey findings. This is just one data point that reflects that. There are a whole host of others that look at the self-reporting about their giving acumen as between novice, knowledgeable, and expert, and the various data points that coalesce under those categories. We see that when a client is more engaged, be it through volunteerism or through some intentional deliberate giving practices like consulting an advisory, monitoring the impact that they're giving, structuring through a giving vehicle, and so one, and so forth. When they engage in some of those best practices around giving, they tend to be the more knowledgeable and expert donors.

The real punch line there is, those that do engage in any and all of those ways tend to be significantly more personally fulfilled from their charitable activity, and give significantly more than those who may be novices and then not as engaged. There is this clear trajectory moving folks from being charitable to being philanthropic, and moving them along the strategic trajectory toward greater engagement, which corresponds with greater generosity and great personal fulfillment, which together, is a very self-reinforcing mechanism. That's really the path that I think advisors ought to be looking to get their clients on.

One thing that did jump out at me this time around is that we asked about challenges faced in giving by wealthy donors. The number one is really the onboarding, as we would refer to it, which is trying to figure out what they care about and where to give. Obviously, that's a very deep and fundamental conversation, and perhaps even a complex one when involving a broader family. We spent a great deal of time on that issue at the bank. We've got some tools, and some facilitative conversation around how best to identify what you care about, what your ideas and ideals are. Because. ideally, you are giving from that intersection between your ideas and your ideals, and that giving is an expression and articulation of your highest value set, and as a family of your highest common denominator. Identifying that can be really challenging.

It was interesting to see donors themselves to identify that as their toughest challenge. I think there's a great deal that advisors can do to help clients figure that out, and of course, you can't figure that out without having the conversation. Again, another call to action for advisors in terms of getting down on the meeting. The number one subject matter they'd like to learn more about, they indicated, was opportunities to volunteer. I think there's a call to action there, as well. For advisors to get out in your communities, to begin your networking, to broaden that. Perhaps get charitably engaged yourself, and enjoy some of that personal fulfillment, if you aren't already, and begin to see what the community has to offer.

There is so much synergy left untapped between nonprofits, the advisor community, and donors. There is so much time, and skill, and expertise, that nonprofits could use. For example, if it's a nonprofit that is not big enough, or cannot afford it's own planned giving platform, for example. There's a great deal that an advisor can do to assist that nonprofit in onboarding some gifts, and structuring some gifts with some key donors. In exchange, you then begin to broaden your network, get to know some community-based organizations, and then are better able to assist your clients and advise them in the number one area in which they would like to learn more, which is how to hook themselves into meaningful volunteer experiences.

Click here to listen to the audio version of this interview.

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