The link between charitable giving and snagging next-gen clients

Younger clients, who may soon become the bread and butter of many an advisor book as they inherit their elders' wealth in the not-so-distant future, are much more fixated on charitable giving than their older peers.

That's the conclusion of a new report by Fidelity Charitable, the nation's largest grantmaker and donor-advised fund. The report, published Wednesday, found that advisors who want to keep the business of their clients' children or stay relevant to younger-generation investors who are coming into more wealth, can improve their chances by offering targeted charitable planning services to those clients. 

Read more: How charitable giving fits into your clients' financial plans — and your firm's business plan

The report comes as wealth management, industry-wide, shifts increasingly towards holistic financial planning. Research suggests that advisors who offer specialized services in high-demand areas for clients will be at a strong competitive advantage in the marketplace. 

Practice and client management

Advisors offering education cost planning have faster "organic" growth, Dimensional study finds

May 16, 2023 9:01 PM

Among investor respondents who didn't already have a financial advisor, those aged 21 to 41 — Generation Y millennials and Generation Z respondents — were twice as likely as those classified as baby boomers, aged 58 and above, to prefer a financial advisor who could help them with charitable giving goals. The study also found that among those with advisors, 71% of investors dubbed "Gen YZ" valued their advisor's support in creating a legacy that benefits the world — compared to only 36% of boomers who did so. 

As millennials climb the career ladder on their way to middle age, some are already inheriting fortunes from older family members in the "great wealth transfer" that industry research firm Cerulli Associates has estimated will see around $84 trillion pass down through 2045. Advisors can no longer afford to ignore this generation as a client base. 

Read more: 3 tips on how to connect with next-gen heirs for estate planning

Fidelity Charitable

"Though these clients might not necessarily represent a large opportunity in the current wealth segment, as the landscape changes, they're going to become the larger wealth holders," Brandon O'Neill, a certified financial planner who is the vice president for Charitable Planning Consultants at Fidelity Charitable, said in an interview. "Even if they're in a lower segment now, as the wealth transfer occurs, there's a tremendous opportunity to bring that topic up." 

And advisors can add value in this context not only by having the charitable giving conversation with a younger investor, but changing how they talk about it, O'Neill said. 

"The older donors typically just write checks to their favorite charity, or they write checks to their donor-advised fund or foundation or whatever it might be," he said. 

Younger clients want to be more innovative and strategic in their giving, as well as peer-engaged in the process. 

"That can come through things like impact investing, or donating unique assets like cryptocurrency," he said. 

Read more: 5 takeaways from Arizent research on using tech to win next-gen clients

Donor-advised funds are also growing in popularity, O'Neill said, as they allow tax benefits and give donors a more active hand in the philanthropic process than just a simple cash donation. 

Lauren Hubbard

For Diane Manuel, a CFP who specializes in helping clients with charitable giving, the findings are "precisely on point" with her own experience. 

Manuel is a financial advisor at Abacus Wealth Partners, an RIA based in Santa Monica, California. She frequently hears younger investors say: "I don't want my capital investments to work against my charitable investments." 

By that, she means that Gen Y and Z clients are concerned more about being part of an equitable and inclusive society. 

"Therefore, advisors should be prepared to lead discussions regarding impact, not just performance."