Navigating the Great Wealth Transfer: Advising the Giving Generation
A key concern for financial advisors facing the ‘Great Wealth Transfer’ is the retention of next-generation heirs as clients. Recent findings from the Charities Aid Foundation (CAF) show that the solution may lie in engaging these future clients through philanthropy advice.
As the UK braces itself for the “Great Wealth Transfer,” where an estimated £5.5 trillion is projected to shift between generations over the next three decades in the UK[1], financial advisers find themselves at a critical juncture. This monumental transition raises concerns about the retention of next-generation heirs as clients. Despite the confidence exhibited by many advisers, studies suggest that the majority remain complacent regarding the necessity of retaining younger clientele. However, research from the US indicates a significant disparity, with a staggering 92% of affluent investors opting not to consider their parents’ advisers during their selection process[2].
The solution to future-proofing against this risk may lie in engaging the next generation through philanthropy advice. Recent findings from the Charities Aid Foundation (CAF) show a substantial demand among millionaires for guidance on charitable giving, particularly among younger demographics. With 57% of millionaires aged 18-34 and 49% aged 35-54 expressing interest, compared to 34% among those aged 55 or older[3], it’s evident that the landscape of philanthropy is evolving rapidly.
The benefits of advising on philanthropy
Philanthropy remains essential to individuals and families who want to drive social and environmental change. However, contemporary donors, especially the younger cohort, are increasingly drawn to impact investing and other avenues that blend financial returns with social or environmental impact. This shift requires a holistic approach from advisers, who must now navigate the complexities of philanthropic investments like traditional for-profit portfolios.
The benefits of integrating philanthropy advice into financial services extend beyond mere client acquisition. According to CAF’s recent research with advisers[4], philanthropy advice not only enhances client-adviser relationships but also fosters a deeper understanding of clients’ values and aspirations. Moreover, philanthropy serves as a bridge between the generations, helping pass down family values and legacies.
Current state of philanthropy advice
Despite unanimous agreement on the benefits of philanthropy advice, its implementation remains patchy. Many advisers hesitate to broach the subject due to a perceived lack of skills and knowledge in the area. Concerns about additional administrative work and the absence of adequate training further contribute to advisers’ reticence. Additionally, there exists a glaring deficit in advisers’ familiarity with donor-advised funds (DAFs), despite their status as the UK’s fastest-growing philanthropic giving vehicles.
Demystifying Donor Advised Funds (DAFs)
Efforts to clarify DAFs and highlight their advantages could help advisers increase their knowledge of how to structure a client’s philanthropy and better their needs. A DAF is a convenient way for clients to give to charity over the long-term. Instead of setting up their own charitable foundation and registering it with the Charity Commission, they can use a donor advised fund, such as CAF’s Charitable Trust, to give.
DAFs offer several advantages over charitable foundations, namely cost savings, tax-efficiency, flexibility, and ease of administrative, trustee and reporting requirements.
The fund acts as a one-stop shop for clients’ giving needs, enabling them to make tax-efficient, irrevocable charitable contributions. They can request for the fund to be invested on the markets to grow it, and then suggest grants to charitable organisations over time.
Bridging advisers’ knowledge gap
Addressing advisers’ hesitation to offer philanthropy advice requires a concerted effort to upskill advisers and raise awareness about specialist support services. Training initiatives focusing on tax-effective giving, legacy planning, and philanthropic structures are key to equip advisers with the necessary expertise.
Many advisers recognise their knowledge gap and intend to rectify it. Some 42% said they plan to increase their knowledge of philanthropy and how to advise clients on it. However, nearly a quarter (22%) said they don’t know where to signpost clients to in order to get the expertise they need.
That all said, it’s important to emphasise that while it is valuable for financial advisers to understand more about philanthropy, they don’t have to be experts. Help is available from specialist philanthropy advisers, whether independent ones or those at private banks and organisations like CAF. “This added value can deepen the client-adviser relationship,” says Joe Crome, Head of Business Development at CAF.
“We can partner with an individual’s team of advisers to develop a giving strategy that achieves the desired impact,” he says. “This can be through advising as well as carrying out the administrative tasks like due diligence and payment processing.”
In conclusion, as the wealth landscape undergoes a seismic shift, advisers must adapt to meet the evolving needs of the giving generation. By embracing philanthropy advice as a core component of financial services, advisers can not only safeguard client relationships but also catalyse positive social impact.
About the Charities Aid Foundation
Over the last 100 years, we’ve led the way in philanthropic giving. We’ve developed better ways for advisers to support generous donors, contributing to the hundreds of millions of pounds we distribute each year to charities worldwide.
With our unmatched worldwide knowledge of charities and non-profits, we can help you realise your clients’ long-term giving ambitions – all the while acting as an extension of your own services.
[1] Kings Court Trust, ‘Passing on the Pounds: the rise of the UK’s inheritance economy’, 2017
[2] Cerulli, 2023
[3] CAF brand study – Savanta MillionaireVue, 2023
[4] Advising the Giving Generation, 2023
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