How online ‘charity banks’ help wealth managers highlight ESG investing
With a digital DAF, financial advisors can facilitate clients’ charitable interests, grow investments dedicated to philanthropy, and save on tax
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I sometimes wonder if the growing number of financial advisors who prioritize responsible investing receive the same kind of misdirected praise as I do.
When you found an organization with a name like Charitable Impact, you get used to pats on the back and comments like, “What a good guy you are for helping charities.” But is that what makes me good? I’m actually more of a banker who just happens to be fluent in solving problems and creating opportunities related to charitable giving. (I certainly want people to think I’m a good guy, but not just because my work focuses on the charity sector!)
In the same way that my work empowers donors, not charities, financial advisors aren’t directly involved in the environmental, social and governance (ESG) issues at the heart of responsible investing. They may care about them on a personal level, and may even get credit for moving the needle – “what a good person you are for supporting ESG” – but their actual job is to empower clients to benefit financially from ESG-driven value, and ethically from ESG-driven social and environmental betterment.
Likewise, philanthropic advisory services and online donor-advised funds (DAFs) empower donors to give strategically to the causes that matter most to them. For the uninitiated, a DAF is a centralized charitable account, sponsored by a public foundation, that allows any donor, from individuals and families to organizations and businesses, to make donations, receive an immediate tax receipt, and then allocate funds to charities at a later date. In other words, it is like a bank account just for charitable giving.
More recently, DAFs have evolved to serve as accounts for responsible investing. With these types of assets now being material to more than 60 per cent of all Canadian assets under management, up from around 50 per cent in 2020, many advisors may be struggling to keep up with surging demand from clients looking to align some or all of their holdings with ESG or other forms of impact investing. At the same time, determining which assets qualify as “responsible” can be a challenge.
The recent surge in corporate ESG reporting is all well and good, but it is ESG action that investors want to see – and that’s where charitable giving can help advisors add a new dynamic to how they serve their clients.
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Charitable giving enables people to invest their money in the causes they care about while earning tax credits. Charity is based on governance, and its fundamental purpose is to benefit society, the environment, or both. That sure sounds like ESG.
How, then, can financial advisors support clients’ charitable giving goals?
The answer lies in products that enable advisors to integrate meaningful and impactful client-driven philanthropy alongside responsible investing portfolios. By leveraging a DAF, advisors can facilitate clients’ charitable interests, help grow investment assets dedicated to their philanthropy, and, last but certainly not least, save them money on taxes.
By opening an online DAF account, advisors can facilitate clients’ charitable interests by making it easy for them to donate super-tax-effectively – using publicly traded securities (PTS), for example – and by managing charitable assets post-donation while their client takes the time they need to consider the causes they want to focus on supporting. All of the 86,000-plus charities registered in Canada can be easily identified, researched and supported using the tools provided by the more advanced online DAFs.
Advisors may be struggling to keep up with surging demand from clients looking to align some or all of their holdings with ESG or other forms of impact investing.
By seamlessly processing donations of PTS, meanwhile, these DAFs enable advisors to save their clients money. By donating appreciated securities in-kind, capital gains tax is reduced to $0, leaving the donor with the full amount of charitable tax credits to offset other taxable income. In other words, using PTS to donate is far more tax-effective than giving cash.
Donors can then recommend that their advisor continue to manage the donated assets, which in addition to PTS can include non-cash donations such as real estate, life insurance, private company shares and even cryptocurrency. This means advisors can keep these assets on their books, use their own account systems and tools, and charge their own fees, all while being supported by their DAF partners.
Clients trust financial advisors and expect them to navigate all sorts of financial matters. By helping clients plan and carry out donations and by managing charitable assets in investment funds, advisors can build their reputation by adding another ESG-minded tool to their client service offering.
All of this can only serve to deepen the advisor-client relationship, and if that’s not added value, and worthy of a pat on the back, I don’t know what is.
John Bromley is the Founder and Chief Executive Officer of Charitable Impact, a Vancouver-based organization that’s for anyone who wants to make a difference, no matter what causes they choose to support or how much they give. Just like a bank account for charitable giving, Charitable Impact’s donor-advised fund helps people simplify and organize their giving. Since being founded in 2011, more than $1.2 billion has been donated by the Charitable Impact community, with thousands of charities benefiting from the generosity of donors across Canada.
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