Charitable giving is driven by very personal decisions laden with powerful emotions, noble ideals and important goals. Within that context, it is amazing to see how innovation and technology have been fundamentally shifting the philanthropic landscape. Charitable giving has evolved from just writing and sending checks to being more actively engaged and taking more control by starting private foundations or establishing donor-advised funds.
Donor-Advised Funds (DAFs) are now the fastest-growing philanthropic vehicle in the U.S., crossing over one million individual accounts for the first time in 2020. This is due to the flexibility, ease of use and democratized accessibility of the vehicle – from individual to family to workplace to online fundraising platforms usage. DAFs have expanded the philanthropy model by being more accessible and actively used by more donors.
The National Philanthropic Trust’s DAF Report 2021 provides us more on the lay of the land of the DAF landscape:
- Contributions totaled $47.85 billion, an all-time high, with assets under management totaling $159.83 billion.
- Grants from DAFs to qualified charities totaled an estimated $34.67 billion, a new high-water mark.
- The average size of an individual DAF account is estimated to be $159,019.
Now innovators are forging new avenues for charitable giving by applying a forward-thinking mindset and the latest technology. Originally vehicle-driven and product-innovation-focused, innovators are shifting to process, experience and personalization. The result is the development of a digital platform that transforms the giving experience to be more flexible and agile; engaging and coordinating donors based on shared values and mission to collectively maximize impact. Technology is bringing a modern set of pipes to allow for better efficiency, usability, engagement and personalization raising the experience and engagement levels to a deeper level.
To better understand these innovation trends, we reached out to Institute member Cor Hoekstra, EVP and General Manager of TIFIN Give – a next-generation, digital, charitable giving platform within the TIFIN Wealth family. They are addressing a key industry issue: while the total estimated charitable giving in the United States has soared to $471.44 billion in 2020, according to Giving USA, why then are less than 50% of High-Net-Worth donors currently utilizing a tax and process efficient vehicle. We asked questions to inquire about what innovation trends are being deployed and how they are energizing the future of DAFs and expanding philanthropy itself.
Hortz: What was your motivation in developing TIFIN Give? What challenges and opportunities are you addressing?
Hoekstra: We developed TIFIN Give to fundamentally shift the DAF experience by introducing a digital giving platform that engages the whole family and aligns donors’ investments with their values.
Like many forms of charitable giving, the traditional DAF is obsolete; it is historically costly, inefficient and labor-intensive to administer, which has limited its use to HNW and UHNW donors. It simply is not reflective of the world we live in nor the millions of people who want to make an impact on the causes that matter most to them.
We know that younger generations are increasingly committed to social change. This shift in how people manage their money in alignment with their values comes at the same time as the largest transfer of wealth in history. By bringing the entire family into the giving experience, advisors can now empower their clients to make more intentional financial decisions while also forming meaningful connections with client heirs.
Our AI-powered platform adds the next level of personalization so that each client experiences philanthropy that directly ties into their greater financial plans. We offer thematic portfolios that can algorithmically adjust DAF investments to reflect giving priorities.
Hortz: How are you further democratizing donor-advised funds?
Hoekstra: Traditionally, DAF accounts would require over $100,000 in minimums and fees to set up. This automatically limits their use to wealthy donors who could afford the up-front charges.
Technology cuts down on the traditional costs of administration, which means that we can eliminate fees and minimums. Now any individual or family, regardless of financial means, can open a DAF through their financial advisor.
Fidelity found that while 69% of advisory firms offer philanthropic planning, only 20% actively use it. This gap marks a significant opportunity, as only a fraction of firms has adopted technology to modernize and automate philanthropic administrative processes.
TIFIN Give bridges this gap, making DAFs available at scale within financial planning, which strengthens connections between advisors and clients as they navigate holistic wealth management.
Hortz: What design decisions did you make in building your digital charitable giving platform to be more engaging and effective for clients?
Hoekstra: TIFIN Give is rooted in personalization. We have built a platform that serves each donor’s unique priorities and values. Intuitive AI personalizes the search and discovery process of charitable causes and organizations for clients; the more a client interacts with the platform, the smarter it becomes in its recommendations.
With both ESG investing and charitable giving on the rise, we created thematic portfolio tilts that can align investments with giving actions. This amplifies the impact of each charitable dollar, even before the first donation. Say someone donates to organizations fighting the climate crisis, their thematic portfolio may exclude oil and gas or prioritize companies with a commitment to carbon neutrality.
Unique to our platform is the ability to engage the entire family on the philanthropic journey. We have seen that younger generations are increasingly philanthropic (75% of Millennials donated in 2020 amidst the pandemic), and this is expected to continue, particularly in anticipation of the largest generational transfer of wealth we have seen to date. We know that legacy planning and philanthropy is important to donors as they connect with their heirs, yet we have not seen other providers tap into this aspect of giving. With asset allocation and collective campaign functionality, the client is empowered to lead multi-generational giving.
Hortz: How do you see that families utilize TIFIN Give to collaborate across multiple generations to impact the social causes they care about the most?
Hoekstra: A key feature of our platform is the ability to create a Family Tree and allocate charitable assets for each member to donate to the organizations of their choice. This empowers family members to make an impact on the causes that mean the most to them, while also seeing their overlap with others’ priorities.
They can also champion causes by inviting family members to donate to a specific organization in order to achieve a target goal. Have you ever run a race for charity and asked your friends or family to pledge a donation amount to help you reach a larger fundraising goal? It is the same idea, but it can now all be done in-platform – members can respond to the invitation to join the campaign, research the organization and make a donation in the amount of their choosing, all with the click of a button.
Hortz: How did you design your charitable technology platform to also help advisors integrate philanthropy into financial planning and to grow their practices? How does TIFIN Give help philanthropy become a core pillar of financial planning and investment strategy?
Hoekstra: Up until now, most clients manage their charitable giving through a commercial provider of DAFs or private foundations, such as Fidelity or Schwab. Few firms offered philanthropic planning due to the high costs of competing with these commercial giants. Charitable giving would immediately leave the financial planning experience, despite how integral a role philanthropy plays in money management.
Besides a spouse, financial advisors are the most valuable source for information on philanthropy. Charitable giving is increasingly important to the financial planning experience – advisors who offer charitable planning see three times the organic growth of their practice and 1.3x new assets per investor. In other words, a close relationship between charitable giving and financial planning is beneficial both for clients and their advisors.
Charitable and financial goals are not mutually exclusive; they are fundamentally intertwined. Two challenges most commonly faced by affluent donors are identifying where to donate and understanding how much they can afford to give. There is a natural opportunity for trusted advisors – who already understand clients’ financial needs, values and priorities – to step into the role of philanthropic advisor to navigate these challenges.
Our platform was designed for both advisor and client experiences so that each party can be as hands-on as desired. Through the platform, advisors can guide client conversations to unpack their most closely held values and help establish individual or family mission statements to guide giving priorities. Advisors are able to invest client DAF assets in values-aligned pools to create a more intentional vision of financial wellness.
By adopting digital charitable giving solutions, advisors can strengthen client ties by bringing the very personal act of giving into every financial experience.
Hortz: Why do you feel that we are seeing an increasing interest from advisors in offering charitable planning services?
Hoekstra: Millennial earning power is expected to increase by nearly 75% over the next few years as over $80 trillion changes hands over the coming decades. Millennial financial and philanthropic interests differ from those of older generations, and advisors are realizing that they must address these differences to stay relevant and foster enduring client relationships with upcoming generations.
Another realization is that philanthropic planning has a direct impact on the retention of clients in the advising business. Fidelity Charitable found that firms that offer philanthropic planning have an 81% share of wallet for their clients, compared to a 76% share for those that did not. Further, advisors who incorporate philanthropic planning have three times the median organic growth. They also have a higher share of clients with at least one million USD in managed assets.
Firms can earn fees advising on DAF assets as they do with other accounts. Plus, charitable giving is so personal that it fosters a new level of intentionality with that client, strengthening the relationship and retention
With DAF assets currently exceeding $160 billion, the question is not if advisors should offer them – it’s how soon they can start.
Hortz: Any suggestions or recommendations for advisors on rethinking charitable giving as a core part of their services due to the innovative technology available?
Hoekstra: Technology is transformative. It brings more personalized, impactful, efficient and affordable experiences for clients and advisors alike. Plus, it removes most barriers to entry – you would be hard-pressed to find reasons not to make charitable giving a core part of advising services.
The trends in giving and statistics on philanthropic planning’s impact on advising are abundantly clear: now is the time to rethink how you support clients’ desire to make an impact on the causes that mean most to them. Digital charitable giving creates an opportunity to foster stronger relationships with clients and heirs.
The Institute for Innovation Development is an educational and business development catalyst for growth-oriented financial advisors and financial services firms determined to lead their businesses in an operating environment of accelerating business and cultural change. We position our members with the necessary ongoing innovation resources and best practices to drive and facilitate their next-generation growth, differentiation, and unique community engagement strategies. The institute was launched with the support and foresight of our founding sponsors – Ultimus Fund Solutions, NASDAQ, FLX Networks, Pershing, Fidelity, Voya Financial, and Charter Financial Publishing (publisher of Financial Advisor and Private Wealth magazines).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.