Although you may love to give back throughout your life, it’s easier to allocate funds to causes that you are passionate about after you have had a couple of decades of work under your belt. After many adults establish families and work hard to accumulate assets and savings, they look to use philanthropy to enhance the social good.
Baby boomers—defined as those who were born between 1946 and 1964—are now reaching an age when individuals focus on creating a legacy. Many hope to involve their families and create a familial value system of humility and empathy. (For more, read: Family Philanthropy: Developing a Cohesive Strategy.) Because many baby boomers have had successful careers, they have the ability to reach into big accounts and are increasingly questioning their wealth advisers about how to get involved with charitable giving.
Philanthropy Among Baby Boomers
A study sponsored by Blackbaud, a nonprofit software and service firm, named “The Next Generation of American Giving,” found large differences in the philanthropic habits between generations. The study reported that baby boomers contribute a leading 43% of charitable activity and states that 72% of baby boomers had reported giving an average of $1,212 to charitable organizations during the past year.
A New York Times article cited an Edge Research study that estimated baby boomers give $47 billion per year in charity, topping any other generation’s contributions. Robert T. Grimm Jr., director of the Center for Philanthropy and Nonprofit Leadership at the University of Maryland at College Park, said that with baby boomers a “large percentage of them say they want to continue to work into their 60s and 70s,” something that bodes well for the prospects of even more charitable giving.
Opportunity for Wealth Managers
An article by the Planned Giving Design Center, a community of planned giving professionals, explains a “second great wave of philanthropy” in which baby boomers follow the lead of people such as Bill Gates and Warren Buffet by investing a bulk of their assets in philanthropy while still alive. That shifts the philanthropic focus of wealth advisers to wealth management from estate planning. Philanthropy planning for wealth advisers has immense prospects “in a world where most families with investable net worth above $10 million give $50,000 more per year to charity,” the article said. PGDC states these clients are largely underserved, and more wealth advisers should focus on offering philanthropic guidance that will increase tax avoidance and have a social impact.
More wealth-management firms are making philanthropic strategies one of their fundamental services. The rise of family offices in the wealth-management business has accelerated this transition. A one-stop shop can provide tailored and multi-faceted services, as opposed to large firms that focus strictly on investment advice. (For more on family offices: read Top 3 Trends Affecting Private Wealth Management.)
Avenues for Financial Advisors
Baby boomers are also becoming tech-savvy, which means they are open to different ways of giving. Wealth advisers can discuss more than just grant giving with their clients and explain such strategies as impact investing, foundation creation, stock donation and other charitable options.
AccountingWEB, a trade website, suggests that “Baby Boomers can link their legacy time, expertise, and desire to continue to contribute with Generation X and Y entrepreneurs for some hybrid organization that takes advantage of the best each generation has to offer.” (To learn more, see: Hybrid Business: Rise of Nonprofits In The Private Sector.")
As more millennials seek job opportunities that emphasize “do what you love” and a “don’t make a living, make your life’s work” mentality, they are adding to social entrepreneurship. In order to raise capital, these startups need financing from venture capitalists and investors who are seeking to make a legacy, stay involved and increase the social good in the most profitable and economically efficient way possible. These facilitators are mostly baby boomers, who now have a great opportunity to become involved in a new wave of startups, particularly in the technology and mobile-app industries.
A Focus on Ethical Investing
Wealth advisers may consider impact investing, a subset of socially responsible investing, which aims to complement “negative” screening, in which investors try to avoid supporting harmful companies, with decisions that make a positive social impact. Mission-driven investing involves investing in nonprofits, firms with corporate social responsibility standards and social-entrepreneurial companies. Impact investing is a way for wealth advisers to help baby boomers who aim to make investment decisions that are profitable from both a financial and ethical perspective. Many funds back mission-oriented goals. Take the JPMorgan-managed Bay Area Equity Fund, which seeks to achieve market-level returns while simultaneously creating jobs in low- to middle-income neighborhoods in the San Francisco Bay Area.
The Bottom Line
Facing retirement, many baby boomers are seeking to establish legacies, looking more to philanthropic endeavors than any generation before them. Wealth advisers who integrate philanthropic strategy and planning into their core service offerings differentiate themselves among baby boomer clients. Because many traditional firms have been slow to make this change, it’s most likely that innovative family offices and specialized wealth professionals will lead the way. These advisers will offer tax-efficient strategies that not only promise quality asset management, but also the ability to increase the social good.