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Ron Ransom, host and American Endowment Foundation CEO, talks with a variety of guests to create a unified voice across the industry as they discuss best practices and smart strategies that can expand philanthropy for charities, build legacies for donors, and increase AUM for advisors.
- [Director] Five, four, three, two.
(upbeat music)
(upbeat music continues)
- Good afternoon, and
welcome to "Let's Talk DAFs."
My name is Ron Ransom,
chief executive officer
at the American Endowment Foundation,
and I'm joined today by
two good friends of mine,
Sara Barba, managing director at Integer,
and Chris Mone, executive vice president,
head of Wealth and Asset
Management at Wedbush Securities.
How are we doing today?
- Wonderful, thanks for having us.
- Thanks for joining me.
Wanna talk about
donor-advised funds today.
We wanna talk about donor-advised funds,
present and future.
And Sara, I'm gonna start with you.
We've spent a lot of time
over the last couple years,
but with the donor-advised funds space,
and impacts potentially
coming out of Washington, DC,
maybe you can start us off.
Where do you think,
or what do you think are
some of the key things
impacting donor-advised funds today?
And once you think about today,
I want you to both start thinking about
what do you believe is gonna impact
donor-advised funds in the future?
- Sure.
So today, I think the biggest impact
in the growth of donor-advised funds,
and then the impact they
have in communities,
is largely focused on their ease of use.
There have been a number
of different giving tools
that philanthropists
have used over the years,
and many come with a lot of
restrictions, a lot of overhead,
and I see donor-advised funds
as being this really unique tool
where it has all of the benefits
of philanthropy and impact,
and donors don't have to
focus as much of their precious time
on putting resources into
the compliance aspect
of, say, a private foundation,
or the time sensitivity and time crunch
of making an end-of-year
gift directly to a charity.
They can give into a donor-advised fund,
and obviously have some time
to make thoughtful giving choices.
Going forward, though,
my view of the future
of donor-advised funds
is actually going to start focusing,
I think, start focusing around new donors
and smaller donors,
not the smallest donors,
but coming from a public
policy perspective,
there's an appetite in Washington
to start incentivizing more givers,
not just the largest ones.
And that's where I think
donor-advised funds
have a really great opportunity to grow
in some of those mid-level donors,
who, right now, are
probably not necessarily
the ones choosing the tool.
- Interesting.
Chris, let's pick up from there.
If you think about the
business that you lead,
and the growth of the
business that you lead,
based on what we heard from Sara,
do you think that this is
something that advisors
can, should, will incorporate
in their practice?
- Well, whether they should and will,
the numbers speak for themselves.
So we've seen a growth in
the donor-advised fund space
over the last 10 years,
from approximately 70
billion to over 250 billion.
Don't fact-check me.
- Quarter of a trillion dollars.
- Quarter of a trillion dollars.
And if you think of
that growth trajectory,
and what Sara just said
about the democratization
of this as a vehicle that's
important to Congress right now,
I don't see any reason why
that shouldn't accelerate
going forward into the future.
So perhaps 250 billion is a low range,
or a low end of the range
for what's possible.
And I think with that growth potential,
the advisors will,
advisors are smart,
they'll recognize a trend,
they'll see where the puck is going,
and they'll start incorporating
this into their practice.
- Yeah, you think about the 70 billion
grow into a quarter of
a trillion, billion,
a quarter of a trillion,
certainly it's been tremendous
growth over the last decade.
Sara, do you think that that
is a positive or a negative
on the policymakers in DC?
You know, there's an old saying,
"Only whales that surface get harpooned."
We're in front of people now.
What do you think this means?
- We're surfacing, or
have already surfaced.
I think it can be a positive
if it's understood, right?
And there's education done
around what the positive
of that growth means
for charitable giving writ large,
but then specifically for understanding
how Americans are choosing
to have impact in their communities.
But when it comes to that concept
of really fast growth,
and the suspicion that
comes along with that,
I think is natural in Washington, right?
If somebody is choosing more and more,
or Americans are choosing more and more
to use a certain tool,
then there must be
something suspect, right?
There must be some benefit.
And there is a benefit,
but it's a benefit that can
be described in many ways,
all positive for these
lawmakers' constituents
and the communities that they serve.
So yes, I think there's a
bit of a negative reaction
toward such quick growth,
but at the same time, that
presents great opportunity
to have a unified discussion
around what does the industry need
to share about itself,
and how should it represent the impact
of donor-advised funds to lawmakers,
and what that growth
actually then translates to
in communities.
- Yeah.
It's on the radar.
Like you said, "We have surfaced."
It's interesting to think about, though,
and Chris, I'm gonna
direct this one to you,
bit of a shift.
You know, we've kind of grown
up in the business together,
and we've seen evolution of advisors
and things to differentiate
their practice.
I read a study recently where
8% of financial advisors
actually incorporate donor-advised
funds in their practice,
meaning 92% do not.
You've seen tremendous growth
to the point where it's their suspicion.
What do you think it will
take to get more advisors
actually talking about
donor-advised funds,
and how can that impact their clients,
and philanthropy in general?
- Well, I think, as I said
earlier, advisors are smart,
and they're paying
attention to the trends.
There will be some demand
coming from the clients,
or the clients' other team of advisors,
their CPAs, attorneys,
whether it's an estate planning attorney,
or just general insurance advisor,
some of the other team
members of the family,
a group of advisors.
There'll be some questions
coming out of there.
But this business has always been,
and I'm a big believer of
this, trust and competency.
You're developing trust
by building relationships
with your clients,
and demonstrating your competency
by being educated around trends.
So as we see the growth of the wealth,
and the growth of this space,
advisors are going to pay attention to it.
And it's our job as leaders of firms
to provide the education
and resources to them
to understand what's coming in the future,
what the future will look like.
And obviously that's a
large part of the reason
we had you and your team
attend our annual growth
summit for our advisors,
to educate on that experience.
The education allows you
to demonstrate competency,
and I think that advisors
will all be well prepared
for the growth in the future.
- And thank you, by the way.
We really enjoyed being there,
and being around the
dynamic folks of Wedbush.
Competency and growth and
education, I think, is crucial.
Sara, back to you.
When you think about, you
know, some of the legislation,
you know, you would
think that philanthropy
would be a bipartisan, you know,
everyone should be excited
about what is giving and philanthropy.
What do you think the future might hold,
from a legislative perspective,
with donor-advised funds,
and just charitable giving in general?
- Well, you know, philanthropy
and charitable giving
is a bipartisan issue.
It has bipartisan support
for different reasons,
and that is part of the art
of educating around it, right?
Knowing who your audience
is, and what they care about.
And the case for philanthropy
shifting for different,
not only political parties,
but then different buckets
of types of lawmakers,
or types of staff on Capitol Hill.
What resonates with them?
What causes do they care about
that donor-advised funds,
are funding right now,
is what differentiates
between office to office,
lawmaker to lawmaker, state to state.
For the future of policymaking,
there are going to have to be
a number of myths debunked, in a way,
around donor-advised funds,
and around philanthropy in general.
There are concepts around,
or beliefs around
philanthropy being a loophole
for the wealthy to avoid paying taxes.
And I'm sure there are
smarter people at this table
who know of a lot better
ways to save money
than to give it away.
But there are misconceptions like that.
There's misconceptions
that donor-advised funds are unregulated,
which is simply not the case.
You know that very well, Ron.
And many folks who are running
donor-advised fund sponsoring charities
know they have just as much compliance
as any other C3 public charity.
So I see the future of policymaking
hinging on understanding of the tool,
how it's currently regulated,
and having a honest conversation in DC
about what do lawmakers
want the future of
philanthropy to look like,
and are they comfortable with
the results of overregulation,
or new restrictions that actually reduce
the use of tools like donor-advised funds.
- Yeah, we've spent a
lot of time together,
as I mentioned, the last
couple years on the Hill,
going to educate lawmakers
about donor-advised funds.
Do you think it's working?
Are we moving the needle at all?
- Yes, the needle is moving
anytime a new staff member on Capitol Hill
or member of Congress
learns something new.
One of the challenges that
we're up against is turnover.
And not only turnover among lawmakers,
who, every two years for the House,
and every six years for the Senate,
could be cycling through,
and a new face could
be in a seat up there,
but even more turnover among their staff,
who I frame as the gatekeepers
of policy up in DC.
And they have to become
acquainted with new industry
every time they enter a
new position up there,
but they also have a
laundry list of priorities
that they're working through.
So staying on their radar,
staying relevant is the largest challenge,
but largest opportunity for the DAF space.
And probably lends itself
to more unified messaging,
and collaboration among different
sponsoring organizations,
and then the broader stakeholder group
of donor-advised funds.
So that in a sense,
we're all singing from
the same song sheet.
- Yeah, that unified message,
you know, is really important.
And one of the things we've
talked about in areas of focus
is how do you get leaders of firms,
like yourself, Chris,
to understand about, you know,
to understand the space,
and continue to have it as a
priority for your organization.
But because it's a priority,
because it is a relevant piece of business
for your advisors and for their clients,
making sure that we're able
to provide that unified voice,
education, things of this nature.
For your organization,
and again, you've been in
the industry a long time,
for your organization,
what are some of the things
that donor-advised funds sponsors,
such as American Endowment
Foundation, and others?
What can we do to bring
messaging to the organization,
to bring messaging to the advisor?
You talked about, you
know, advisors are smart.
Education, competency,
these are all key things,
but what form could we bring insights?
- I think it's important
to connect the dots.
So why is this education important?
Why is it important to me?
And mostly, why is it
important to my clients?
And one of the biggest challenges
that the industry faces,
not just our firm, but all firms,
is the demographic of the advisors
that work in the industry today is aging.
Our clients, typically,
when you and I were financial advisors,
our clients were always
20 years older than us,
because it made sense.
And when you think about that demographic,
the industry has been trying to capture
the children and
grandchildren of our clients.
So that next generation focus,
everybody has a strategy,
nobody has a solution.
So when you think about your strategy,
outreach, client service,
but the most powerful part
of intergenerational transfer of wealth
to the inheritor generation,
I'll rather than calling them G2 or G3,
it's the inheritor generation,
is not just the transfer of wealth,
but the transfer of
all of the disciplines,
and the philosophy,
and the ways in which the wealth creators
establish that wealth,
that has to be passed along
to the generations as well.
You have to embrace a few things
to capture that inherited generation.
Digital innovation,
you have to be innovative,
you have to be socially focused,
because the inherited generation
is, they have a mission,
and that social mission
is important to them.
- They think differently.
- They do, they definitely do.
So this is a way, when you
incorporate digital technology,
a next-gen solution,
we have that, we have an app,
the app's designed for the
children and grandchildren
of our clients to manage wealth.
But in connection with that,
there has to be a transition or a pathway
from the wealth creators
to the wealth inheritors
to preserve that family legacy.
And this is an excellent vehicle,
and that's a really important reason
why advisors need to get educated.
And what you can do for our firm.
- Yeah, you know, technology
seems to be a driver.
Innovation seems to be a driver
within wealth management,
financial services,
and it all then stems
back to that education.
And, you know, part of
what I've experienced,
I'd love your opinion on this one.
Both of you actually,
you know, in November of '23
when donor-advised funds
kind of hit DC, if you will,
and there were proposed
regulations of change,
it brought to, you know,
brought to the forefront,
donor-advised funds in
general, the element of growth,
going from 70 billion to 250 billion.
Where do you think, again,
we know where we are today,
we know we're trying to think about
where the puck is going in the future,
do you think, Sara, that the
future of donor-advised funds,
and legislation in DC, in general,
is this gonna continue to ramp up?
Is it gonna slow down?
Is it gonna quiet down?
And with that, whether it is or isn't,
Chris, do you think
that donor-advised funds
are going to be of importance to advisors?
Is it gonna be, "Huh, let
me learn more about that.
I keep hearing about it
and reading about it,
whether it's from DC or otherwise."
But, talk to me about
just, where do you see,
where's the crystal ball
telling you we should go?
- From a high-level perspective,
I do believe that this
is going to continue.
The critique and potential reforms
to donor-advised funds in Washington
will continue until they
are somewhat successful.
And the reason I believe that
is not only because we are in this time
of huge deficits in Washington, DC,
so anything that has a
lot of dollar signs on it,
not only is suspect to some,
but it's also appealing to some,
because there are potential
tax dollars at play there.
But also because when
any member of Congress,
or a staff member,
gets a chip on their shoulder
about a certain industry or tool,
they continue down that road
until they can get to the bottom
of either a solution, in their minds,
or some sort of pain
point for the industry
to shift their behavior.
So before 2023, November, 2023,
when we saw these regulations,
for a couple years, we'd
also been fighting back
against potential legislation
around donor-advised funds,
and reigning them in,
in some folks' minds,
to increase the payouts
of donor-advised funds,
which are already very impressive,
but also just restrict
how people can use them,
because if they're so popular
and they're growing so fast,
then we must need to pair them back.
And because of that,
there had already begun
to be some more ad hoc coalition
building among the sector,
and the groups that were
already involved in Washington,
that either had donor-advised
funds themselves,
or represent organizations
that hold donor-advised funds.
And that ramped up even further
once those regulations were dropped,
by surprise to many of
us, in November of 2023.
So going forward,
I do think there will
continue to be efforts
to regulate the space.
But to the earlier point,
the success of those efforts,
or the success of the
donor-advised fund industry's side
to push back on some of those
more problematic efforts,
will hinge on their
ability to work together
and spread the good word
about donor-advised funds.
- I'm gonna shift my question.
You made me think of something.
So what do you think advisors,
how do you think advisors react
when they see potential negative press,
or they see topics of
issue or concern in DC?
How do you think advisors react to that?
Do they pay attention?
Do they care?
Does it scare them?
- They care, they pay attention,
but I think universally they adopt a,
well, when they figure it
out, and the rule is enacted,
and I'm made aware of a
regulatory or policy change,
then I'll pivot.
But for now, this is the age-old dilemma.
And it's actually,
there's a lot of irony
baked into the question,
because if you look at electronic
delivery of statements,
you have a whole group advocating for it.
Save time, save money.
- [Ron] Save trees.
- Save trees.
And then you have paper
companies who are saying,
"Oh, no, no, no, we need
to deliver statements."
So you're going to have
a lot of lobbying effort,
conflicting lobbying effort.
But back to what you said
in the beginning of this conversation,
this is about the
democratization of giving.
And it's ironic to me personally
that you would look at,
whether it's the ACE Act,
or other things that
are pending right now,
that you're educating all
of the policymakers on,
why would you try to limit
the democratization of giving?
And that makes no sense.
So there has to be a paper company
on the other side of it, I'm
sure, or the equivalent of it.
But the advisors will continue
to serve their clients.
When Washington figures
it out, they'll adapt it.
They'll adapt, they'll improvise,
they'll continue to educate,
and then they'll move forward.
There are going to be ways
to serve the advisors.
I think, personally, this
space is going to grow.
You're going to have a level
of adoption and engagement
that will start to match
the growth of the industry.
And that's our responsibility
at every firm in the
leadership to, and it's yours,
to educate the advisors,
to make sure that they are
prepared for the future
in serving their clients.
- Yeah, I couldn't agree more.
I think about the space.
So we've always said a couple
times that the DAF industry
has grown to $250 billion in assets.
There's also data and statistics that show
that those dollars are in
fact getting into communities,
and getting to charities.
So if, you know, basic math, 20%,
and that's probably
about the right number,
20% of these assets are being
granted to these charities.
Just in the DAF space, that's
$50 billion each year, right,
that's going for good.
It's going for good.
I wanna say thank you to both of you.
This has been a wonderful conversation,
thinking about the present
and the future of DAFs,
where, you know, where we
think DC might take us,
or we think just the industry in general
and advisors might take us.
I can't thank you enough
for your insights.
You both are wonderful friends
and great professionals,
and industry leaders, as
far as thought leaders,
in this space.
So, thank you very much.
- Thank you.
- Thank you, Ron.
(upbeat music)