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The High-Net-Worth Landscape and Opportunity

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Title: The High-Net-Worth Landscape and Opportunity


1
The High-Net-Worth Landscape and Opportunity
Prepared for the National Marketing Action Team
March 2002
Vin Cipolla, Chairman
CEO (617)
243-9199 x221
vc_at_hnw.com
www.hnw.com
2
Contents
  • The High-Net-Worth (HNW) Market
  • Wealth Management Trends The Age of the Advisor
  • High-Net-Worth Individuals (HNWIs) Giving
  • Competition in Philanthropic Services
  • Summary
  • Opportunity Leverage the Channels
  • Taking Action
  • Conclusions

3
The Wealth Landscape
In the market, many different definitions exist
for the term high-net-worth. Over the last few
years, many marketers and practitioners have
developed increasingly distinct segmenting
concepts for the high-net-worth (HNW) market. 
The most common terminology and/or segments are
Emerging Affluent or Mass Affluent 50,000
Investable Assets
High-Net-Worth 500,000 Investable Assets
Pentamillionaires 5 million Investable Assets
Decamillionaires 10 million Investable Assets
Ultra-High-Net-Worth 30 million Investable
Assets
Excluding primary residence
4
Size of the Market
Affluent Households
In spite of the market downturn, the affluent
market is growing
  • The number of individuals with 1M investable
    assets will continue to grow at 8 per year.
  • Recent research found that the mass affluent
    segment has grown significantly over the last
    decade and will increase in importance.

33.5 million
19.4 million
11.2 million
1995
2005
2000
Net worth of 500K, not including primary
residences.
Sources Spectrem Group Cerulli Associates,
TowerGroup Packaged Facts Celent Communications
5
Geographic Distribution
Percentage of Total U.S. Decamillionaires (10M)
Living in Each State
  • The highest percentage of U.S. decamillionaires
    live in the following states (in descending
    order)
  • California
  • New York
  • Texas
  • Massachusetts
  • Illinois
  • Pennsylvania
  • Florida

Source HNW, Fall 2001
6
A Demographic Shift
The key change in the high-net-worth market is
increasing diversity. Old stereotypes about
wealth are being eroded.
Age
Gender
The age spectrum of high-net-worth individuals
(HNWIs) is broadening.
Men are often viewed as the primary wealth
holders, but women have increasing significance
in the wealth market. Though the average HNWI is
still male, a recent study by UBS PaineWebber
reported that for the first time ever, women
represent nearly half (47) of all investors with
100,000 or more in investable assets, up 11
from just two years ago.
Race
Source of Wealth
Researchers have found that only 15 of HNWIs
became wealthy primarily because of
inheritance/trust funds, though almost half
received some inheritance. The wealthy are now
more likely to be self-made, most commonly
through, entrepreneurial interests,
small-business ownership, investments, or earned
income.
The last decade has seen significant growth in
wealth among the Hispanic, African-American, and
Asian-American populations, though the average
HNWI is still white. Asian-American households,
for example, have a higher annual median income
than all other races, including whites.
Sources Spectrem HNW WealthPulse Cerulli
Associates Forrester Opinion Research
Corporation
7
Demographics
Sources Schervish, et al HNW WealthPulse
8
The Significance of Demographics
Demographic characteristics of the high-net-worth
help us understand philanthropic behavior
Age
  • People start giving in their late twenties or
    early thirties, regardless of their wealth
  • The older wealthy are significantly more likely
    than any other age group to give to educational
    institutions

Gender
  • Unlike with decision making about household
    finances, wealthy women are more likely to share
    or take sole responsibility for household
    decision making about giving, and have more
    interest in making charitable donations then
    wealthy men do

Race
  • A recent report found that minority groups as a
    whole are taking a more active role in giving,
    but there are many distinctions between groups.
    For example, Asian-Americans usually give out of
    a sense of duty and obligation to family while
    Indian-Americans give to honor future generations.

Source of Wealth
  • Small business owners, especially women, have a
    greater desire to give back to their communities
    than other wealth segments
  • Inheritors are almost twice as likely to see
    their taxes as their charitable contribution

Sources U.S. Census Bureau HNW WealthPulse
W.K. Kellogg Foundation
9
The Coming Wealth Transfer
  • The transfer will result in a vastly different
    group of high-net-worth individuals
  • A minimum of 6 trillion is expected to be
    transferred to philanthropic purposes

41 Trillion - 136 Trillion
2052
1998
2018
An estimated 12 18 trillion will be
transferred over the next two decades.
Sources Schervish et al.
10
Wealth Recency
Wealth Recency Among the High-Net-Worth
  • The economic boom of the late 90s had a
    significant effect on the high-net-worth Most
    doubled their net worth between 1995 and 2000
  • 85 say they are better off now than they were
    growing up
  • In general, those in the upper-echelons of wealth
    have been wealthy for longer periods of time.
    The average decamillionaire obtained that level
    of wealth 15 years ago
  • People who have had their money for more than 10
    years are generally older, on average 56 years
    old, when compared to the newly wealthy
    counterparts, who are on average 41 years old and
    have had their wealth for 5 years or fewer years
  • Those who attained their wealth more than 10
    years ago are more likely to feel an obligation
    to give back to their communities than their
    newly wealthy counterparts

Sources of Wealth of the Average
Pentamillionaire
Other
Inheritance/Gifts
2
18
Investments
21
Business/Profession
59
Sources Schervish et al. HNW
11
Technology
  • High-Net-Worth individuals are early adopters of
    technology.
  • They are the most prevalent, habituated Internet
    users, interacting and transacting on the
    Internet more than any other group, with 80 or
    more online penetration compared to 56 of the
    general population.
  • These wealthy Americans rely on different forms
    of technology to get information and manage their
    finances. Increasingly, they view the web as
    their primary interface with service providers.
  • Sophisticated Internet users demand quality
    content and services in their online experience
  • High-net-worth individuals increasingly expect
    high-tech service in all areas, especially wealth
    management

In response, financial services institutions
(FSIs) will have spent 38 trillion on online
services by 2005.
Sources 1999 Survey of Affluent Americans HNW
12
Psychographics Family Life
  • 97 of pentamillionaires report that they are
    active in teaching family values to their
    children, and 60 report taking steps to educate
    children specifically about their relative
    wealth. Such education focused especially on
    exposing the children to philanthropy,
    communicating the responsibilities and
    stewardship of wealth, and teaching about the
    power and privilege of wealth.
  • High-net-worth individuals see their
    relationships with their children as they relate
    to money very differently than the total
    population. Clear majorities in both populations
    think it is important to be open with their
    children about financial matters and believe
    their children should learn the value of money
    through hard work, but HNWIs worry less that
    their children will have a difficult time making
    it financially and instead are more concerned
    that their children will be too spoiled by money
    and material possessions.
  • Only 26 of HNWIs feel very confident that the
    next generation will be as financially secure as
    they are now.
  • Any stress or tension in the relationships of
    high-net-worth individuals is not likely to be
    caused by money, unlike in the total population,
    in which relationships are often financially
    strained by issues such as paying bills and
    affording necessities.
  • Among those who are divorced or separated, 75 of
    the wealthy say that money was not an important
    factor in leading to their separation, compared
    to 50 in the total population.

Sources Schervish et al. HNW WealthPulse
13
Psychographics Values
Happiness
Work Life
  • 86 of HNWIs rank financial success and security
    as important to their happiness
  • 59 say they have become happier as their wealth
    has grown
  • 83 believe that money is more likely to solve
    problems than to create them
  • The wealthy are less likely to say they work out
    of financial necessity
  • While the total population work primarily to
    provide for their families, HNWIs are much more
    likely to say they work for the challenge and the
    value of employment

Religion
Politics
  • 61 of pentamillionaires are engaged in advancing
    their spiritual or religious development
  • Small business owners and those with higher net
    worth (5M) are more likely to rank religion as
    an important contributor to their overall
    happiness than other wealth segments
  • The wealthy more strongly identify with the
    Republican party than the total population. 50
    identify with the Republican party (vs. 29 in
    the total population) and 26 with the Democratic
    party (vs. 40 of the general population)
  • Wealthy women are more inclined than wealthy men
    to be Democrats
  • Those who have inherited or married into their
    money are more likely to be Democrats

Source HNW WealthPulse
14
Psychographics Financial Success Security
For high-net-worth individuals, financial
security is related to both psychological comfort
and material wealth.
  • A recent survey of affluent investors indicates
    their greatest fear is a decline in their living
    standards during retirement.
  • While significantly more of the total population
    than the high-net-worth population work because
    it is necessary for financial security and
    stability, a remarkable number of high-net-worth
    people maintain that they work predominantly to
    ensure that their family is secure
  • The higher the net worth, the greater the amount
    of wealth respondents say they need to feel
    financially secure. Only 36 of pentamillionaires
    feel completely financially secure. The median
    amount needed for financial security is 20
    million, or 67 more than current wealth, with
    the average amount needed 45 million, or 75
    more than current wealth
  • Wealthy women also seem to need more money to
    feel secure than wealthy men. 29 of wealthy
    women say they would need more than 50 million
    to feel completely secure, compared to 4 of
    wealthy men.
  • Wealth recency also has a significant impact on
    financial concerns. The more recently people
    have acquired wealth, the more concerned they are
    about providing for retirement, their familys
    security, and the educational needs of their
    children, and the less concerned they are about
    managing investments, tax and/or estate planning,
    and providing for health and wellness.

Source HNW WealthPulse Schervish et al.
Nationwide
15
Psychographics Risk Profile
  • The high-net-worth population is much more
    comfortable taking financial risks than the
    general population
  • Many high-net-worth individuals see higher-risk
    investments as necessary to achieving high
    performance in their portfolios
  • They are twice as likely to have started their
    own business
  • However, wealth management professionals are
    reporting that over the last 6 months the risk
    profile of affluent investors has changed. Many
    are reducing their equity positions and moving
    into other asset classes, particularly
    fixed-income and alternative investments. Recent
    research shows that between 15 and 25 of
    high-net-worth individuals portfolios are now
    devoted to alternative investments, a significant
    increase from only 5 years ago.

Source HNW WealthPulse Andersen Goldman Sachs
16
Contents
  • The High-Net-Worth Market
  • Wealth Management Trends The Age of the Advisor
  • High-Net-Worth Individuals Giving
  • Competition in Philanthropic Services
  • Summary
  • Opportunity Leverage the Channels
  • Taking Action
  • Conclusions

17
The Age of the Advisor
Professional advisors remain at the center of
financial decision-making for the nation's
wealthiest households, according to recent
research, but their role is changing. The breadth
of easily accessible investment information,
increasingly complicated tax laws, escalating
investor sophistication and the complexity of
financial instruments designed for this market
place even greater demands on advisors
to meet their wealthy clients' expectations.
  • 75 of high-net-worth individuals have at least
    one wealth management advisor and are likely to
    have multiple different types of advisors
  • Only 34 of those with less than 200,000 of
    investable assets are already working with
    advisors. However, this number is set to grow
    significantly to almost 75 over the next few
    years
  • With at least 80 online and the majority
    actively involved in their own wealth management,
    high-net-worth individuals now view advisors as
    primary guides and counselors.
  • High-net-worth individuals expect their advisors
    to understand the full picture of their
    financial and personal life, catering to their
    needs and goals.
  • A much more collaborative client/advisor
    relationship is emerging as advisors and
    financial services institutions (FSIs) try to
    determine how best to meet the changing demands.

Source Spectrem Forrester
18
Major Trends
  • Results in FSIs providing
  • Customization flexibility
  • Advanced technology
  • Personal, face-to-face attention
  • More and more comprehensive, specialized services

19
Advice Personalized Attention
  • Over the last few years HNWIs have been seeking
    more advice and personal attention. According to
    recent research, affluent people have been shaken
    by the market downturn and the events of
    September 11th and this trend has accelerated,
    with HNWIs seeking expanded advice and
    personalized guidance on all areas of wealth
    management from their financial service
    providers.
  • This trend is illustrated by an in-flow of new
    business at financial service firms. For
    example, at the 50 fastest-growing
    wealth-management firms in the country investors'
    assets jumped 67 last year. New assets at wealth
    management firms rose as investors transferred
    assets out of their self-directed accounts to
    professionally managed accounts.
  • Advisors and FSIs are jumping to respond to these
    consumer marketplace shifts in order to reap the
    dual rewards of customer loyalty and long-term
    profitability.

Sources TowerGroup Jupiter Research Bloomberg
Wealth Manager
20
All Kinds of Advisors
There are many different types of professional
advisors, either independent or affiliated with
particular FSIs
  • Relationship managers (Generalists at FSIs who
    help clients connect with resources)
  • Specialized accountants
  • Specialized lawyers
  • Specialized philanthropic advisors
  • Trust officers
  • Family office professionals
  • Estate Planners

Type of Advisor Number
Registered investment advisors brokers 570,000
General financial advisorsOffering fee-based financial planning Estimated at 150,000 to 300,000
Certified financial plannersThe gold standard of credentials 38,188
Specialized Insurance Advisors 80,000

All seeking to build and maintain relationships
with demanding affluent clientsthe most
profitable group.
21
An Advisor Challenge Affluent Customer Loyalty
The affluent client is demanding, and
increasingly disloyal to particular advisors
  • One-third of the nation's leading financial
    advisorsthose with an average of 20 years'
    experience and 82 million in assets under
    managementsay it is more difficult to retain
    clients today than it was five years ago.
  • As many as 40 of clients would consider another
    advisor or are actively seeking one.
  • Research reveals that outside influences on
    clients combined with poor customer service and
    unrealistic expectations are the primary reasons
    for the retention issues.
  • Advisors are responding by increasing their
    contact with clients and incorporating the
    Internet into their relationships.
  • Client contact remains the primary driver of
    client satisfaction. Affluent investors who say
    they are "highly satisfied" with their primary
    financial advisor have an average of 14 contacts
    with that advisor over six months. "Contact" can
    be a telephone call, a personal meeting, or even
    a personalized letter or email.

Sources Prince Associates 2000 AIM/ Gresham
Wealth Management Survey Yankelovich Partners
22
Advisors are now viewed as the primary conduit
for building relationships with high-net-worth
individuals
FSIs Nonprofit Organizations
Professional Advisors
HNWIs
23
The Advisor Balancing Act
  • Affluent individuals are seeking
  • Personalized advice and in-person attention
  • Specialized expertise in many areas
  • Complex, customized products and services
  • Improved bottom-line
  • High tech resources
  • And much more
  • Financial Services Institutions (FSIs) are
    seeking
  • Increased profitability
  • Client contentment and loyalty
  • New client referrals / relationships

Primary Professional Advisors
Limited Resources
Source Andersen
24
Advisors as a Powerful Channel
Advisor Characteristics
  • Independent, even when employed by a specific
    financial firm.
  • Creative and entrepreneurial, especially when
    prospecting.
  • Consistently seek out a competitive advantage
    knowledge, tools, training, etc.
  • Committed to securing their relationships with
    high-net-worth clients and prospects

Example of a Merrill Lynch bankers personal
direct mail materials
Giving is an area that advisors have not focused
on historically, but with the trend towards more
aggressive, holistic wealth management approaches
and clients less loyal clients, advisors are
including giving in their core offering.
TENS OF MILLIONS OF HNWIs
HUGE GIVING OPPORTUNITY
HUNDREDS OF THOUSANDS OF ADVISORS
25
Core Associations
Millions of Clients
100,000s of Advisors
600 Community Foundations Tools
Information Links
Partnership Event Packages
600 Community Foundations Access to
Advisors Access to Donors
Expanded Reach Awareness
Increased Donations
26
Advisor Channels
Developing the Channel
Advisors join and participate with associations
to receive support, information, training and
tools to help in their professional efforts.
Associations in turn attempt to provide advisors
with benefits and resources that are relevant,
but at the same time cost efficient to their
organization. This provides an opportunity for
Community Foundations (CFs) to provide national
organizations with information, tools and
client-facing support in exchange for access to
a valuable base of advisors and, ultimately,
their clients.
Advisor Channels Associations
27
Advisor Channels
Associations
The National Association of Personal Financial
Advisors (NAPFA) www.napfa.org 750 members
(fee-only planners)
International Association of Registered Financial
Planners www.iarfc.org 2,000 members
American Insurance Association www.aiadc.org
National Association of Tax Professionals
(NATPTax) www.natptax.com
National Association of Family Wealth
Counselors www.nafwc.org
National Committee on Planned Giving
(NCPG) www.ncpg.org 11,000 members
The National Association of Estate Planner
Councils (NAEPC) www.naepc.org
Society of Financial Service Professionals www.fin
ancialpro.org 27,000 members
28
Advisors and Giving
  • Historically, significant amounts of charitable
    giving has resulted directly from advice by
    financial advisors, lawyers, and accountants,
    even if it was not especially emphasized.
  • Advisors are including strategic charitable
    giving elements in their work with high-net-worth
    clients now more than ever, including it as part
    of the general wealth management process
  • Research shows that advisors would like to have
    more information and tools around charitable
    giving. Many do not feel confident in their
    ability to address philanthropic issues with
    their clients. In particular, advisors reported
    that they had concerns about the subject being
    too personal, or about their ability to speak
    about the subject knowledgeably.

Sources The Philanthropic Initiative The
Million Dollar Roundtable
29
Contents
  • The High-Net-Worth Market
  • Wealth Management Trends The Age of the Advisor
  • High-Net-Worth Individuals Giving
  • Competition in Philanthropic Services
  • Summary
  • Opportunity Leverage the Channels
  • Taking Action
  • Conclusions

30
Net Worth and Giving
Annual giving clearly correlates with net worth.
Source Schervish et al.
31
Estate Planning
  • The proportion of ultra-HNW estates left to
    charity is steadily rising. The share of estates
    of 20M or more allocated to charity increased
    from 34 in 1992 to 49 in 1997 .
  • Among all estates there is a generally downward
    change in the percentage taking a deduction for
    charitable contributions, which may be due to
    increasing use of other forms of planned giving
    during ones lifetime, including annuities,
    trusts, foundations, etc.
  • Most Americans report having a will, but among
    those whose estates could be subject to estate
    taxes because they exceed 675,000, only 40 have
    an estate plan.
  • Reported reasons why wealthy individuals with
    estate plans might review them include having
    better information about
  • Their planning options
  • Future needs of family
  • Tax benefits of giving to charity
  • Most HNWIs rely on individual professionals
    rather than financial or charitable institutions
    to best provide such advice.

Source Schervish et al. Giving USA 2001
Fidelity Investments
32
Charitable Vehicles
  • 37 of pentamillionaire households identify
    charitable trusts and foundation as their fourth
    most important financial goal, after trust and
    estate planning, investment advice, and
    tax-management strategy.
  • For this group, the bulk of charitable giving is
    via trusts, donor-advised funds, foundations, and
    other charitable vehicles rather than directly to
    charitable organizations.
  • An average of 750,000 is contributed per
    pentamillionaire family through these vehicles
    annually.
  • The older people are or the longer they have had
    their wealth, the more likely they are to set up
    a charitable vehicle.
  • Wealthy inheritors and wealthy small business
    owners are more likely than other groups to have
    such a vehicle.

Sources Spectrem Group Schervish et al.. HNW
WealthPulse
33
The Effects of September 11th
  • Banks, brokerage firms, and trust companies
    reported a significant increase immediately
    following September 11th in the number of wealthy
    customers wanting advice on how to use their
    charitable portfolios and private foundations to
    help with disaster relief. Customers without such
    charitable giving mechanisms in place are also
    asking for help in contributing, financial
    executives say.
  • Analysts predict that the wealthy will continue
    giving more as they take advantage of tax laws,
    even during a recession. There may be a "second
    wave" of giving in response to September 11th,
    after the cautious wealthy have considered their
    options and reacted to stories about poor
    handling of donations.
  • In a recent study by Citigroup Private Bank,
    fewer than half the customers (3M) say their
    charitable giving was affected by the September
    11th attacks, recession, or tax-law changes, but
    they have made giving a topic of conversation.
  • The higher the net worth the less likely that
    giving was directly affected by September 11th.
    The ultra-HNW have the most to give but their
    wealth is heavily insulated from market events
    and they are more directed in their giving most
    of the gifts were promised before September 11th.

Sources American Banker Lobue Associates
Citigroup Private Bank
34
Reasons to Give
  • Top motivations to give, in order of importance
  • Feel strongly about the cause
  • Personal experience with the organization
  • Tax benefits
  • Response to specific requests
  • Moral imperative or right thing to do
  • Involvement of friends and family with the
    charity
  • Religion or spirituality

Source HNW WealthPulse
35
Giving Attitudes
  • Major Differences
  • HNWIs are more likely to
  • Make giving decisions with the help of an advisor
  • Report that giving has always been a part of
    their familys way of life
  • Give because it benefits both their business and
    their community
  • Give because tax and estate laws provide an
    incentive
  • Enjoy and attend social functions associated with
    giving
  • HNWIs are significantly less likely to give
    anonymously.

Source HNW WealthPulse
36
Giving Triggers
  • 57 of HNWIs were triggered to give by attending
    a local community event
  • 49 gave after attending a charity event, such as
    a black-tie dinner

Source HNW WealthPulse
37
Philanthropy Among Men Women How Gender Makes
a Difference
  • High-net-worth women are significantly more
    likely than high-net-worth men to say they give
    for the following reasons
  • Feel strongly about the cause
  • Feel a moral imperative or that it is the right
    thing to do
  • Have a friend, family member or co-worker
    involved with the charity
  • Health (illness of a family member, friend, or
    self)
  • High-net-worth men are more likely than
    high-net-worth women to say they give for the
    following reasons
  • Tax benefits
  • Response to a specific request
  • Religion or spirituality

Source HNW WealthPulse
38
Philanthropy Among Men Women How Gender Makes
a Difference
  • High-net-worth women are more likely than
    high-net-worth men to have the following
    attitudes
  • Because of religious beliefs, I believe it is
    essential for me to help others
  • I give to social causes that I strongly believe
    in
  • I feel an obligation to repay organizations that
    have helped me in the past
  • Charitable giving has always been a part of my
    familys way of life
  • High-net-worth men are more likely than
    high-net-worth women to have the following
    attitudes
  • I give because it benefits both my business and
    my community
  • Tax and estate laws provide me with a huge
    incentive to give

Source HNW WealthPulse
39
Giving Deterrents
24 of high-net-worth individuals report that
they do not see any obstacles to giving. For
those who do, major obstacles they report include
  • Not confident that donations will be used in a
    productive and valuable way
  • Have not found a compelling reason to give
  • Lack of time
  • Are uncertain about their own future financial
    situation

Sources HNW WealthPulse Schervish, et al.
40
Ways to Increase Giving
  • Top factors likely to increase charitable giving
    among those with net worth of 5M
  • Finding a new cause that you feel passionate
    about
  • Increased net worth
  • Increased tax benefits
  • Better information about effectiveness of
    giftsHNWIs are seeking tangible results and deep
    knowledge of how a recipient will use the gift

Sources Schervish, et al.
41
Top HNWI Giving Interests
In general, the high-net-worth are more likely to
spread their time and money over a variety of
different causes and organizations than the total
population. During 2000, more than half of the
wealthy dedicated their time or money to 5 or
more different causes.
  • Both the affluent and the total population tend
    to give primarily to local and community-based
    charities.
  • The affluent dedicate more time and money to
    educational institutions than to any other type
    of organization, although children and youth
    services and health and medical charities are
    close second choices.
  • For the total population, the most popular
    recipients of time and money are religious or
    faith-based organizations and children and youth
    services organizations are second.
  • The affluent are twice as likely as the total
    population to have given to arts or cultural
    organizations and political or advocacy
    organizations.
  • Wealthy women are moved by causes that have a
    personal or emotional appeal and give more to
    health and medical charities and homeless or
    low-income organizations than wealthy men.
  • Wealthy men are more likely to give to arts or
    cultural organizations and political and advocacy
    organizations than wealthy women.

Sources HNW WealthPulse
42
Perceived Comparison to Peers and Total U.S.
Population
High-net-worth individuals see giving differently
than the total population
  • While almost half of the high-net-worth market
    believe that their annual giving is higher or
    much higher than the total U.S. population, only
    36 believe that their giving exceeds their peers
  • A modest majority of those with 5 million or
    more in assets also seem to believe that their
    giving is lower than their peers, which is
    notable given that they have typically made a
    much larger single donation than other groups

Sources HNW WealthPulse
43
Contents
  • The High-Net-Worth Market
  • Wealth Management Trends The Age of the Advisor
  • High-Net-Worth Individuals Giving
  • Competition in Philanthropic Services
  • Summary
  • Opportunity Leverage the Channels
  • Taking Action
  • Conclusions

44
Growing FSI Awareness of the Importance of
Philanthropy
Financial Services Institutions (FSIs) have a
growing awareness of the importance of
philanthropy to the personal lives and wealth
management practices of high-net-worth
individuals. Post-September 11th, more and more
are beginning to aggressively offer philanthropic
services.
A sampling of those targeting the high-net-worth
for philanthropic services
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Examples FSIs and Philanthropic Services
  • The first FSI to introduce donor-advised funds
  • Charitable Gift Fund has had phenomenal success
    It is now one of the largest U.S. charities
  • Currently expanding its reach by providing its
    back-end system to other FSIs
  • Examples of FSIs who followed Fidelity to market
    with donor-advised funds
  • Market the funds to HNWIs in a variety of ways,
    but top selling points include
  • Up front tax benefits
  • Excellent investment management
  • Ease of use
  • One of several FSIs pushing private family
    foundation offerings
  • Pitch traditional benefits of family foundations
    but offer to reduce the administrative hassles
    and take care of investment management
  • Working with Foundation Source to offer quick
    start-up with low minimum (250K)
  • Major FSIs are aggressively offering
    philanthropic services tailored to meet giving
    goals and completely integrated with HNWIs
    estate, tax, and wealth planning strategies
  • Offer a large variety of charitable vehicles,
    including trusts, annuities, and foundation
    services
  • More focused on upper-echelons of wealth

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How FSIs Efforts Relate
  • FSIs efforts to promote philanthropic services
    have raised awareness among high-net-worth
    individuals of the importance of integrating
    giving into their financial planning.
  • Advisors are feeling more pressure to provide
    full guidance in this area.
  • This effort provides Community Foundations with
    an opportunity to position themselves as existing
    expert resources on giving.
  • While many FSIs are just beginning to offer
    philanthropic solutions, they are fast learners
    and aggressive marketers with significant revenue
    at stake.
  • The window of opportunity for Community
    Foundations to partner with these institutions or
    gain from their marketing efforts is occurring
    right now.

47
Examples FSIs and Philanthropic Services
Dedicated older daughter (Share of estate 11)
Dutiful son (Share of estate 11)
Devoted younger daughter (Share of estate 11)
Delighted Alma Mater (Share of estate 67)
Charity still begins at home, but philanthropy
goes far beyond it. Phoenix has been helping
people whove done well do better for more than
150 years. To learn how we could be helping you,
contact your financial advisor and visit us at
phoenixwm.com. Accumulate. Preserve. Transfer.
48
Examples FSIs and Philanthropic Services
myCFO offers unbiased and comprehensive
services, including tax and estate planning,
investment advice, and philanthropic counsel
49
Examples FSIs and Philanthropic Services
A better way to enrich the lives of others
50
Contents
  • The High-Net-Worth Market
  • Wealth Management Trends The Age of the Advisor
  • High-Net-Worth Individuals Giving
  • Competition in Philanthropic Services
  • Summary
  • Opportunity Leverage the Channels
  • Taking Action
  • Conclusions

51
Summary
The high-net-worth market is undergoing
significant changes that directly impact giving
and philanthropic services across a wide range of
areas. In summary, the key shifts are
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Summary
53
Summary
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Contents
  • The High-Net-Worth Market
  • Wealth Management Trends The Age of the Advisor
  • High-Net-Worth Individuals Giving
  • Competition in Philanthropic Services
  • Summary
  • Opportunity Leverage the Channels
  • Taking Action
  • Conclusions

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Opportunities
FSIs and Giving - All Boats are Rising.
The enormous amount being spent to market full
wealth management, including philanthropic
services, raises awareness and education for the
current and expanding high-net-worth market. The
marketing efforts of FSIs could be leveraged and
co-oped to the advantage of Communtiy
Foundations. Key factors
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Opportunities
Technology
Community Foundations should view HNWIs high
interest in technology and the Internet as an
opportunity to connect with large local,
regional, and national constituencies. Technology
provides numerous benefits
Connectivity It brings together both the
local and national platform with consistency and
efficiency of message and marketing.
Channels It provides an opportunity to enter
highly valuable channels where advisors, donors,
and extended constituents already visit.
Speed Technology offers speed which is
extremely valuable in a changing market.
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Opportunities
Wealth Transfer 12 to 18 trillion will be
transferred from one generation to another over
the next 20 years. This transfer is made up of
financial events of considerable proportions, and
each presents an opportunity to Community
Foundations. Advisors will have an important role
in the decision-making process surrounding the
transfer, and the more comfortable they are with
philanthropic services and strategies (i.e.
engaged by Community Foundations), the more
giving there will be. Over the next 50 years up
to 136 trillion will change hands.
Advisors Advisors are a strong channel for
Community Foundations to leverage on a local and
national level. They provide access to
relationships and organizations that could
exponentially increase community foundation
success.
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Opportunities
Customization FSIs have difficulty customizing
services for all but the ultra-affluent segment
of their client base. Community Foundations
local, customized, turn-key approach will be
attractive to both donors and advisors looking
for support in this arena.
Operational Segmentation Private bankers,
advisors and relationship managers of many larger
financial firms have fewer resources to meet
demand from HNWIs. This creates a segment of
underserved individuals, increases account
migration and offers new decision events that
benefit both Community Foundations and advisors
willing to address these segments.
Disloyalty Advisorsaggressive and creativeare
looking for ways to improve retention in their
client base by becoming a trusted full service
advisor. Many advisors have remained outside
their clients giving decisions, but in doing so
have made themselves vulnerable to other planners
and advisors prepared to offer guidance.
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Opportunities
Giving Motivation
Community Foundations offer an alternative to
FSI-based philanthropic services, and may appeal
particularly to people who feel strongly about
causes and want to address them at the local
level. Community Foundations also offer a
powerful response to other giving motivations and
needs
Tangible results A high number of HNWIs
require express knowledge of how a recipient will
use their donations and want to see tangible
results. The local positions of Community
Foundations can help facilitate these goals.
Involvement with friends, family members or
co-workers A high number of HNWIs get involved
with charities through co-workers, family and
friends, suggesting a local community dynamic
reflected in the CF offer.
Attended local community event Many HNWIs
state attending local events as a giving trigger,
once again synergistic with CFs presence in the
local community.
Family way of life Giving because it is a
family tradition is an important giving trigger
for HNWIs and can play into the local strength of
Community Foundations.
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Core Areas of Focus
Community Foundations opportunities are
significant but require focus on four key areas
of development
Advisors as a Powerful Channel
Technology as an Enabler
Speed to Market to Seize the Opportunity
Co-opetition Stance
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12-18 Trillion in Next 20 Years
Online technology spend by FSIs will grow to 38
billion by 2005
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CO-OPETITION
Community Foundations
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Advisor Channels
Associations
Tying together national and local outreach
efforts with associations provides Community
Foundations with a Push/Pull effort that can
create new opportunities for both local
foundations and the advisor community.
Local The CF engages NAIFA in an outreach
initiative to their members on the local level.
For example, the local Community Foundation of
Greater Kansas City creates a Women, Wealth, and
Giving series in partnership with the local
chapter of NAIFA. The local members of NAIFA are
already predisposed to the message, the
philosophy and opportunity and have used the
tool kit in market. These and other events
become success stories revisited throughout the
NAIFA/CF network.
  • National
  • Community Foundations engage NAIFA in a national
    outreach initiative to provide NAIFA members a CF
    giving toolbox. All online members access
  • Presentations, seminars, case histories, giving
    gauge, helpline, CF search engine
  • NAIFA promotes the initiative to their member
    base through mail, newsletters, and online
    features.

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Advisor Channels
Destinations
Advisor channels are not limited to associations,
they include portals and publications dedicated
to supporting professional advisors, directories
that create community, and organizations solely
focused on training and certification. These
channels provide additional opportunities on the
national (and local) level to establish
relationships with advisors.
GlobeAdvisor.com, Financial Planning
Portal www.globeadvisor.com
Certified Financial Planner/Board of
Standards www.cfp.board.org Training, seminars
certification
Financial Planning, Media Outlet and Destination
for Financial Planners www.financial-planning.com
AdvisorsDirectory.com, directory for
licensed/certified advisors www.advisorsdirectory.
com
AdvisorToday, Online/Offline Publication created
by NAIFA www.advisortoday.com
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Advisor Channels
Businesses
Advisors are those individuals who guide and
influence people concerning financial decisions
and do not always reside within traditional
financial planner roles or firms. This presents
Community Foundations with opportunities to
access existing channels which might often be
overlooked and create professional giving
circles or traditional donation activity.
Example 1. HR Block is a national firm with over
10,000 stores nationwide. The national brand is
augmented by efforts to embed themselves in local
communities. Additionally, they recently began to
promote themselves as advisors and obviously
provide guidance during a key giving time tax
season. Community Foundations have an opportunity
to formalize a relationship with HR Block and
provide them with giving tools, support,
education and promotional materialsonline and
offline. With over 19,000,000 customers served,
nearly 1MM could fall within the HNW category and
the rest could opt into a giving circle-style
donation option which can be developed,
implemented and maintained by the local Community
Foundation.
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Advisor Channels
Businesses
Example 2. GMAC Financial Services. GMAC-FC
provides automotive financing, insurance, home
services, investment services and business
solutions. However, automotive financing remains
the core business with over 1 trillion in credit
to finance more than 146 million vehicles
worldwide. Also, GMAC saw its personal lines
premiums (insurance) total 1 billion and more
then 3.6 maintenance contracts in 1999. Most of
the financing and contracts flow through the GM
dealership network which, like HR Block, tries
to augment the national brand with local
community activity. With over 50,000 dealership
employees trained at GM university, GMAC-FC has
positioned itself as a financial advisor while
the dealerships still compete with other local
dealerships for business. This presents Community
Foundations with opportunity to leverage this
network of advisors while offering dealerships
a competitive edge through giving back to the
community programs which are simple and
seamless. The message would go something like
Any individual financing a vehicle, buying
insurance or purchasing a service agreement with
GMAC at our GM dealership automatically gives
back to their local community CFs provide
information, materials and support to implement
the program on a national and local level. People
get exposed to CFs work, dealerships receive
good will, and the community receives the
benefits of a more active and robust CF offering.
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Example 3. BenefitsLinks is an employee benefits
portal for human resource executives and employee
benefits managers. It focuses on the small to
mid-size businesses that may not receive the
attention from larger firms offering benefits
programs. As a way to reach small business owners
as well as offer a new employee benefits
alternative, Community Foundations could position
their charitable offering as an employee benefit.
In the competitive field of acquiring and
retaining talented individuals creative
benefits can have a positive impact.   Small
business could use Community Foundations to set
up a company giving plan that is community-based,
managed by employees, and directly correlated to
the companys performance. In this scenario each
party wins. BenefitsLinks.com could be a channel
along with other employee benefits selling
channels and small business organizations. A side
benefit is engaging the small business owner as a
possible donor and participant in the local
CFthis is a hard to identify segment and
underserved market.
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HR Block Tax preparation, financial advice,
investment Over 10,000 stores 19,000,000
served www.hrblock.com
ProBusiness.com Outsourced employee
administration www.probusiness.com
FMAC Financial Services Multi-tier financing
organization www.gmacfs.com
Small Business Administration www.sba.gov
BenefitsLinks.com Employee benefits
portal www.benefitslinks.com
BusinessKnowHow.net National small business
network www.businessknowhow.net
International Foundation of Employee Benefits
Plan www.ifebp.org
Better Business Bureau www.give.org
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Advisor Channels
Banks
Advisor channels are often embedded in other
distinct channels such as banks. Smaller
regional banks and independent community banks
offer Community Foundations an opportunity to
partner with established financial organizations
which often cannot provide more sophisticated
financial services or wealth management. This
includes philanthropic services. These
institutions rely on partnerships and leverage
their local community commitment to differentiate
themselves from other more aggressive and bigger
banks which may offer their own philanthropic
vehicles.
Example. Community Foundations partner with
Independent Community Bankers of America
providing their banks with pre-packaged events
and seminars, literature, internal education and
training materials and direct access to their
local CF advisor. ICBA offers the partnership to
their participating 5,000 banks and Community
Foundations receive awareness and presence in the
bank and community, as well as access to the
banks customer basein partnership or directly.
American Bankers Association www.aba.com ABA
Marketing network
Bank Administration Institute www.bai.org
Independent Community Bankers of America
(ICBA) 5000 banks, 17,000 locations www.ibaa.org
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Further Reach Within the Channels
Within the advisor channels there are
opportunities to target particular audiences.
Attorneys
Womens Financial Sites and Influencers
Minority Advisors
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Advisor Channel Community Foundation Synergy
The advisor channel offers an exceptional
partnership opportunity for Community
Foundationsboth on a national and local level.
This type of partnership is mutually desirable
and taps into all of the HNW trends.
HNW Donors
Advisors
Community Foundations
Seek HNW individuals,
Seek HNW donors,
Seek wealth management advice
Provide financial advice
Provide philanthropic services
Demand personal touch
Strong client relationships,
Provide personal contact,
Customized services
Offer personal touch
Customize giving
Beginning to integrate giving
Lack philanthropic offer
Provide philanthropic solutions
into wealth management
Provide local community giving,
Must see results of giving
Strong local presence
More visible results
Personality active, informed,
Independent, aggressive,
Independent, active,
does online research
focused creative, online
focused, online
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Contents
  • The High-Net-Worth Market
  • Wealth Management Trends The Age of the Advisor
  • High-Net-Worth Individuals Giving
  • Competition in Philanthropic Services
  • Summary
  • Opportunity Leverage the Channels
  • Taking Action
  • Conclusions

75
Getting the Word Out
Getting the Word Out is paramount to developing
the advisor channel
As noted, there is currently an exhaustive effort
underway within much of the Financial Service
Industry and among the individuals that support
it to streamline and integrate philanthropic
giving with the financial planning process. This
effort to soften the market provides Community
Foundations with some opportunities to co-op
FSIs groundwork. All boats are rising and
Community Foundations can fill a void by
Increasing Awareness Providing a Clear Value
Proposition Developing an Advisor
Channel Focusing on Marketing and
Communications
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Getting the Word Out Push/Pull Strategy
Community Foundations should be able to take
advantage of the FSIs efforts to soften the
market with a Push and Pull approach for channel
development
IMPORTANT It is critical that Community
Foundations, nationally and locally, view
themselves as marketing organizations focused on
channel development.
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The Push/Pull effort is an integrated approach to
channel development that fully leverages the
advisor opportunity
NATIONAL PUSH
Programs
Initiatives
Partnerships

LOCAL PULL

Leads
Events
Seminars
Networking
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It is key to approach the advisor channel
associations, groups, businesses and
organizations at the national level in order to
actively engage their members, employees,
constituents and, ultimately, their client base.
  • Providing channel organizations with turn-key
    tools that support Community Foundations
    objectives and making the tools accessible is
    paramount. The tools can be both online and
    offline packages which have three primary
    goals
  • Educate and promote
  • Habituate the advisor to use tools
  • Direct the advisor back to the local CF

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  • Community Foundations engage NAIFA in an Advisor
    program. In return for a Community Foundation
    presence on their site and in their mailings to
    members, the NAIFA member can access the Good
    Giving, Good Business work package, an online
    (and offline) tool kit for advisors and their
    clients. It could consist of
  • Advisor Benefits and Advantages
  • Client Seminar Presentations
  • Help Line
  • Case histories
  • Giving Calculator
  • Benefits Sheets
  • Search Engine directing back to local CF, etc.

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Developing and delivering tools and information
to the CF which enable them to educate, interact
and partner with local advisors, and therefore
access new donors. Could be achieved be adapting
existing tools and creating new ones.
  • Web tools. Offer online tools which cater to the
    advisors, including
  • Presentations
  • CF benefits to advisors and their clients
  • Giving evaluator for their clients
  • Giving calculator
  • Simple How To guide
  • Event plan

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Marketing
  • Providing CFs with marketing plans and case
    studies to help reach their advisor base
  • Event Planning
  • Seminars
  • Outreach Online and Offline
  • Local Associations and Businesses
  • Segmentation Strategy

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Marketing Tactics
Increasingly, marketing tactics that target the
specific needs of advisors will provide in-market
knowledge and new opportunities to channel
donations into Community Foundations. The
following is a menu of tactics and marketing
initiatives based on the previously presented
research and assessment.
National Advisor Site Education and
Certification Programs Seminar/Events-in-a-Box
Toolbox Development Customizable
Presentations Marketing Blueprints Network
Building and Viral Marketing Data Leads and
Intelligence Advertising and PR
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National Advisor Site
A Community Foundation-sponsored financial
advisor site would provide information, support,
tools and education on givingdirected at CF
solutionsas well as a clear articulation of the
benefits to advisors of offering philanthropic
services to their clients. Linked to the Council
on Foundations, Community Foundations of America
and local CF sites, its success is greatly
dependent on search engine strategies,
promotional outreach within channels, and links
to/on association sites, channel sites, financial
network sites, and appropriate business and
consumer sites.
The Advisor Site is an intermediary
communications vehicle and marketing mechanism
between CFs and desirable channels. It presents
various features including but not limited to
The Site can encompass some or all of the
marketing tactics and tools. It is a destination,
a vehicle and a critical platform for advisor
channel development
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Education and Certification
Community Foundations can offer the advisor
channel a Foundation Certification Program.
Online, educational and administered
electronically, this program allows advisors to
learn about foundations and become CF approved
after taking a certification exam. In return for
participating in the program, the CF will post
the successful advisor on their web site as a
certified community foundation planner, opening
up the possibility of new business for the
advisor and new relationships and donors for the
CF.  An educated advisor is our best channel.
Seminar and Events in a Box
As the name implies, seminar and events in a box
delivers pre-planned, pre-developed and
pre-packaged seminar/ event concepts. They
provide lead generation tactics, presentations to
specific audiences, detailed plans for partnered
events and help advisors and CF counterparts
identify underserved audiences.
Example Closely Held Businesses Seminar. In
conjunction with the Small Business Association,
Better Business Bureau, Entrepreneur groups and
the local Community Foundation an advisor
co-presents Better Giving, Better Business, a
seminar on how structured giving to the local
community supports business, improves employee
relationships and provides cause-related
marketing opportunities. The seminar is a fertile
environment for the advisor, CF representative
and networking local business people. They learn
how t
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