How donor-advised funds can deepen client relationships

Envestnet Inside WealthTech – GiftingNetwork

Blake Wood: Welcome to Inside WealthTech. We're live here at Envestnet Elevate in Phoenix, Arizona. My name is Blake Wood, Head of Strategic Partnerships for Envestnet.

Becca Endryck: I'm Becca Endryck. I lead our product strategy at Envestnet. And today we welcome Eric Swerdlin, CEO of The GiftingNetwork.

Eric, welcome. Thanks for joining us.

Eric Swerdlin: Thanks. I'm very happy to be here with you guys.

Interviewer: Great. Just to kick us off, it'd be great if you could give us the elevator pitch for The GiftingNetwork.

Eric Swerdlin: Sure. The way charitable planning has moved into WealthTech, our platform is designed to help asset managers and wealth managers deliver philanthropic solutions, obviously leading with donor-advised funds, so that advisors retain assets. They work with family members, so they have intergenerational traction. And the market has been exploding.

Donor-advised funds have been growing at a 25% CAGR for the last 15 years.

Interviewer: That's fantastic. You talk about your platform positioning gifting as a core driver of client engagement. How do you reframe gifting into that strategic lever that helps deepen and strengthen the long-term advisor-client relationship?

Eric Swerdlin: Great question. That's what it really comes down to: relationship building. There are a couple of aspects to it.

First of all, there's money that flows out to the commercial donor-advised funds, Fidelity being the leader there, Schwab and others. In a lot of cases, the asset managers lose those AUM and the advisement fees on those. So, we help them bring that back in.

Our platform has DAF sponsors, more than just one. With Fidelity, there's only one. Schwab has one. There are multiple choices, including some that are cheaper, 25% cheaper than Fidelity and Schwab.

So, for advisors who are looking for cost effectiveness, that's one trigger. But obviously, building the relationship with the next generation is also really key when it comes to philanthropic planning. And we have tools on our platform that make it super sticky for advisors and the assets.

Interviewer: Fantastic. That's a great way to think about personalization too, right? As we think about that trend and theme through Elevate here, at the heart, personalization is scaling across thousands of customers. It's very difficult. How does The GiftingNetwork enable advisors to deliver personalized experiences without introducing operational friction or losing that authenticity?

Eric Swerdlin: Our whole design really is to white label with the advisor's brand front and center. There'll be a small “powered by The GiftingNetwork” base on there, but the advisor's shop can have that branding that the family can get used to.

So, personalization is really key for that use. And our whole user experience is kind of top of the line in the industry. I'm happy to say that and have some of your advisors check us out on that.

Interviewer: Absolutely. One of the challenges that we have is that gifting tends to operate in that sentimental, emotional, behavioral domain. How do you help firms measure the ROI of gifting, whether in retention of assets, referrals, or client lifetime value? How does it impact the increasingly data-driven organization to show proof that gifting isn't just about feeling good?

Eric Swerdlin: Well, it's interesting with that question coming from you, with your history of engagement in those emotional triggers that really keep people with you.

But it's more than just the technical piece of personalization. It really is creating an environment. We have this whole family planning module where the family can set goals and design how they want to make distributions.

They can set it up so that grandma is the only one who has the trigger to actually send the money off, but the kids can make recommendations and such. The more advisors are engaged in that process, the more they get to know the kids and the family members. It makes it much harder, when the last parent passes away, for the kids who have worked with you for five years to pull the money into their advisors.

So there really is that connection that comes in.

Interviewer: What a cool experience to think about. Grandma, mom, or dad sets up the fund, and then the grandkids get to make little gifts every year and get involved in that sort of philanthropy at an early age.

Eric Swerdlin: It's great. That's it. You want to get them trained, particularly for your ultra-high-net-worth families. Philanthropy is key there.

We've seen the data that's been coming out recently. Seventy-eight percent of all high-net-worth families are using philanthropic planning as kind of the cement that keeps the family engaged.

So, it's right there for your advisors to take advantage of and to get rid of that separation that has happened with Fidelity and Schwab, where your assets are even kept separate places. The family can't even see them in their normal environment.

So that's also part of what this does. It gets you back in front of your clients instead of being disintermediated.

Interviewer: It's a beautiful thread as you think about the fabric of an investment life cycle, right? It's like one piece of that beautiful quilt and allows you to carry through, like you were saying, the intentions and wishes of others, while also keeping that stickiness and personalization. So, you feel like you're honoring that legacy.

As we think about that honoring, though, one thing that often comes up is compliance. In wealth management, something as simple as a small gift can be seen as a compliance consideration. How are you designing your platform so you help firms navigate those restraints while allowing advisors to express that general appreciation and continue to honor people?

Eric Swerdlin: Well, the platform actually is designed for advisors to have interaction with the family. That's part of the key to it.

Look, my background, just quickly, I was a wirehouse guy and went independent in the mid-90s. So, I've been in the journey that a lot of your advisory shops have followed.

I stumbled into philanthropy and realized just how connective it was for the wealth journey. That's how we've designed this platform, to connect the advisors to the clients.

Interviewer: As you well know, advisors don't just compete on performance. It's about the experience. Where do you see the engagement strategies that advisors use today evolving over the next three to five years? And what role will a curated experience, non-financial touchpoints like gifting, play in that future?

Eric Swerdlin: As a client recently said to us, “A lot of people can manage money.” So we have to differentiate ourselves in other ways that are meaningful and keep the family engaged.

And this is exactly that. Again, our platform experience, which is integrated with Envestnet and allows that continuation, allows advisors to have greater visibility into how the family is distributing those assets, understand what matters to the family, and connect the entire experience with them.

And again, once you're in an online experience like the families have, it's hard to then move away from that and away from the advisor. So that's the lock-in that you start to get there.

Interviewer: That transparency and interconnectivity are so important, and it makes everyone better off for it.

So maybe pivoting to a fun topic. What book are you reading or what are you watching now that you'd like to recommend?

Eric Swerdlin: I've been immersed in some recent studies that have come out on donor-advised funds. Again, it's in my channel. I'm so immersed.

But there's been amazing information that's come out, in fact, on wealth managers and donor-advised funds. This whole donor-advised fund research collaborative has printed a wealth of information.

Wealth advisors who actually have a DAF themselves are two and a half times more likely to recommend them to their own clients. So it's really kind of: you get comfortable with it, you realize it.

And then to a point about performance, one thing you really can define is your tax alpha, right? So performance, investment alpha, but tax alpha.

If you're using strategies that combine, say, a charitable lead trust with a donor-advised fund as the spill out, that's a planning concept that most advisors don't come across. But if you have clients that say, “I want to grant out 50 or 100 a year,” you can set one of those up.

We've got an interesting thing going on right now with young pooled income funds. Without trying to explain the weeds of it too much, because of the statutory rates that are applied, you actually get some really interesting effects as far as charitable deductions.

These are charitable products that will pay for the client's lifetime through the end of life. And if they were to add a child or children to it, it would pay through the children's lifetime.

So there are some really interesting planning options that become available for advisors in philanthropy.

Also, interest rate exposure. It's interesting, but there are different charitable gift plans that can be utilized depending upon whether you have really high interest rates or really low interest rate environments.

So as the markets move around, we keep an eye on where the interest rates are specifically. That really does have an impact on which plans advisors are well suited to suggest.

But we're a resource for all of them. If they say, “I know there's a client with a charitable interest. How can we work with them?” our firm's there for them.

Interviewer: That intergenerational planning capability you shared with me a few weeks ago looks really, really cool.

Eric Swerdlin: Yeah, we think that's the way this is really going to go now.

So multi-generational, also different DAF sponsors, right? The way this market has evolved in wealth management, you had your choice of Fidelity or Schwab or a couple of others. But now it's a growing list.

There are all of these religious groups that are coming onto the platform, Baptist foundations, Jewish federations. Obviously, community foundations are natural.

Universities and hospitals are all trying to figure out how not to be disintermediated by Fidelity and Schwab. And so they are becoming more and more often DAF sponsors themselves.

That's a way where a client can come into your office and say, “I want to set up a DAF at my alma mater.” As long as your firm is on our platform and the alma mater is, you can set up that donor-advised fund at MIT if they're on our platform.

That really starts to get into your planning mode and the lock-in and the emotional experience, right? No clients are emotional about Schwab or Fidelity, but they are about their alma mater or their faith-based sponsor.

So we make those available too. I think that's all part of this network effect that we talked about.

We're essentially DoorDash for DAFs, right? You've got a growing list of DAF sponsors to choose from. You have all these high-net-worth individuals, and their financial advisors are actually the dashers in that analogy, where they deliver the client a solution set that fits the client's need rather than just dumping it into the commercial DAF.

Interviewer: It's also a very contemporary trend to be able to invest with a broad range of different funds and different sponsors, right? Fidelity and Schwab will have their place, but then also some of the smaller charities. It's wonderful to lift them up because that can also be a big impact for one little firm.

Eric Swerdlin: Yeah, and they're not always so small. A couple of our clients, the Chicago Community Trust and Foundation for the Carolinas, together are $11 billion.

So these places have assets, and we work with them very closely. Wealth advisors also work with them closely.

Sometimes it's really a pain because the client says, “I want to set this up over there at that foundation, that community foundation.” And the advisor then has to figure out who to speak to and how to get it done.

It's much easier to do it at Fidelity or Schwab, set up on your computer. We now bring that into the Envestnet environment, where they have an easy way to set up these donor-advised funds at a growing list of sponsors.

Interviewer: That's great. Well, Eric, we made it to the final segment. You're talking about dashers, which leads into a speed round. You ready?

Eric Swerdlin: Okay, sure. I'll try.

Interviewer: We'll start with gifting strategy. Is it a calendar-based event or trigger-based?

Eric Swerdlin: Most often, it's been done on a calendar basis as we get to the end of the year, but it needs to be done all year. Really plan for it and get that engagement.

Interviewer: Great. And then for client experience, more important in the next decade: performance or personalization?

Eric Swerdlin: It's got to be personalization. Performance gets commoditized, and it's really hard to stand out that way. But if you can stand out with your experience, with the personalization, people are attracted to that.

Interviewer: You had mentioned being kind of the old-school wirehouse advisor at one point in your career. We still have a lot of legacy wealth practices in wealth management today. If there's one thing you could throw out today that still remains from the old world, what would that be?

Eric Swerdlin: One thing that still remains from the old world? What's evolved so much?

You know, I got my little Series 7 in the 80s. It's the human touch. It's the connection, right?

People stay with advisors. They can deal with some tough years occasionally. But it's the emotional experience of working with advisors and feeling comfortable with them that keeps people around.

That's when people leave wirehouses and set up their own shop. The clients go with them.

Interviewer: And we talked about the handoff to the next generation, right? What do you think that next generation of clients is really looking for: digital first or experience first?

Eric Swerdlin: I think they fit hand in hand. The younger generations grow up digital. That's basically table stakes.

If you don't have a great digital experience, you're going to lose. Fortunately, we have a very, very great digital experience.

But it's the connection that ultimately comes through, right?

Interviewer: That relationship first.

Eric Swerdlin: Exactly. That's what people stay with.

Interviewer: Well, you've answered the last question of the speed round, which is: what's the future of wealth management, technology led or relationship led?

Eric Swerdlin: It is relationship led.

Interviewer: Awesome. Eric, thank you so much for spending the time with us today. I really appreciate it. Fun to learn about what you guys are up to at The GiftingNetwork and what's going on in the tech world.

Eric Swerdlin: Thanks so much for having me.

Interviewer: Yes, thanks very much. That was Eric Swerdlin, CEO of The GiftingNetwork.

Thanks for tuning in to Inside WealthTech.