Stock Gifting Challenges and Solutions for Financial Advisers

When you consider the unmatched benefits of charitable stock gifting—namely the ability to avoid capital gains tax while also itemizing the fair market value of the donation—it makes you wonder why so few investors donate stock, especially those with financial advisers.

IRS data shows that there is a massive gap in educating investors on tax-advantaged ways to support nonprofits. Each year, roughly 60% of US households make charitable donations. Yet according to IRS data from 2018, only 153,000 tax returns itemized charitable stock gifts. That’s roughly 0.3% of the 50 million households that owned stock in 2019.

To put things in context:

• There are 50 million to 60 million US households who own stock.
• There are 200,000 financial investment advisers who service an average of 150 clients each.
• Roughly 3 million to 5 million investors have a financial adviser—about 5% to 8% of the investor universe.
• Only 150,000 2018 tax returns itemized charitable stock deductions.

A May article calls out financial advisers for failing to educate clients on tax-advantaged strategies, namely charitable stock gifting to charities. It cites data from a 2018 Spectrem report that 92% of advisory clients say they expect tax advice, but only 25% claim to receive it.

This is not to say the lack of stock gifting lies squarely on the shoulders of advisers, but as the Spectrem study found, there is a disconnect. Some cynics speculate that advisers choose what’s best for their own bottom line. Advisers are incentivized to grow assets, not transfer them out. And advisers would rather sell the stock (and receive a commission) and transfer the proceeds to charity.

These assumptions may hold true in some cases, but I believe the real issue is much more nuanced. There are multiple reasons for the gap in charitable stock gifting by advised clients.

First, advisers are stretched thin. According to a 2019 Kitces Research study, the average adviser has almost 150 clients and spends only 20% of their time meeting with clients. By contrast, 40% is spent doing administrative work, post-meeting follow up, and business management—this doesn’t include marketing or sales. The numbers suggest a typical adviser only has 2.7 hours per year, or 45 minutes every three months, to speak with clients. That’s not a lot of time to delve deep into personal finances.

When advisers do speak with clients, the focus is often on selecting investment strategies (for example, growth, value, fixed income, alternatives, cash) and the many instruments with which to pursue them. The proliferation of financial products has made portfolio planning harder, leaving even less time to discuss how to avoid or reduce taxes.

Executing charitable stock gifts on behalf of clients has historically been a painstaking administrative process. The adviser first must research the nonprofit, initiate contact to request their brokerage account information, fill out a transfer form, and coordinate with their client to authorize the transfer—often by signing in person, via fax, or DocuSign. They must then send instructions to their internal transfer office, notify their client, and do any follow-up work required to initiate the transfer. The work multiplies if the donor wants to make stock gifts to numerous organizations. It is a tedious, time-consuming process for which they are not compensated.

Keeping track of stock donations is also manually intensive. When a client needs a summary of stock gifts for tax preparation, they call their financial adviser. Lacking such a report, the adviser will have to export all transactions and manually extract security transfers, associating each with the receiving nonprofit. Even then, they will only know which shares were transferred—they have no visibility into the value of the shares then they were received. This puts the onus back on the donor to find their receipts or contact the nonprofit for the exact amount.

For these reasons, advisers understandably have been behind the curve in educating clients on more tax-advantaged ways to harvest gains on hot stocks.

The good news is that new solutions, such as Donatestock.com, remove the friction in executing charitable stock gifts. Advisers can now initiate stock gifts on behalf of clients to more than 1.5 million nonprofits in minutes with ease, saving time and energy from having to research and contact the nonprofit for brokerage information. Once the gift is initiated on Donatestock.com, the donor and receiving nonprofit will be automatically notified, again saving the adviser time and energy.

Lastly, reporting is now built into the process as each donor and nonprofit has their own donation dashboard, which provides a record of when stock gifts were initiated and where they are in the process. This relieves advisers of having to take or make calls about a donation’s the status. The dashboard also offers an export option that includes the actual proceeds received from the nonprofit and the exact amount of each deductible stock gift. This will save advisers and their clients countless hours of work each tax season.

Like everyone else these days, financial advisers are understaffed and overwhelmed. But with new tools and support, they can be well-armed to help clients give smarter by donating stock while freeing up time to invest where it’s needed most—spending it with clients.

This article does not necessarily reflect the opinion of The Bureau of National Affairs, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Steve Latham is the founder and chairman of DonateStock. He has three decades of experience in starting and growing innovative technology companies in finance, marketing, and data analytics.

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