In this article, we take a brief look at how clients can combine a values-aligned portfolio with a donor-advised fund (DAF) to elevate their positive impact.
Our main goal at Ethic is to leverage the power of the capital markets to address the most defining issues of our time. We are working towards a future where all investing is sustainable investing. Whether it’s with regards to racial justice, deforestation, corporate ethics or something else, we are constantly seeking out ways for our clients to maximize positive impact on the causes that matter most to them.
Creating a Mission Statement
When organizations and families embark on Ethic’s interactive values-discovery process, they’re prompted to think critically about what is most important to them, and the kind of change they’d like to see in the world. This exercise can serve as a thought-provoking and engaging way to rally multiple generations of a family around shared values and expectations for responsible wealth stewardship.
The output of this process is an overarching mission statement, which serves to distill the key issues that will guide an ongoing impact strategy. This subsequent strategy can be applied immediately to the client’s equity allocation and to other parts of the client’s balance sheet such as philanthropic giving. At the same time, Ethic makes available an array of educational resources that aim to bolster clients’ and advisors’ understanding of the very issues they’re hoping to address.
What is a donor-advised fund and why would a client select this route?
Many clients have historically taken the philanthropic route to enact change on the issues most dear to them. One particularly powerful and fast-growing vehicle for philanthropic giving is a donor-advised fund, or as they are commonly known, “DAFs”. These registered 501(c)3 organizations act as charitable investment accounts, generally allowing investors to contribute cash and other assets, watch their funds appreciate, and then disburse it to their chosen nonprofits over a period of time.
What makes these vehicles particularly attractive is that they generally qualify the owner to take an immediate tax deduction against the full amount contributed, then distribute the funds as and when they see fit. These tax-efficient, low-maintenance vehicles represent another means for investors to channel their investments in support of the issues they care about most—a core focus for us at Ethic.
It is, of course, worth noting that DAFs are not without their detractors. One of the primary critiques leveled against DAFs is that they provide donors with an immediate tax deduction without enforcing any deadlines for the distribution of funds. On the other side of this argument, however, proponents would contend that DAFs enable donors to appreciate their assets and ultimately donate more than they might have otherwise. DAFs may also allow busy individuals to be more intentional and thoughtful in their giving, granting the requisite time to identify the causes and organizations that resonate most. Furthermore, there is a compelling legacy component: it’s possible to designate children and grandchildren as successor owners of donor-advised funds, helping to ensure that a family tradition of giving endures across multiple generations.
Donor-advised funds + Ethic
At Ethic, we recognize the need to carefully balance investors’ values and financial goals, and seek to continually support advisors in this endeavor. We’re also passionate about empowering people to live a life that’s consistent with their values—whether in their purchasing decisions, advocacy efforts, career pursuits or something else.
By combining a donor-advised fund with a custom, values-aligned Ethic portfolio, investors can see that their values and priorities are reflected consistently across their investment portfolios and charitable giving strategies. Ethic’s separately managed accounts are customized according to a client’s values, meaning that each portfolio is constructed with specific impact goals in mind. For example, if a client’s charitable donations were largely focused on ocean cleanup efforts, their Ethic portfolio would intentionally seek to include companies that are promoting safe and plentiful access to clean water. The DAF can also be a great test drive for applying Ethic’s strategies in other areas of a broader portfolio.
Advisors and clients that have prioritized charitable giving with a donor-advised fund can apply an Ethic strategy as a way to further elevate impact. If a philanthropically oriented client is looking to create real change in the world, then why not double down?
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Ethic Inc. is a Registered Investment Adviser located in New York, NY. Registration of an investment adviser does not imply any level of skill or training. Information pertaining to Ethic Inc’s registration or to obtain a copy of Ethic Inc.’s current written disclosure statement discussing Ethic Inc.’s business operations, services and fees is available on the SEC’s Investment Adviser Public Information website –www.adviserinfo.sec.gov or from Ethic Inc. upon written request at support@ethicinvesting.com. Information provided herein is for informational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Any subsequent, direct communication by Ethic Inc. with a prospective client shall be conducted by a representative of Ethic Inc. that is either registered or qualifies for an exemption or exclusion from registration in the state where a prospective client resides. Information contained herein may be carefully compiled from third-party sources that Ethic Inc. believes to be reliable, but Ethic Inc. cannot guarantee the accuracy of any third-party information.
Ethic Inc. does not render any legal, accounting, or tax advice. Ethic Inc. recommends all investors seek out the services of competent professionals in any of the aforementioned areas. Ethic Inc. cannot provide any assurances that any investment strategies, simulations, etc. will perform as described in our materials. ALL INVESTMENTS INVOLVE RISK, ARE NOT GUARANTEED, AND MAY LOSE VALUE. BE SURE TO FIRST CONSULT WITH A QUALIFIED FINANCIAL ADVISER AND/OR TAX PROFESSIONAL BEFORE IMPLEMENTING ANY STRATEGY.
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