Alvina H. Lo, chief wealth strategist and an executive vice president at Wilmington Trust | M&T Bank, discusses closing the wealth gap in the United States, empowering women for the impending wealth transfer and exploring emerging trends in wealth management.
What was your journey into wealth management like?
I think that like most interesting journeys, mine has not followed a straight path. However, I’ve been lucky, because every one of my experiences has contributed something to how I work within this industry. I got my undergrad degree from the University of Virginia as an engineering major, and the math and analytical skills have been very helpful — whether talking to clients about their individual financial plans or as an executive managing my business line. My experience as a consultant helped me understand people and sharpened my communication skills. I earned my J.D. from the University of Pennsylvania — apparently, I really like going to school in commonwealths — and my time as an attorney and years in private practice gave me a great deal of experience learning about the complexities of wealth planning. It also taught me to be a fierce advocate for my clients and team.
I did not know what wealth management was growing up. It wasn’t something we ever discussed. It is actually still quite surprising to me that I’m in the industry, given my family’s history. My grandmother grew up very wealthy in China, which was erased almost overnight because of the political unrest during the Cultural Revolution in China. Just two generations later, and I’m here in the U.S., the largest global wealth market, leading the charge to help our clients build and preserve their wealth. My family’s own history is, in part, why I’m so passionate about my work.
As a female leader in wealth management, what can the industry do better for women in wealth?
I think of this from two perspectives: How do we better serve women as clients, and how do we do a better job developing female talent in the industry. Wealth management is a very personalized business, and the ability to understand and anticipate clients’ needs is critical. Therefore, if we are to serve our female clients better, we need to develop a pipeline of talent who understands and empathizes with their needs and desires.
I don’t believe that there is any material distinction when it comes to products and services for a woman. The differences come in the relationships. Over the last 20 years, I have seen how different [that] women and men communicate. Wealth management is first and foremost a people business. Being able to communicate with your clients in a way that they can truly hear and understand your advice, and trust you enough to share their most personal aspirations, is the secret to success.
We all know the great wealth transfer is happening, and a tremendous amount of wealth is going to women. So now what?
It really is an exciting time to be in this business, partly because of the so-called great wealth transfer. Baby boomers are set to transfer an unprecedented amount of wealth to the next generation. According to a McKinsey study, women stand to inherit or will have built $30 trillion in personal wealth by the end of 2030. Those of us in the industry cannot sit by and wait until this transfer has occurred to reach this clientele. We need to already be in the space and be building relationships with these future wealth clients, and it has to be done in a way that acknowledges the accomplishments this group is bringing to the table.
You often speak on the concept of closing the wealth gap and creating wealth parity in America. How can we take the first steps toward this?
Wealth begets wealth. Having a strong financial head start is often a necessary steppingstone to success. Therefore, it is essential that historically underrepresented communities understand the importance of building generational wealth. That starts with education and creating an environment where clients want to engage in these types of discussions in a way that feels natural and part of building a relationship versus just participating in a transaction.
How does financial literacy come into play?
It is a critical foundation. Financial literacy needs to be part of our everyday vocabulary from a young age. If a doctor starts with basic biology courses in high school, the same must be true for personal financial education. Financial literacy should be a required course in high school, in my opinion. As an individual’s wealth grows, so does the breadth and depth of the education, and here is where we in the wealth management industry come in. For example, when we are serving as a trustee, our role ought to include educating and preparing the next generation of wealth holders and decision-makers. If the beneficiary is to become a co-trustee at some point, is she prepared for the responsibilities? Helping clients think through these questions and the implications of the answers is essential.
What are the key trends you’re seeing in wealth planning today?
Technology is playing a growing role in our industry. With the emergence of better-integrated systems — whether it’s CRM, client portal, wealth tech solutions and so on — technology is able to streamline a lot of what advisers do and how they get their information to do their job.
With data and information more readily available, advisers will be freed up to do more of the “thinking” and relationship management, which will help us tailor and customize both advice and client experience. In a world where investments continue to be commoditized — like the democratization of alternative investments — other aspects of wealth management will follow suit. Even the traditional highly technical and personalized nature of planning will become somewhat commoditized. The organization that embraces technology in a way that provides leverage and elevates people to achieve their best financial outcomes will be the winners of the future. That’s what I’m striving for, and it’s an exciting place to be.
Why more donors are choosing DAFs for their philanthropy
By JODI ROSEN
Imagine that you are set to make a large annual donation to your favorite charity — the one you’ve supported ever since receiving your very first paycheck.
But you see on the news that a hurricane has inflicted tremendous damage on a Caribbean island, the place you visited with your family as a child.
Now you’re pulled in two different directions. You want to support your favorite charity, but you also want to give aid to the victims of the hurricane’s destruction. How do you choose whom to help?
New research suggests that if you manage your charitable giving with a donor-advised fund (DAF), you’d be in a better position to help both causes. Says one DAF donor, “There are always core charities we give to, but enough is left over to be flexible with unexpected needs.”
Understanding DAFs
While you’re likely familiar with foundations and trusts, you might not have heard of one of America’s most popular giving vehicles. DAFs are charitable-giving accounts managed by a provider who handles all administrative, due diligence and reporting needs. Hundreds of thousands of individuals and families are choosing to give with a DAF because it allows them to give flexibly, confidently and sustainably — today and well into the future.
Increased giving potential
One of the key benefits that sets DAFs apart is the opportunity to invest and grow charitable assets for greater charitable impact. This allows the average DAF account to give more to charity than what was initially contributed — and sometimes much more. This is why donors are typically well-positioned to support multiple giving priorities at once.
In one case study presented in last year’s DAF report Why Giving Matters, a hypothetical individual donated $100,000 to open an account. After 15 years of granting 10% of the account’s balance each year, the account had granted more than $110,000 ($10,000 more than what the individual had initially donated) and still had more than $46,000 remaining for future granting.
Investment options vary based on the DAF provider, but the process of investing DAF funds is generally simple. For example, Vanguard Charitable, an independent charity founded by Vanguard in 1997, offers a curated list of low-cost investment options with varying levels of risk and both active and passive management options. Leading preallocated investment options at Vanguard Charitable are managed and rebalanced regularly by experts, allowing donors to focus on granting.
At Vanguard Charitable, the average weighted expense ratio is 0.04% — an industry-low rate that allows more money to be available for donor granting rather than fee erosion.
By investing funds for charitable growth, more dollars can go to nonprofits over time.
Appreciated securities donations and reduced tax liability
Rather than limiting potential donations to cash, a DAF also allows you to more easily donate appreciated securities, such as stocks or mutual fund shares. This not only increases your options for potential charitable donations but also is a smart strategy for reducing taxable income and capital gains taxes.
Donating appreciated assets directly into a DAF means that recipient charities are relieved of having to handle the liquidation process themselves, as the administrative efforts are placed on the DAF provider. The charity simply receives a check or ACH grant payment — much simpler and faster to both process and put to use toward its mission.
When appreciated assets are donated directly into a DAF, the donor generally won’t need to pay capital gains taxes on that asset. (Speak with your tax adviser for more details on your specific tax situation). Additionally, any contribution to a DAF is immediately tax-deductible for the donor. This can be a crucial piece of any tax strategy as you look to reduce your taxable income and even lower your income tax bracket.
Strategic, complex philanthropy simplified
Partnering with a DAF provider means having access to an expert who performs rigorous due diligence for your grants while also handling the administrative needs related to granting. Top providers like Vanguard Charitable own the responsibility of most reporting requirements. Providers may also offer charitable-giving resources that help you discover new charities and learn how you can expand the impact of your giving.
Donor-advised funds are often compared to private foundations, and some donors elect to choose between the two giving vehicles. However, many donors with private foundations also open DAF accounts so they can receive expert support at a lower cost while still maintaining their foundations. And for donors without a private foundation, a DAF provides many of the same benefits — such as charitable investing, granting and help with illiquid asset donations — while most of the administrative requirements fall to the DAF provider rather than the donor.
Should you consider a DAF?
For those who give to charity regularly and would like to give more, a DAF is an excellent way to increase giving potential over time. It means that you can take a both-and approach to charity, rather than either-or. You can give to your long-standing favorite charity and in response to the latest natural disaster or another unexpected development.
And if you are looking to reduce your tax liability by reducing capital gains taxes and your taxable income, a DAF gives you numerous benefits while supporting you in making a meaningful impact on the causes you care about.