Market insights and analysis

By Jerry Wagner

Giving is central to the holiday season it seems. As we wind down from the festivities of Christmas and reflect on the spirit of the season, I am reminded of a short story by a great American writer.

On December 10, 1905, the New York Sunday World Magazine published a short story by William Sydney Porter. The story would become the centerpiece of many of his later collections of short stories. Over the next 119 years, it would be recreated in about 20 movies, and its story stolen, used, and satirized in countless TV and radio shows.

Most importantly, it was required reading in my 10th-grade English class … so I had to read it. Despite, the mandatory nature of the assignment, I ended up loving the story for its fresh perspective on giving.

I thought about this when I sat down to write about our FPI Charitable program. FPI Charitable is a novel donor-advised fund program, offered not by a mutual fund family, brokerage firm, or charity but instead by a registered investment advisor—Flexible Plan Investments (FPI).

What’s a donor-advised fund program?

With the FPI Charitable program, a contribution is made into an account with a sponsoring organization, in this case, National Charitable Endowment (NCE), a 501(c)(3) charity established to support donor-advised fund accounts like FPI Charitable. Once the account is funded, NCE owns and legally controls all its assets, which may allow the donor to take a deduction for the full value in the initial year. But the donor determines how the assets are invested and distributed.

After the FPI Charitable account is created, the donor has no administrative responsibilities, as NCE conducts the due diligence, communicates with the charities, sends grants, and provides grantee reports. The grants to the charity can be anonymous or in the name the donor chooses for the account.

In many ways, it’s like a foundation, but so much simpler. With no legal and administrative hassles, no large initial donation, and even better tax treatment, it allows the average investor—not a Henry Ford or a Bill Gates—to make a charitable contribution this year and create a legacy of giving, allowing them to contribute from the account to charities of the donor’s choice over the years to come.

In addition, FPI can continue to manage the account after the contribution. We can help maximize the tax-free growth of your charitable account while seeking to mitigate downside risk—expanding your charitable legacy even further. And, of course, your financial adviser can continue to provide planning and consulting over that period.

For advisers, FPI Charitable offers loads of planning opportunities:

•  Cash can be contributed to potentially offset the tax effect of an unexpected windfall or bonus.

•  Appreciated stocks can be contributed to potentially avoid capital gains tax on their sale after they are contributed in kind to the account.

•  Illiquid securities, like LLC interests, or real estate can be contributed now (subject to NCE approval), receiving full value for the contribution’s potential deductibility. Capital gains tax is also avoided should the owner wish to sell the interest thereafter to another party.

•  You may carry forward any unused deductions for up to five years, giving you flexibility in your tax planning.

(Note: While Flexible Plan Investments’ president and founder Jerry Wagner was a practicing tax attorney, Flexible Plan Investments does not provide tax, financial-planning, estate-planning, or insurance services or advice. Readers are encouraged to seek the counsel of their own qualified tax accountant or attorney on these matters.)

How do I set up the account?

Contributions can be made at any time throughout the year. The amount contributed is invested using the same paperwork (ours and the chosen trustee’s) as a normal FPI account, as well as the establishment form for NCE, as the sponsoring organization. Please feel free to contact our service team at 800-347-3539, ext. 146, to request or get assistance with the paperwork.

The account can be held at any trustee. We favor Axos Advisor Services, where most of our accounts are custodied, and the fees are low and waived in most cases. Only our Quantified Fee Credit (QFC) strategies are used, and we have decided that there will be no separate billing for our strategy fees. They will be absorbed by the fund credits from the funds’ subadvisory fees, regardless of the size of the account. Only your financial adviser’s fee will be deducted from the account.

You can invest your donation in any of our many QFC strategies, including our turnkey QFC strategies, and you can make strategy changes at any time.

If you are interested in using principled investing strategies to amplify your giving, our QFC Faith Focused Investing, QFC For A Better World, and QFC Common Ground strategies provide ideal solutions. As a bonus, our principled investment strategies allow investors to give back 10% of our net advisory fees collected for these strategies to a charity of the donor’s choice each year, including NCE.

What does it cost?

In addition to the services previously mentioned, NCE also provides the accounting of the charitable activity of the trust and maintains the legal and accounting expenses of the 501(c)(3) strategy organization that makes all of the tax and grant services possible.

For these services, donor-sponsored fund services charge a wide variety of fees. They commonly range from 0.6% to 3% per year on the first $500,000 in assets contributed and then lower percentages on additional tiers of contributions. Because I want our clients to have the lowest-cost option possible, we worked out a novel arrangement with NCE.

As I have my own account with FPI Charitable, NCE has agreed that it will use my account to satisfy its normal 0.65% minimum tier fee and that any clients that invest after me will pay at a much lower-tier fee level.

And since NCE agreed to aggregate accounts for fee purposes, as more clients sign up for FPI Charitable, their assets can take all FPI clients in the program to an even lower tier.

If you have ever wanted to start a legacy of charitable gift giving, are looking to consolidate and account for all your charitable giving in one easily administered spot, or just need a charitable deduction to offset some windfall of income you received, please join me in opening an FPI Charitable account.

The rest of the story

If you haven’t guessed, the author William Sydney Porter whom I referenced at the beginning of this article is better known by his pen name, O. Henry. And the 1905 short story is the beloved “The Gift of the Magi.” It’s a story of two young newlyweds, Della and Jim. They’re down on their luck and Della needs to find a Christmas gift for Jim, but she only has $1.87 to her name. Even in 1905, that didn’t go very far. Jim is not much better off when it comes to affording a gift for Della.

The couple solves the problem in a selfless way only to be confronted with one of O. Henry’s famous plot twists at the end. I won’t spoil it for you if somehow you have not been fortunate enough to have read this classic. (It’s a quick read and perfect for the season.)

O. Henry ends the story with this bit of wisdom:

The magi, as you know, were wise men—wonderfully wise men—who brought gifts to the Babe in the manger. They invented the art of giving Christmas presents. Being wise, their gifts were no doubt wise ones … here I have lamely related to you the uneventful chronicle of two foolish children in a flat who most unwisely sacrificed for each other the greatest treasures of their house. But in a last word to the wise of these days let it be said that of all who give gifts these two were the wisest. O all who give and receive gifts, such as they are wisest. Everywhere they are wisest. They are the magi.

And so we readers learn the moral of the story, and an important lesson in life: gift giving at its best transcends the season—it’s a manifestation of love.