Growth of philanthropy offers wealth managers a supporting role

Not only are Europe’s wealthy families continuing to finance worthy causes through the recession, but they are actually stepping up their commitments to charities and other socially beneficial activities, according to latest research.

A survey from the VIP Forum, an advisory group for wealth managers, reveals 26 per cent of ultra high net worth clients have increased their levels of giving. This is a result of wanting to provide a greater level of support to charities that have suffered as a result of the crisis.

As governments around the world become more constrained, high net worth givers, some of whom have come through the crisis relatively unscathed, will become an invaluable source of innovation and investment for charities. This means many are beginning to see philanthropic services not as some kind of add-on, but as intrinsically linked to the way they see their wealth and linked family activities.

“Clients see philanthropy as a part of their overall wealth management,” says Russell Prior, head of philanthropy at HSBC Private Bank, which is seeing increasing demand from clients for specialised services in the sector and sees philanthropy as a key element of its broader wealth management offering.

“The longer-term trend suggests that philanthropy is steadily increasing and should continue to do so. There are a number of factors driving that, such as the demographic curve and an increase in wealth generated by entrepreneurs, as opposed to inherited wealth.”

As the quantity of donations increases, the monitoring of the effectiveness of the activity is also beginning to occupy the minds of wealthy donors. According to Barclays Wealth, high net worth donors are becoming more active philanthropists. This means they are becoming more ambitious in their philanthropic aims and want to see visible or measurable change.

Current Offerings

Among those institutions keen to expand their range of philanthropy-linked services is Coutts Private Bank, which built on the legacy of its founder and renowned philanthropist Angela Coutts. The bank was the first UK wealth manager to establish a dedicated philanthropy advisory team in 2005.

Now one of the key aims is to make sure, through bespoke service offered to both wealthy families and individuals, that “their philanthropy is both effective and rewarding,” says Maya Prabhu, head of UK Philanthropy at Coutts. The wide range of services available from Coutts includes setting philanthropic objectives, identifying and understanding the context of social, environmental or economic issues, building relationships with charitable organisations or social enterprises, reviewing impact and engaging the next generation.

“We have several forums to enable clients to develop their philanthropic network,” says Ms Prabhu. These forums, she says, create opportunities for clients to learn from some of the world’s leading practitioners, share their experiences and develop their networks.

“Our forums have explored a range of issues, including venture philanthropy, family philanthropy, local philanthropy and social investment. Forums enable clients to develop their philanthropic network,” reveals Ms Prabhu.

Additionally, Coutts also offers philanthropists support with establishing and managing charitable trusts and foundations, banking services for charities and specialist charity investment services. “What differentiates us is both the depth and breadth of our service – a ‘one stop shop’ for wealthy individuals and families on their philanthropy,” she adds.

Barclays Wealth is another private bank offering philanthropic services to clients. “We offer free philanthropic advice to clients if they want to learn more about their philanthropic aspirations,” says Emma Turner, director of client philanthropy at Barclays Bank.

“Clients want to know whether their donations are tax-effective, how they can involve the next generation, and how to go about their philanthropy. We help them in the learning process by arranging workshops on what clients are interested in,” says Ms Turner.

The notion of giving clients access to a whole range of specialists in different areas of philanthropy is central to some offerings such as that developed by Standard Chartered Private Bank, which launched a philanthropy programme called Investing for a Better Future last year.

This programme put clients in front of both internal and external experts, who can help create personal giving plans and offer strategic advice on their philanthropic giving. It also helps them to participate in organised causes, including the donation of funds to Standard Chartered’s eye-related project, Seeing is Believing.

Jacqueline Brabazon, global head of marketing, philanthropy and key clients at Standard Chartered believes private banks can play an important role in making a collective difference. “If facilitated well, benefits go to everybody – communities, clients and private banks as well,” she says.

Need for Advice

Despite these various offerings in the market, many clients feel their needs are not being met. The majority of wealth managers are missing out on opportunities, as philanthropists cite a lack of places to turn to for independent bespoke advice on how to and whether they should, become philanthropists.

A survey by consultancy New Philanthropy Capital found that whilst engaging in philanthropy, the stages during which advice is valued the most is when clients are trying to decide what kind of a giver to be and when they are going through the discovery of a giving process.

Advice is also valued when clients are identifying organisations or projects to support, getting involved with a cause and monitoring charitable performance. Other stages in which clients seek advice are when they are trying to get the family or the next generation involved and when they need to set up a giving vehicle. They also want to know about their finance and tax implications.

“Clients want general advice on how to get involved in giving and what their options are, which includes anything from giving to charity through to setting up their own foundation,” says HSBC’s Mr Prior. “They need help in finding goals and objects for their philanthropy and ask for assistance in structuring and administrating it.”

Benefits to banks

Private banks have named numerous advantages in offering philanthropic advice to clients. These include an opportunity to add value to the bank-client relationship, an additional line of revenue, an increased likelihood of client referrals, and a deepening relationship between the relationship manager and the primary client. This is particularly important at a time when the feelgood factor between bank and wealthy client has been badly dented.

“It is a win-win situation for the banks on the whole,” says Plum Lomax, senior consultant at New Philanthropy Capital. “We know of banks which are offering a range of philanthropic services which are causing numerous clients to go to them.

“They are not going to earn fees from it on the whole, but I think it’s about long-term relationships and building up trust which is an important thing to have for these organisations. This trust has been eroded in the past few years,” adds Ms Lomax.

However, there are dissenting voices, who believe that the mixture of private banks and philanthropic services is not necessarily a healthy one. “We don’t have an arm that dedicates to philanthropic advice because I think the motivations of certain private banks giving that advice is somewhat questionable,” says Charles Gowlland Smith, director of investment management at independent advisers Smith & Williamson.

“I would suggest that to a large extent our industry is using the philanthropic angle as a means by which to get the firm to have access to the underlying clients and their wealth management and private banking needs. I wonder if these are not some slightly distorted motives?”

There is a conflict of interest between private banks and their philanthropic offerings, says Mr Gowlland Smith. “All banks are there to make profits and philanthropy is an area by its’ nature where salaries and returns involved are not comparable with the sort of returns on invested time and capital and so forth that the bank would be able to make in other components of the advice. If I were a client or a family I would be concerned about the conflict of interest,” he explains.

In order to confront this problem, several banks have started working with third parties, to provide clients with services the banks cannot normally provide and avoid any conflict of interest. Coutts, for example, works closely with New Philanthropy Capital to provide clients with services which cannot be sourced internally.

While banks have not been able to provide adequate philanthropic advice, family offices have been slow to move into the space. The UBS/Campden Research European Family Office Survey 2011 suggests family offices and individual family members are actively involved in philanthropic activities, but only 39 percent of single family offices and 31 percent of multifamily offices have a clear strategy and focus on these activities. This is despite the fact all of the multifamily offices interviewed by wealth consultancy Scorpio Partnership (see box) believed philanthropy would be core to their business by 2013.

Both banks and family offices will clearly need to improve their game, as experts believe the market for philanthropy will continue increasing, due to a variety of different initiatives in various countries, such as tax incentives and changes to inheritance tax.

“There is much more visible philanthropy going on, particularly spurred by such campaigns, like the Giving Pledge in the US,” says Ms Lomax at New Philanthropy Capital.

“The UK government is recognising philanthropists with various awards and it’s becoming easier to talk about it. It’s becoming more acceptable and there’s pressure among the community to give more money away, rather than just leaving it as something in their Will.”

Views within the industry on philanthropy are also changing fast, says Ms Lomax. “Three to four years ago it was seen to be a differentiating factor by having a philanthropic offering. Now what banks are realising is that they need to differentiate in terms of quality of the service and that is going to be very exciting in the next few years.”

A new priority

A survey by Scorpio Partnership showed 44 percent of wealthy respondents are more likely to make charity a spending priority when they retire and the amount of time allocated to charity is set to increase by 194 per cent.

New Philanthropy Capital’s Report, More Advice Needed, in collaboration with Scorpio Partnership in 2008 revealed that 60 percent of Europe’s trusted advisers believe philanthropy will be increasingly important over the next five years to the point it will become a core service they offer to wealthy clients.

An earlier study, Advice Needed, conducted by the same group in 2007, showed private clients recognised the need for expert advice on philanthropy, but did not believe traditional wealth advisors were meeting that need. Only 50 per cent of private bankers felt frontline teams were well-trained in the philanthropy offer, as philanthropists cited lack of places to turn to for independent advice on how to, or whether to become philanthropists.

The survey concluded that the majority of wealth managers were missing the opportunity to fulfil clients’ needs. Three years on, much has not changed, as high net worth clients still find private banks not meeting their requirements.