Philanthropy can be a nice marketing tool, but the recent riots in London highlight the importance of how the wealthiest in society can help repair the UK's social and physical fabric.

Wealth managers like to promote philanthropy advice as a service differentiator. But the importance of charitable giving has risen to whole new level after the recent violence in London and other UK cities. If these appalling episodes tell us anything, it is that the wealthiest people in society must be involved in any solutions.

The UK government, like many of its Western peers, is out of money. And long before the mayhem broke out in London, Birmingham, Manchester and elsewhere, the government led by David Cameron spoke about harnessing voluntary organisations to achieve outcomes once considered the preserve of the State. This is the idea summed up under the rather woolly tag of the “Big Society”.

Pushing natural scepticism aside, the wealth management industry has a chance to show how its managers and clients can contribute to repairing the social and physical fabric of the UK. This can cover activities such as building sports facilities or “tough love” activities such as mentoring teenagers and showing them how to apply for jobs and improve particular skills. Money alone, though, is not the sole answer. Time is equally precious. And bottom-up solutions can work best rather than big projects imposed from above. The sort of business savvy that many wealth management clients have can be put to great effect. Let social entrepreneurship bloom.

It surely makes sense for some of this philanthropy advice by wealth managers to focus more on what can be done in the UK. It does not mean turning a back on other countries’ needs – far from it – but the adage that “charity starts at home” is likely to be very much in mind in the next few years.

A different face

The wealth management industry, along with finance generally, has had a torrid time of it since the credit crunch in terms of its media profile. Banker bashing has been in fashion. But these banks can respond by pointing to the good that can and is being done via philanthropy. The roll-call is impressive: JP Morgan Private Bank; Coutts & Co, Barclays Wealth, Credit Suisse, Standard Chartered, UBS and Kleinwort Benson provide philanthropic advice to focus help more effectively. There are many other banks besides these.

Take the case of JP Morgan Private Bank. Rebecca Eastmond, who is head of Philanthropic Services EMEA at that firm, told this publication that “clients focus their giving or a large part of it in the UK and focus on a variety of ways to build communities and provide opportunities to those who are most at risk”. “We see individuals involved in a range of activities ranging from prisoner rehabilitation, provision of social housing, giving educational opportunities to marginalised young people and support of victims of domestic violence. There is a strong sense that the mark of civilised society is how it treats its most vulnerable members.”

She says that philanthropists are working more intensively with community organisations. “With more than £224 million in endowed funds and providing about £70 million (around $115.8 million) in grants a year the community foundations combine to make one of the UK’s biggest non-statutory community grant-makers,” she said.

Eastmond argues that there is “certainly scope for more activity, and particularly more strategic giving that will tackle the root causes of the serious issues in UK society”, although she stresses that money alone is not the answer – intelligent philanthropy also entails time and commitment.

“We live in isolation from our neighbours today in a way that we never have before.  As a society we urgently need to understand that we are part of a local community and that the way that people live, whether in another part of the UK or even perhaps three or four streets away from us is relevant and important to us and the society that our children and grandchildren will grow up to be part of,” she added.

Venture philanthropy

Wise words. As an example of the kind of things that Eastmond talked about, there have been encouraging developments in what is known, for example, as “venture philanthropy”. This is a process in which projects, such as the building of low cost housing, are financed with some of the techniques known to private equity. These projects can compare very favourably with mainstream private equity, even though making a high profit is not necessarily the primary goal. On one fund operated by Bridges Ventures, an exit from a Harlands of Hull project – designed to save jobs in a poor area of the UK - achieved an internal rate of return of 84 per cent, according to the BV website. Another project (SimplySwitch) clocked up an IRR of 165 per cent. (IRR takes account of the often complex timings of such deals). A charity called Impetus Trust, co-founded by Stephen Dawson of ECI Partners, a private equity firm, is another example. Impetus was the first UK charity to adopt venture philanthropy as a way of raising funds (source: Citi Private Bank and Knight Frank, The Wealth Report). As a sign of the growth of this sector, there is now a European Venture Philanthropy Association, with 24 members from 18 nations.

The tax environment for philanthropy in the UK may also drive such developments. UK finance minister George Osborne has announced inheritance tax charity relief; the Treasury plans to reduce the tax from 40 per cent to 36 per cent if 10 per cent or more of an estate is gifted to charity. The UK is still not in the same league as the US in tax-advantaged charity, but there is plenty of room to catch up.

The riots in the UK remove any complacency. With mayhem threatening to touch even the smartest parts of cities, everyone has had a loud wake-up call. The philanthropy arms of wealth management firms have an opportunity to present a positive face to the rest of the country and do a great deal of good. It might even give firms a chance to turn the tables on their media and political tormentors.