Philanthropy

FEATURE: Philanthropy Within Wealth Management

Amisha Mehta Reporter London 9 March 2015

FEATURE: Philanthropy Within Wealth Management

When the UK’s Sunday Times Rich List was first published in 1989, only 43 of the country’s richest 200 people featured had made their money themselves. Fast forward to 2013, and not only were the absolute figures of wealth dramatically higher, but almost 80 per cent of the entrants were self-made. Last year, the number of billionaires living in Britain rose to more than 100 for the first time.

This shift in wealth creation means that the self-made are making more of the running in philanthropy and they are bringing their business smarts to the process.

“Our research shows that a greater percentage of wealth now comes from those who have made their own money rather than inherited it – these people understand the value of money, both professionally and personally, and they want their children to have a social conscience too, to have an understanding of the world how it really is,” Emma Turner, head of client philanthropy service at Barclays, told WealthBriefing recently.

New money, new behaviour
What is different about many of today's philanthropists? They engage in what could be termed "entrepreneurial philanthropy".

It is a business venture like any other to them – one that involves logic, innovative thinking and the calculated taking of risks. Entrepreneurs don't like to waste money and so, before committing, they will likely dedicate not just money but also time for extensive vetting. This is where a plethora of philanthropy experts at wealth management firms and other organisations come into the story, such as UBS, Credit Suisse, Julius Baer, Deutsche Bank, Coutts, JP Morgan, Societe Generale and BNP Paribas. As recently as last week, for example, UBS unveiled a new philanthropy offering in its Americas business. (See here.) On the specialist advisory front, there are organisations such as New Philanthropy Capital, for example.

Mike Batchelor, head of private office at Thomas Miller Wealth Management, a UK investment house, said: “It's the entrepreneurial mindset – people want to be sure of the maximisation of the value they are giving.”

Such modern philanthropists are even less inclined to entrust philanthropic activity to future generations. Coutts' managing director Maya Prabhu, for example, said such individuals would rather donate their wealth in their lifetimes – while they are still (relatively) young, can get actively involved and see where and how it is being spent - rather than delaying it to the period when they are adjusting their bequests.

Venture philanthropy
Something both Batchelor and Prabhu flag as trending in the space is what is called venture philanthropy. According to one definition, venture philanthropy takes concepts and techniques from venture capital finance and business management and applies them to achieving philanthropic goals. With venture capital, for example, a venture capital fund will back a cluster of small firms and start-ups in the hope that at least some of them will be successful and produce an overall profit, knowing also that some of the ventures will fail or only break even.

The trend is highlighted by this year's BNP Paribas Individual Philanthropy Index, carried out by Forbes Insights. The index identifies venture philanthropy within the top five promising trends among philanthropists globally, ranking the highest in the US for 53 per cent of the region's givers.

“They are bringing the principles of venture capital to their philanthropy – with particular interest in smaller businesses with growth potential. There is also more and more going to education as they are looking to support the entrepreneurs of the future,” says Batchelor.

What makes entrepreneurs' involvement in philanthropy even more striking is their mutually symbiotic relationship with the causes they serve. Rather than looking at philanthropy in isolation, as a personal project, they are taking a practical approach too, endeavouring to integrate their philanthropic teachings into their mainstream investments.

Barclays’ Turner points towards responsible investment as an emerging trend among high net worth givers. She observes they are increasingly eager to learn “how their mainstream investment can be synergised with their philanthropy – if they are interested in the environment, they will make a conscious effort to consider the environmental impact of companies they are investing in.”


Navigating through the jungle
The world of philanthropy is fast becoming complex. Flourishing in tandem with wealth levels is the multitude of causes – and this can be confusing. Over a third of philanthropists find the large number of causes the greatest struggle while a 67 per cent majority believe advisors are needed to help navigate their way through, according to Forbes Insights. 

Thomas Miller’s Batchelor talks of the riddle created by a growing need for support around selection offerings. There are a vast number of causes; many causes are willing to get through a vetting process although some are not so suitable. But with so many causes that potentially fit the donor's criteria, wealth managers face the challenge of how to make a selection.

“They [clients] want to find their way through the jungle, rather than just accepting those philanthropic opportunities that are pushed towards them,” Batchelor said.

Time, rather than money, is the challenge in such cases.

“Philanthropy may be fuelled by passion but its effectiveness is most often driven by high levels of focus and attention,” says HSBC Private Bank's EMEA head of philanthropy, Russell Prior.

There is more and more of an effort to understand the impact rather than just donate and hope for the best, Coutts' Prabhu said. Philanthropists want to see the difference their money makes and for whom. Donations don’t take care of themselves, she continued.

“Some clients delegate the involvement to other family members. Others undertake particular activities themselves. Such activities vary from high-level involvement to detailed undertakings such as the selection of projects, the selection of type and style of asset management mandates, the overall administration of the charity,” said Guy Simonius, of the wealth and tax planning advisory services team at Julius Baer.

Family affair
Although individual approaches differ, those that have inherited their wealth from philanthropists are likely to adopt practices akin to their predecessors – out of both family values and mutual donor-grantee respect, which compels them to consider the source of wealth when making such decisions.

According to a recent UBS study, 77 per cent of family offices in Asia engaged in philanthropy last year – up 10 per cent from 2013.

Indeed “family philanthropy” has become more of a frequently-used term among wealth managers across the globe when it comes to planning for next generation clients. The shift is no doubt favouring family offices' client attrition rates but more importantly, reflects a growing interest in philanthropy among the rich, who feel a social responsibility to donate funds and a familial one to transfer the same philanthropic mindset onto their children.

Family philanthropy transcends generations and is a long-term commitment. But what happens when ideals and interests change, as is inevitable, over generations? In an ideal situation, families spend considerable time "sharing the baton" across generations so when the baton is passed on, it is a natural evolution. One way of working, Coutts’ Prabhu notes, is assigning the bulk of funds to areas of mutual interest while family members can direct their own individual pots to causes they are more passionate about. 

“Philanthropy offers a wonderful forum for families to articulate and share their values, to engage the next generation on the meaning and purpose of their wealth and their passions, and to have this conversation while everyone is alive,” she said.

Low profile
Somewhat balancing the conspicuous splurges of the super-rich are those among them that fall into the category of inconspicuous philanthropy.

The BNP Paribas Individual Philanthropy Index measures donors' extent of promotion and has identified a growing preference to remain under the radar; an ironic downward trend over the past couple of years that pays no heed to the profile-boosting platforms of our digital age. In fact, all four regions canvassed (the US, Europe, Asia and the Middle East) by the index scored the lowest in promotion compared to other years, reflecting philanthropists' modesty worldwide.

That is not to say there aren't those that embrace technology where it could help their cause. According to Forbes Insights, promotion via social media is still the leading use of technology in philanthropy. Education features among the top five causes globally, as an area that is sweeping and scoops up projects that falls between the cracks of the education curriculum - an area that demands online promotion to capture a younger target audience. Here, technology is the backbone of outreach.

Still, less than half of philanthropists are reported to regularly promote their cause on social media. The popular belief is that promoting one's philanthropy defies its altruistic nature. The “catch 22”, however, is that in order to engage others in philanthropy, it is necessary to share your story.

Tax benefits of course play their part in encouraging a philanthropically oriented investment portfolio but this is rarely what drives high net worth individuals to give - Prabhu calls it the “icing on the cake”.

“It is not always clear where someone’s philanthropic drive comes from. But what is clear is that they have the passion and drive to pursue their aspirations, and they are unlikely to let things get in their way. If obstacles appear they will find ways around them or remove them. For these reasons I have found it rare that philanthropy can be fully rationalised, or reduced to a formulaic approach based on something like excess income or wealth,” said HSBC’s Prior.

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