No longer just a “nice-to-have” option mentioned once the business of investment and tax is dealt with, philanthropy appears to be increasingly central, and firms are providing advisory/support services as a core offering. There are several reasons for this: firms can get into clients’ heads via philanthropy by finding out what often really motivates them; it can bind families together with shared values and specific goals, and it makes inheritors feel more ethically comfortable about their money. Philanthropy-linked events provide opportunities to build a firm’s brand – in a subtle way – and foster goodwill. For all these reasons and more, this news service is running a series of articles talking to industry practitioners about the space, its trends, issues and controversies. 

Philanthropy is now an important area, and rarely omitted from the websites and brochures of private banks. At the same time, advice being sought is not just about tax structures or writing cheques to existing groups. Increasingly, clients want to co-operate with other philanthropists (and save set-up costs) and get their hands dirty in working with the recipients of their aid. As a younger generation inherits wealth and gets more involved, their values are also becoming more evident, with greater enthusiasm being reported for environment giving (and possibly a cut in areas such as those with religious links), according to industry figures. A philanthropy consulting group in London which helps charities and HNWs come together on projects, told us: “Ten years ago we did a lot of work on cancer but no one has asked questions about cancer in years.” They said that they are seeing much more assertiveness from donors on what they want a charity to achieve.  

In the high net worth and ultra-HNW space that readers of this news service work in, there have been plenty of examples of “big gifts”: multi-million donations in countries such as the US to universities, business schools, medical centres and specific projects. Now a US presidential candidate for the Democrats, former New York City mayor (he was a Republican in that capacity) Michael Bloomberg has given $1.8 billion to John Hopkins University, his alma mater.

And this isn’t a new trend. A century ago, oil tycoon J D Rockefeller, and later his son and grandchildren, blazed a trail in philanthropy by showering tens of millions (billions in today’s dollars) on medical research and universities. The Carnegies, Mellons and Guggenheims in the US's “Gilded Era” donated huge amounts to philanthropic causes. In the UK, philanthropy-minded businessmen such as the Rowntrees and Bournevilles took a different course, building “model towns” for the mass public. So many of the parks, libraries, sports grounds, hospitals and recreation centres of the UK, North America and certain other countries came about in this way. 

Even in continental Europe, where the State has tended to be larger as a share of GDP and taken more control of such activities, there is now a good deal of philanthropy advice and support provided by banks such as Holland’s ABN AMRO, France’s BNP Paribas, and Deutsche Bank in Germany. In Switzerland, UBS, Credit Suisse and Julius Baer, to name the top three, make a big point of providing advice on philanthropy. UBS has been promoting its Optimus Foundation, for example, and last year the bank and its clients raised SFr65 million. 

With Asia reportedly minting two new billionaires a week, there has been growing focus on what philanthropy means in that region. Eighty per cent of the current available philanthropy is self-made and stands at around $8.6 trillion. In China, for example, there is a huge cultural expectation for families who’ve enjoyed business success to give back. What wealth managers are finding, and what one of the largest told us for this coverage, is that many families are asking themselves: “How much is too much for my children?” And once they have provisioned for themselves and their offspring, they are finding that there is an awful lot left over. For the self-made in particular, they want to use it to make a notable impact. This, in modern philanthropy terms, is perhaps why more money is being pooled among family offices to achieve the scale their impact requires. 

There is also a cluster of independent philanthropy advisors and lawyers and others who track the area, advising on structures such as trusts, cross-border transfer issues, and the challenges of building organisations and keeping them in their remit. In the US, an organisation this publication knows well is Strategic Philanthropy. Its chief operating officer, Susan Winer, is a regulator contributor to these pages and has an encyclopaedic knowledge of the sector. In the UK, groups such as New Philanthropy Capital help philanthropists navigate the reefs and shoals of the sector.

Reporting and accountability
As we learned earlier this year in writing about client reporting, a strong theme in the philanthropy space is giving accurate and consistent information to philanthropists. 

There are some alarming signs that HNW individuals are not confident about how much good their money will do. A few days ago, a study commissioned by Barclays Private Bank in the UK found that HNW individuals often give only a slender fraction of their wealth to charity. On the other side of the Atlantic, a report by Key Private Bank, the Cleveland, Ohio-based firm, found that parents and children don’t communicate enough about philanthropy. In Asia, meanwhile, philanthropy is relatively young, given that the vast majority of millionaires are self-made. In time, however, inheritance and transfer will put pressure on firms to raise their philanthropy advice game in the region. 

We have also covered behavioural finance this year and how human traits and biases can creep into managing money. And these insights apply with equal force to running a foundation and disbursing money. In fact, because charitable spending is for a “good cause”, some of the caution a person might exercise with standard investments might fly out of the window. There is lot to think about here, and the application of behavioural insights to philanthropy is only just beginning.

Definitions are important in this sector. There can be a blur between the fields of philanthropy, which is about transferring resources of various kinds to bring about change of some kind, and impact investing, which involves investing money to make changes while also generating a financial return. (Of course, there is a “return” with philanthropy for the giver in the form of satisfying a moral or emotional goal.)

That said, there is a professionalisation of philanthropy underway that may leave some in the charity sector running to catch up as performance data and measurable outcomes become a necessity for a new generation of inheritors.  

Nevertheless, there are good reasons why philanthropy, impact investing and sustainable money-making ideas are often mentioned in the same breath. An investor who, to take an extreme example, makes money in arms cannot arguably be credible by supporting a charity working with people in war zones; a tobacco industry shareholder might also come in for a rough time making donations to a hospital (unless they choose to divest from the sector). 

There is also reputation to consider. Philanthropy has, arguably, been used at times to improve a person’s image, but this needs to be handled intelligently. And it can go dramatically wrong. The recent saga of the Sackler family, owner of OxyContin manufacturer Purdue Pharma, is a case in point. (A number of art galleries and other institutions no longer take gifts from the Sackler’s charitable arm, citing controversy over the opioid epidemic in the US.) UK Arts has seen the National Theatre and the Royal Shakespeare Company recently sever ties with Shell and BP respectively because of public pressure and the intense scrutiny donors are under. Charities also bring their own challenges of control and accountability, particularly if they are also political animals in some respects, or lend support to particular causes. 

All these complex issues require advice, and the wealth management industry is still in some ways in the early stages of building the expertise. But although there are controversies and difficulties, there is also an immense amount of satisfaction that can be achieved by smart philanthropy. The sector is clearly capturing the minds of many HNW and UHNW clients, and needs to be front and centre of client conversations in the years to come.