High-profile events like Make
Poverty History and the tie-up between Bill Gates and Warren Buffet
on charitable giving has seen a surge in interest among the wealthy
in philanthropy. Numerous private banks are now specialising in the
area and setting up in-house teams. Will Cain reports.
While philanthropy has for centuries
been an important element of wealthy society, it is only in the
past five years that it has started to become considered a central
part of private banking strategies.
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UBS was one of the first to establish an
in-house philanthropy operation in 2004, and since then banks
including Coutts, Barclays Wealth, JPMorgan Private Bank and BNP
Paribas have also taken the step.
A survey commissioned by consultancy New
Philanthropy Capital (NPC) showed 60 percent of high-level
executives within wealth management 
believe the area will become a core service within five
years.
Although most estimates show overall giving
was down in 2009, it showed surprising resilience in the face of
the financial crisis, according to Mario Marconi, head of
philanthropy services and responsible investment at UBS.
“We see a clear positive trend of increasing
money coming into the philanthropy sector in general,” Marconi
said. “The way we see 2009 is that it is probably a short-term
stop, if at all, but I expect it to continue growing in the coming
year and beyond.”
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By GlobalDataThis is important for charities, which want to
avoid large swings in allocations from year to year, and is perhaps
testament to the more structured philanthropy services which are
being developed with clients by private banks and other
organisations. Interest in philanthropy is also a result of longer
term trends, according to Michael Green, co-author of
Philanthrocapitalism, a book on the topic. The role of private
individuals and foundations have become more public, for example
the Bill Gates-Warren Buffet collaboration in 2006.
Buffet agreed to donate around 70 percent of
his then $40 billion fortune to the Bill & Melinda Gates
Foundation at a rate of around $1.5 billion a year. This and the
Make Poverty History campaign in 2005, led by rock star Bono, and
supported by figures like George Soros and Bill Gates, have helped
spur a new interest in philanthropy among the general public and
also the business elite.
“There is a new attitude among the winners in
capitalism that sees them want to fix global problems, whether it
is poverty in Africa, our own school system at home or climate
change,” said Green.
“These people are entrepreneurial, dynamic and
are bringing their money to solve problems.”
Private banks have responded by improving
their philanthropy propositions, in particular through the setting
up of in-house teams. The rationale behind doing this is to have
the capacity to advise clients through the giving process. This
often involves using networks and third parties rather than
covering the entire spectrum of philanthropy, Marconi said. “We
decided it was strategic enough for us to need an in-house model –
if it is a core business you need to have expertise and knowledge
in that area,” Green added.
The benefits for private banks that offer
philanthropy services revolve around:
• client servicing;
• quality of service;
• deepening client relationships;
and
• client retention.
Client servicing and quality of
service
The client service benefit of having
a credible philanthropy offering essentially comes down to
differentiation.
Private banks want to show clients
that they have a service which adds value and philanthropy,
typically an area which lacks transparency, particularly in advice,
is seen as a useful and relevant way of achieving this.As the
service has become gradually more mainstream, there has been a
greater emphasis on the type of offering private banks can offer,
according to Plum Lomax, senior consultant at New Philanthropy
Capital.
“What has happened is banks a couple of years
ago thought that by going into philanthropy they could
differentiate from their competitors,” Lomax said.
“That was true, but now, they have realised
everyone is getting in to this game so just having a philanthropy
product is not enough – it is the way they deliver on that
servi
ce that will be the differentiator. Banks have
realised they have to be in this space but people are choosing to
do it differently.”
Lomax said it was an increasing trend to have
in-house specialists.
“What is quite interesting in the field at the
moment is on the whole philanthropy is something a lot of banks say
they offer, but actually in terms of what they are doing there is a
lot more rhetoric than reality,” she added.
In a survey conducted by Scorpio Partnership
last year, commissioned by NPC, 50 percent of private banks
interviewed said their front line staff were not trained in
discussing philanthropy with their clients. Most advisers focused
their resources on the initial stages of giving, like vehicle
structuring and tax advice. Services like helping clients select
projects and monitoring the impact of their giving were often not
available at private banks.
Despite the benefits, private banks have to
overcome the hurdle of having no obvious revenue stream to justify
investing in developing a philanthropy offering.
“The issue for private banks regarding giving
at the moment, and this is something they are struggling with, is
how to make money,” said one source.
“A lot of them do not charge for the advice
they are giving their clients. If you look at lawyers, for example,
there is very much a clearer revenue stream when they advise
clients about setting up structures like foundations.”
Some private bankers say privately that while
they offer philanthropy services in their pitch books, they
hope
clients will skip over the issue because they know the service they
provide is not comprehensive enough.
“On the quality of service, it comes down to
the fact that you have to be an insider in the sector to properly
support your client,” said Marconi.
“The second element is you can better control
your offering, services and quality of those providers if you have
specialists in-house. That is where we are coming from. Today, even
more than in the past, the fact philanthropy is such a strategic
component of our client experience has been confirmed over the
demand we have seen over the past few years.”
Banks that provide good quality
philanthropic services may also benefit from improved retention
through a deepening of the relationship with clients. Talking about
philanthropy is based deeply on aspiration and helps bankers gain
of an idea of what is important to their clients.
“We had a banker recently who said they had
never spent an hour and a half with their client until they started
talking about philanthropy,” said Lomax.
“People have been astounded at the deepening
of the relationship it can have with banks. Wealthy individuals
want to talk about their investments and get them right, but it is
when they start to open up about what really matters to them that
you learn about what they want.
“It might be about a member of the family,
some tragedy which has occurred or it could be about how they get
their kids not to squander their wealth. When people start talking
about giving they get passionate about it and that’s why it makes
sense for advisers to get into this area. They get to know clients
so much better.”
Products and services
For most private banks, the main
focus on philanthropy remains around the advisory process –
establishing what their client’s goals are, and working with them
to establish appropriate outlets for their giving. UBS, in a recent
review into its strategy on the sector, concluded advisory is still
the most important area for clients.
“Philanthropy advisory is important because
there remains a fundamental lack of transparency in the sector,”
said Marconi.
“Clients seek advice and information. That has
remained constant ever since we started the service.”
Having a strong advisory capacity is
considered important because clients can initially be quite vague
about their targets for philanthropy projects. One banker said they
were approached by a client who had $75 million to invest, who had
never heard of a non-government organisation, and had a brief to
“improve global poverty”.
Through dialogue with clients, these broad
goals can be narrowed down and developed into more focused targets,
helping provide greater impact for donations.
When clients have a better idea of what they
want to achieve, the advice can take on a more strategic role.
Maya Prabhu, head of UK philanthropy at
Coutts, is working with a client who is keen to address
homelessness in the UK region where they live.
“We’ve been through a whole education exercise
about the role of housing associations,” Prabhu said.
“We have been looking at what charities do in
that area, what small community groups do, where the gaps are for
housing provision and therefore where he can make the most
difference.”
Coutts also offers an education service for
clients, which it calls a Philanthropy Forum, available to anyone
in its client base that is interested in giving £10,000 ($16,153)
or more. The forums are provided throughout the year, and aim to
provide inspiration, education and ideas to clients.
In November 2009, it held a Women and
Philanthropy Forum for its female clients. It was based around
themes including “giving time”, which included speakers like Alison
Myners (chair of the Contemporary Arts Society in the UK) and
Bianca Jagger (former actress and human rights activist), both of
whom have dedicated large amounts of their time to promoting
charitable work.
Another of the themes was “supporting children
in London”. It looked at what the needs were in the capital and
where philanthropy could make the most difference.
“The idea is you hear from a couple of
speakers, ask questions and have a discussion,” said Prabhu. “There
is no right way to do it, it is about giving people the
opportunity
to find ideas that resonate
with them.”
Another Coutts initiative is its Charitable
Giving Account. The products are already popular in the US, raising
hundreds of millions of dollars a year in donations, but this is
the first to be launched in the UK. The bank expects the products
to be offered by most major financial institutions over the coming
years (see PBI 254).
The bank is also pioneering donor advised
funds, another concept which has proved popular in the US. Clients
give collectively based on a certain theme – in Coutts’ case in
2010 this is microfinance. Clients donate £10,000 or more by
supporting charities from a list put together by the bank. There is
also a hands-on element to the funds. Clients that participated
last year went out to countries to see the projects working on the
ground, including one run by Cambodian microfinance agency Angkor
Mikroheranhvatho Kampuchea (AMK).
Philanthropy and SRI
Related, but still distinct from
philanthropy is the issue of socially responsible investment and
convergence between the two. This trend has been identified as an
important one by UBS, and it was part of the reason Marconi was
appointed head of both philanthropy and socially responsible
investment following a review of its operations.
“We see the industry really coming to that
common point – philanthropists talking more and more from an
investment angle, and investors adding that social dimension,” he
said.
But Marconi said it was too early to talk
about specific philanthropy fund launches for the project as some
in the sector had reservations about blurring the lines between
philanthropy and investment.
The idea of impact investing is fairly new but
developing fast, according to Green.
“It is a really exciting trend, because it is
not about giving money away. Social investing can be a powerful
tool for good,” he said.
“The financial crisis has almost accelerated
that trend because if the short-term pursuit of profit isn’t
actually a very good way of making money in the long term, then
there are other ways of seeking value and there is a lot of energy
in investing money that can do social good as well as earning a
return.
“I think that is something we should be
encouraging with tax systems.”
Regulation
The regulatory climate for
philanthropy has in general been stable and supportive over the
years and governments have recently put significant effort into
adapting legislation to support the growth of the sector. In
Euro
pe, the ongoing European Foundation Statute is expected to
stimulate growth by removing national barriers to foundations. The
European Commission completed a consultancy phase on the proposal
in November last year. The review, carried out to ensure
appropriate structures are in place for foundations, found a high
degree of support for the idea from the non-profit sector, but a
more sceptical response from government agencies.
The biggest area of concern for foundations
were differing taxation regimes relating to foundations operating
across Europe. They want as uniform a tax and regulatory framework
as possible across Europe to help them operate more
efficiently.
The EC is now weighing up the ideas. Another
example is Singapore, which is promoting itself as a philanthropic
hub through the development of a socially responsible stock
exchange and relaxation of income tax rules for registered
charities.
The plan to develop the social stock exchange
is being developed by an agency called Impact Investment Exchange
(IIX), would create the first social stock exchange in Asia. The
US-based Rockefeller Foundation has shown support for the idea, and
is committing $495,000 to support the research and design for the
project.
IIX will develop a regulated exchange which
will allow trading of securities issued by sustainable
organisations in Asia. The exchange will provide a platform for the
enterprises to raise capital for growth. It also aims to provide an
accurate gauge of social and financial returns.
In its 2007 budget, in another move to make
the city state a key centre for foundations, its government removed
the 80:20 spending and funding rules for income tax exemption for
registered charities. They required charities to spend at least 80
percent of their annual receipts on charitable causes in Singapore
within two years to avoid income tax.
A tax incentive was also introduced to attract
other not-for-profit organisations (NPOs) to Singapore.
Asia has a number of high-profile
philanthropists including Azim Prenji, founder of software company
Wipro and India’s fifth richest person; India’s Nilekani family;
and Jet Li, the Chinese film star.
While around 60 percent of the $250 billion
donated globally in 2006 was from the United States, Asia is
expected to become a more significant market in the coming
years.
There is a belief among some of the most
important philanthropy players, including Bill Clinton, that India
and China will be big growth areas on both the donating and funding
sides.
“The wealthy in these emerging markets are
very much getting into giving back,” Green said. “In countries like
those, where there is so much poverty and so much wealth, the
imperative for giving is so much higher.”
