for the wealthy, philanthropy is more than a way to feel good – it
is a central part of wealth management strategy and an increasingly
important part of the private banking mix. Charles Davis reports
on the growing trend of charitable giving in the family trust
business.
Private banks are making it easier for their investment advisers
to address a broader array of clients’ trust needs, ranging from
estate planning to philanthropic giving. Philanthropy is emerging
as a major component of the family trust business, and advisers see
charitable giving as a valuable tool for retaining
multi-generational wealth.
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Pershing, a subsidiary of Bank of New York
Mellon Financial, has given its investment advisers and
broker-dealers access to a variety of investment services provided
by four trust administration companies. Other large financial
services companies, including Wachovia and Fidelity, have started
similar offerings.
High net worth clients are turning to trusts
to reduce estate taxes, and setting aside some of that wealth for
charitable giving is far easier with access to trust administration
services aimed at family trusts. Advisers working with Pershing now
have access to an impressive portfolio of trust services from AST
Capital Trust, Reliance Trust, Santa Fe Trust and Wilmington Trust,
to accounts from $250,000 up.
‘Feel good’ wealth
management
Philanthropy is ideally suited to
wealth management. Already a top-down endeavour – the top 3 percent
of all American households account for nearly two-thirds of
charitable giving – it brings together the driving passions of the
client with the down-and-dirty trust and estate planning that has
to be done anyway.
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By GlobalDataIt’s feel-good wealth management, and it
leaves both the client and the private banker feeling better in the
end.
Tying philanthropy to the rapidly growing
trust business is an excellent way to attract the emerging affluent
and all those Baby Boomers in need of comprehensive wealth
management services. For this sector of the wealth management
market, rife with small business owners made good, personal passion
– not personal reward – drives philanthropic involvement, according
to a survey released by SunTrust Bank Private Wealth
Management.
SunTrust’s national study surveyed over 200
high net worth business owners, whose companies have at least $10
million in annual revenue, about their philanthropic involvement
and motivation.
Business owners cite “helps make a positive
change” as the top reason for charitable giving. Nearly
three-quarters of respondents say satisfying their personal moral
beliefs drives their philanthropic impulses. And fewer than half
say they give to receive tax credits; to bring positive attention
to their business; to network; to establish a legacy; or to gain
recognition.
“The survey shows that when it comes to
philanthropy, business owners are genuinely concerned about
affecting change,” said Dave Johnston, senior vice-president,
SunTrust Private Wealth Management. “This research confirms what
SunTrust has observed through our long-standing commitment to
serving business owners. Their generosity is rooted in a desire to
give back to the community.”
High net worth business owners are a generous
group. Virtually all the business owners surveyed have made a
charitable donation personally (96 percent) and through their
business (79 percent). On average, in 2007 they report having
donated over a quarter of a million dollars to charitable causes
through their businesses and $78,000 personally or as families. Two
in three (65 percent) say their family decides together which
causes or nonprofit organizations they support. One in five (21
percent) say their family has gone so far as to establish a family
foundation.
“The business owners we surveyed appear
grounded in a circle of trust that influences their philanthropic
decisions,” said Johnston. “Outside of satisfying their own
aspirations to do right by the community-at-large, these business
owners want validation from their family.”
The SunTrust survey found that many clients
are looking to put their personal passions and family finances to
work through establishing foundations.
The days of one-time donations have given way
to an age of corporate social responsibility, marked by a more
strategic, consistent and targeted approach to overall giving.
Banks are attracting wealthy clients by providing a selection of
philanthropic services, from integrated spending policy and asset
allocation analysis, to grant-making administration and oversight.
They are even bringing the back-office functions of philanthropy
in-house, offering everything from distribution calculation and
disbursement to record keeping and custody.
Among those who have incorporated planned
giving into their financial plans, those who have started a
business “from scratch” are more likely than those who did not to
have established a family foundation or private foundation (57
percent versus 33 percent).
Offensive and defensive
strategy
Wealth managers are using
philanthropy as both an offensive and defensive strategy, sensing
the need to differentiate the firm in the marketplace while also
realizing that if they don’t offer philanthropy services, their
competition surely will.
Wealthy clients also appreciate the tax
deductions they can obtain from vehicles such as charitable gift
annuities, charitable remainder unit trusts and charitable
remainder annuity trusts. Clients can remove assets from their
estate and avoid capital gains tax and tax on lump-sum capital
gains, a major component of trust planning that makes philanthropy
a must-have component of a wealth management portfolio.
Wealth managers and financial advisers who
work with clients on philanthropic projects can also develop a
relationship with the next generation of a wealthy family, a
critical retention tool. Philanthropy can be an excellent way to
engage the younger generation about wealth management in a
nonthreatening, uplifting way, and of course, it has the added
benefit of tying up some of that wealth in ways that please the
senior clients as well.
Look for the role of philanthropy to play a
major role in wealth transfer, SunTrust says, as today’s wealthy
and emerging wealthy are more socially conscious than any
generation before.
