The rise of philanthropy
In the second instalment of this series discussing the dynamics of the wealth management sector, we assess philanthropy. Yes, ESG is included here, but we look at it from an altruistic viewpoint.
As a very general comment, “Private Banks do not understand this external focus of doing good,” says John Clark, a consultant at Coley Porter Bell. “They are still obsessed [with] passing on assets to the next generation.”1
New kids on the block
While these observations may be controversial, perhaps they do have some merit. A Private Bank’s raison d'être has always been to generate wealth for its clients – for a fee. A simple business model. Along came disruption to the customer base. New money, tech entrepreneurs, social consciousness – the concept of altruism coupled with ESG define demand for a new type of relationship with retail money managers.
Philanthropy and impact investing have seen an upward trend, especially as millennials begin to inherit their parents’ wealth and generate their own. Research conducted between Oppenheimer Funds and Campden Wealth shows that in 2017, 70% of ultra-high-net-worth (UHNW) millennials sought to align their investments with their social values.2 It is the zeitgeist of our time. To add, the notion of ‘materiality’ for the new generation is deemed vulgar – modesty is the watchword. Billionaires and celebrities embrace this philosophy through the formation of charitable foundations. Arguably their influence is greater than that of their predecessors or old money. Wealthy millennials want a new type of wealth service, one that is more rounded and caters not just for their personal portfolio but how it influences society.
Keep it in the family
“Philanthropy allows a family to translate philosophy into action or to put its money where its heart is.”3 A wonderful concept, one that has captured the imagination of the wealth management sector. Or a part of it anyway. What are the drivers?
Perhaps we need to look at the family office construct. According to the UBS 2020 Global Family Office Report, 39% of family offices aim for sustainable portfolios within 5 years, although mainly through exclusionary policies.4 Passing on intergenerational wealth now includes the need to educate future generations on the value of wealth and how to use it to benefit society rather than just for personal satisfaction.
As ever, where there is an industry trend or change in regulatory requirements, there is
opportunity. Advising clients on the ‘art’ of philanthropy is now a crucial and developing feature of the wealth management service.
We have what you need
So – how can Private Banks and wealth managers help their clients with their philanthropic aims?
- Buy into the philosophy
- Develop expertise and understanding
- Develop a holistic philanthropy service
- Promote philanthropic communities and donor collaboratives
Buy into the philosophy
All key stakeholders of the firm have a crucial role to play in enabling the growth of philanthropic and sustainable capital. But while they are originally focused on helping clients preserve and grow their wealth, they may not try to understand what their clients are trying to achieve beyond these objectives. This in itself could show a lack of conviction.
How long would you stick around if your advisor wasn’t listening to what you wanted to do with your own money?
Develop expertise and understanding
Wealth managers need to think more deeply about their firm’s strategic intent, develop a set of investment beliefs that outline the philosophy of the business and then assess if philanthropy fits the firm’s strategic goals. It may not be for everyone. They must also test any hypotheses with their most trusted UHNW clients. From there, gain feedback, refine the firm’s philanthropic beliefs, have an ‘Agile’ mindset, and buy in expertise to set the agenda.
Develop a holistic philanthropy service
As a full-service firm, advisors will need to ensure all parts of the business, including sales, support teams and expert advisors, are part of the proposition. For example, if one pitches or covers estate planning for a client, they may have to bring in experts from Tax and Legal to offer advice that includes impact on the charitable provision within the portfolio.
Building awareness within the sector or for the client base is also a key feature of a philanthropic service. For example, in 2018, Barclays Private Bank launched a philanthropy guide for clients – Future Giving: Engaging the next generation.5 It included background information and instructions about charitable giving for families, young adults and children. This is just one component of Barclays’ wider services, which also include events and other literature.
Promote philanthropic communities and donor collaboratives
Knowledge sharing and ideas exchanged with other philanthropists is a real value add. Philanthropy has traditionally been practised individually, but the best results are achieved through collaboration, creating synergies and opportunities for partnership. Wealth advisors can truly bring value by helping clients to connect with like-minded individuals and other philanthropic organisations, such as NGOs. Networking events that involve HNWIs, charities, and NGOs are a popular example of such initiatives.
Key Takeaways
In summary:
- The UHNW segment is becoming more complex and skewed towards the next generation.
- The interest in philanthropy and impact investing will only increase, as millennials start to inherit large sums of money and build their own wealth.
- Private Banks need to develop their own capabilities to help their customers achieve their philanthropic dreams, not just through guides and education, but also through connecting philanthropists with each other and with charitable organisations.
As Helen Keller once said, “Alone we can do so little; together we can do so much.”
Sources
1 https://www.pwmnet.com/Wealth-Management/Private-Banking/Lick-of-paint-not-enough-to-save-private-banks
3 Nan-B De Gaspé Beaubien BUSINESS FAMILIES FOUNDATION.
