Wealthy Asians discover their charitable side

Growing wealth and prosperity in Asia is opening up a considerable market for philanthropy. Despite this new-found wealth, the region continues to be beset by significant social and environmental problems. As several countries in emerging Asia remain bogged down by rampant corruption and bureaucratic hurdles, ultra high net worth individuals (UHNW) are seeking to fill in where the government has failed.

A survey from the VIP Forum, an advisory group for wealth managers, reveals 26 per cent of ultra high net worth clients have increased their levels of giving.

Though still low relative to the West, philanthropy in Asia is rising with wealth, with more than 3.3m HNWs in the region. As a result of a recent liberalisation of the sector, and low public trust in charities, China has witnessed a tremendous growth in private foundations, and giving more than doubled from $4.9bn in 2009 to $10.3bn in 2010.

China and India are likely to remain the fastest growing HNW segments in the world. However, statistics suggest charitable giving has not caught up with the wealth. According to Bain, a consultancy, in India and China philanthropic contributions constitute only 0.6 per cent and 0.1 per cent of GDP, compared to 2.2 per cent in the US.

“Asians are becoming increasingly affluent and philanthropy is now firmly on the agenda,” says Russell Prior, head of philanthropy at HSBC Private Bank, which is seeing increasing demand from clients for specialised services in the sector and sees philanthropy as a key element of its broader wealth management offering. “Across the region, where there are various approaches to giving – from formal foundation grant-making to market-oriented solutions – philanthropy is evolving into a visionary and strategic endeavour with an increasing need for it to be managed professionally.”

Clients increasingly see philanthropy as a part of their overall wealth management, believes Mr Prior. “The longer-term trend suggests that philanthropy is steadily increasing and should continue to do so. There are a number of factors driving that, such as the demographic curve and an increase in wealth generated by entrepreneurs, as opposed to inherited wealth.”

David Evans, head of philanthropy and values based investing, Asia Pacific, at UBS Private Bank, agrees. “Philanthropy in Asia is undergoing a period of unprecedented growth and private banks have an opportunity and indeed a responsibility to play an important role in promoting best practice,” he says. “Most wealth in Asia is controlled by first-generation philanthropists, often driven individuals, who as they achieve success, start to ask themselves about how to give back. Banks as their trusted advisers can show them not only how to do good efficiently and effectively, but also how philanthropy can fit logically into and contribute to their overall family enterprise.”

As the quantity of donations increases, the monitoring of the effectiveness of the activity is also beginning to occupy the minds of wealthy donors. According to Barclays Wealth, HNW donors are becoming more active philanthropists. This means they are becoming more ambitious in their philanthropic aims and want to see visible or measurable change.

Current Offerings

Among those institutions keen to expand their range of philanthropy-linked services is Coutts Private Bank, which built on the legacy of its founder and renowned philanthropist Angela Coutts. The bank was the first global wealth manager to establish a dedicated philanthropy advisory team in 2005.

Now one of the key aims is to make sure, through bespoke service offered to both wealthy families and individuals, that “their philanthropy is both effective and rewarding,” says Maya Prabhu, head of philanthropy at Coutts, who previously spent several years working in India’s NGO (non-governmental organisation sector). Coutts is keen to help clients set philanthropic objectives, identify and understand the context of social, environmental or economic issues, build relationships with charitable organisations or social enterprises, review impact and engage the next generation.

“We have several forums to enable clients to develop their philanthropic network,” says Ms Prabhu. These forums, she says, create opportunities for clients to learn from some of the world’s leading practitioners, share their experiences and develop their networks.

Many banks actually go as far as identifying suitable charities and guiding clients to liaise with them.

“We have tools and workshops to help individuals and philanthropists to really think through goals they want to achieve and give back,” says Mr Evans at UBS. “Through the UBS Optimus Foundation, we have a suite of outstanding ready-made projects in Asia that clients can fund while UBS picks up administrative costs. We also provide advice and options on social investment approaches such as Impact Investing.”

Bank of Singapore offers an integrated approach to private banking, claiming to have built a “seamless platform” for clients’ overall wealth planning and philanthropic objectives. “We have been guiding Singaporean HNWs who were keen to set up trusts for charitable purposes on the various options available to these families under the Charities Act,” says Lee Woon Shiu, head of wealth planning, at Bank of Singapore.

The notion of giving clients access to a whole range of specialists in different areas of philanthropy is central to some offerings such as that developed by Standard Chartered Private Bank, which launched a philanthropy programme, Investing for a Better Future, last year. This programme put clients in front of both internal and external experts, who can help create personal giving plans and offer strategic advice on their philanthropic giving. It also helps them to participate in organised causes, including the donation of funds to Standard Chartered’s eye-related project, Seeing is Believing.

Jacqueline Brabazon, global head of marketing, philanthropy and key clients at Standard Chartered believes private banks can play an important role in making a collective difference. “If facilitated well, benefits go to everybody – communities, clients and private banks as well,” she says.

Need for Advice

Despite these various offerings, many clients feel their needs are not being met. The majority of wealth managers are missing out on opportunities, as philanthropists cite a lack of places to turn to for independent bespoke advice on how to and whether they should become philanthropists. In Asia, growing interest in the philanthropy agenda and the options available are not only leading individuals to become more involved, but many philanthropic consultancies with origins in Europe and the US are looking to expand services in Asia.

A survey by consultancy New Philanthropy Capital found that while engaging in philanthropy, the stages during which advice is valued the most is when clients are trying to decide what kind of a giver to be and when they are going through the discovery of a giving process.

“Clients want general advice on how to get involved in giving and what their options are, which includes anything from giving to charity through to setting up their own foundation,” says HSBC’s Mr Prior. “They need help in finding goals for their philanthropy and assistance in structuring and administrating it.”

A key difference in Asia is the relative lack of maturity and sophistication in the philanthropic sector, compared to the West. Barring a few exceptions, Asia has not had long-established foundations with deep experience and expertise, such as the Ford or Rockefeller Foundation in the US and the Gulbenkian or Bertelsmann Foundation in Europe.

“This means philanthropists can find the process of bringing solutions to scale frustrating and there is a real need for capacity building in the philanthropic sector,” says UBS’ Mr Evans. “At the same time, one can argue that because of this lack of development, the not-for-profit sector in Asia can make a generational leap beyond traditional models of philanthropy to embrace more easily hybrid models bridging investment and social impact, which promise scalability and sustainability.”

Private banks have named numerous advantages in offering philanthropic advice to clients. These include an opportunity to add value to the bank-client relationship, an additional line of revenue, an increased likelihood of client referrals, and a deepening relationship between the relationship manager and the primary client. This is particularly important at a time when the feel good-factor between bank and wealthy client has been badly dented.

“It is a win-win situation for the banks on the whole,” says Plum Lomax, senior consultant at New Philanthropy Capital. “We know of banks which are offering a range of philanthropic services which are causing numerous clients to go to them.

“They are not going to earn fees from it on the whole, but I think it’s about long-term relationships and building up trust which is an important thing to have for these organisations.This trust has been eroded in the past few years,” adds Ms Lomax.

However, there are dissenting voices, who believe the mixture of private banks and philanthropic services is not necessarily a healthy one. “We don’t have an arm that dedicates to philanthropic advice because I think the motivations of certain private banks giving that advice is somewhat questionable,” says Charles Gowlland, director of investment management at independent advisers Smith & Williamson.

“I would suggest that to a large extent our industry is using the philanthropic angle as a means by which to get the firm to have access to the underlying clients and their wealth management and private banking needs. I wonder if these are not some slightly distorted motives?”

There is a conflict of interest between private banks and their philanthropic offerings, says Mr Gowlland. “All banks are there to make profits and philanthropy is an area where salaries and returns involved are not comparable with the sort of returns on invested time and capital and so forth that the bank would be able to make in other components of the advice. If I were a client or a family I would be concerned about the conflict of interest.”