Philanthropy cries out for professional touch

As the world of philanthropy expands and becomes more and more complex, with wealthy individuals giving their money away becoming increasingly demanding, seeking to measure the impact they generate through their giving, the need for professional advice has never been stronger. 

While investment services are largely commoditised, offering qualified philanthropy advice could represent a significant differentiating factor for private banks. This would enable them to deepen relationships with existing clients and potentially increase their share of wallet, as well as drawing in new clients. 

But do banks have the internal resources to advise on which causes to support and to select the right organisation to implement them? Or should they turn to third party consultants? And should they charge for it or offer these services for free? 

According to the third annual philanthropy index report by BNP Paribas Wealth Management and Forbes Insights, philanthropy is growing worldwide, with Europe in particular registering a strong increase in current and projected giving, almost drawing level with the US. More than two thirds of the 400 surveyed individuals worldwide, with at least $5m (€4.46m) in investable assets, believe advisers are necessary to effectively navigate the giving sector (see chart).  

Philanthropists find it complex to choose the cause they want to fight for and select the right organisation among the millions available. After family, philanthropy advisers/agencies and external experts in the areas of focus are the most often consulted resources for help with giving. 

But there are significant differences among regions. American and Middle Eastern philanthropists seem the happiest with family advice, whereas in Europe and Asia philanthropists tend to turn to advisers and experts more, due to the higher importance of family legacy.

At the same time, a recent survey for the Charities Aid Foundation in the UK, carried out by Scorpio Partnership, found two thirds of the UK’s wealthiest people, those with a minimum £1m (€1.4m) of liquid assets, think professional advisers, such as lawyers, accountants and wealth managers, could do more to cover the area of philanthropy as part of their work.

Nearly three quarters of the respondents also think philanthropy advice should be a free or low cost service, with the majority wanting to use a not-for-profit service provider with knowledge of the charity sector.

For some, making a wrong choice in philanthropy is worse than doing so in investments. 

“Philanthropy feels very personal,” says Mitchell Singer, director of Rockefeller Philanthropy Advisors in the BNP Paribas report. “If somebody makes a bad investment in the stockmarket, they’re upset but they don’t feel betrayed. If they make a bad grant, meaning that it wasn’t spent the way they wanted it to be spent or the organisation closed its doors, they take it much more personally.” 

“We need to inject professionalism into philanthropy, as the sector becomes increasingly complex,” warns François Debiesse, senior adviser at BNP Paribas Wealth Management, stressing the importance of being able to measure the impact of the client’s generosity.  

BNP Paribas offers tailor-made philanthropy advice to clients who donate at least Ä1m. Projects selected for its Fondation de L’Orangerie are accessible to those donating at least €10,000.

“Increasingly, philanthropists want to be perceived as social entrepreneurs,” notes Nathalie Sauvanet, head of individual philanthropy at the French bank. “They have clear objectives, want us to help them define the different steps of the decision making process, making sure the programme meets their needs, evaluate the cost and select the most appropriate philanthropy vehicle.” 

Like many other banks, BNP Paribas does not charge clients for giving bespoke philanthropy advice. This is seen as part of the holistic approach to clients, the objective being to maintain long term multi-generational relationships.

“Philanthropy is a way to deepen relationships with clients; it is something very intimate,” says Karin Jestin, ex-McKinsey consultant and head of philanthropy at Lombard Odier for the past seven years. 

However, the Swiss bank, which started offering philanthropy services to clients as an extension of the philanthropy activity carried by the bank’s founders, bills its clients for philanthropy advice and to use the bank’s foundation, Fondation Philanthropia. 

“Charging clients a fee is also a way to value the quality of the work we do,” says Ms Jestin, heading a team of three, and also relying on the bank’s support teams to carry out her work. 

While some competitors have financial targets, she reports, the philanthropy team at Lombard Odier is not constrained in its activity by any short-term financial goals. 

“We don’t know the wealth level of our clients and we don’t want to know it,” she says. It is the relationship managers that introduce clients to her team, and half of those in the bank have so far consulted with them.

The philanthropy journey starts from understanding the client’s motivation to give and helping identify the best way to achieve their ambitions on the ground. It includes heavy desk research and analysis, as well as due diligence and selection of the right partner, generally an NGO (non-governmental organisation), be it local or global. 

External experts are also consulted, while “rejuvenating field trips” in remote areas of the world are also carried out with clients, when needed, explains Ms Jestin. 

“For a client, having a one stop shop is quite convenient,” she says. “They already have a relationship with the bank, with wealth planners and legal advisers. If they set up a philanthropy vehicle, they also need accounting and administrative support, as well as my team’s support.”

Many private banks, arguably the majority, tend to informally introduce their clients to other philanthropists or third party consultants, but they are not providing due diligence on non-profit schemes, especially if it is a service that people are not prepared to pay for.

“We see philanthropy and charitable giving as part of the client’s overall wealth plan,” explains Adrienne Penta, wealth planner and regional trust head in Boston at private bank Brown Brothers Harriman & Co.  As such, philanthropy has to be incorporated in conversations about estate and tax planning and investing.

At the bank, wealth planners usually introduce the topic of giving, but relationship managers also occasionally take on this role. And they should not fear they are imposing their own values or sets of beliefs, she says. Junior bankers especially are trained on how to recognise whether the client has an issue that could be related to philanthropy or estate planning and when they should bring another professional with deeper expertise to the table.

The US bank, whose average clients typically have assets worth more than $20m, provides advice on how to structure the vehicle for philanthropic objectives, for example whether they should be using a private foundation or a donor-advised fund, how they should maximise the tax benefits of their gifts and how they should incorporate other family members in charitable decisions. 

“But most of the time clients do not ask for advice about grant making specifically, they usually already have an idea of what they want to accomplish and which organisations to use to implement their objectives,” reports Ms Penta. 

“However, if they need due diligence on grant making, we will help them find the right charitable consultant for the best fit, not only in terms of expertise but in terms of the family’s personality.”

The role of charitable consultants is part of a very specialised world, says Ms Penta, who believes offering this kind of service within the bank would not serve clients well. Building an internal consulting firm in this space would require a substantial amount of resources.

Generating an impact

Impact investing, where investments are intended to create positive social impact beyond financial returns, is seen as the most promising trend by most philanthropists, according to the BNP Paribas report. This is confirmed by private banks and consultants, although impact investing product offerings are still at a very early stage in private banks. 

But developing these areas of expertise is particularly important to capture the next generation.

“Private banks need to view philanthropy on a larger scale because the next generation is focused on social impact, on impact investing and venture philanthropy,” says Carl Liederman an international lawyer, strategist and founder and CEO of advisory firm Liedership, who has also co-founded, run and been on the boards of several charities.

To be able to make and measure any impact, it is crucial to carry out thorough due diligence on non-profit schemes. 

Private banks should help clients more in this space, rather than just focusing on the emotional level and the feel good factor, he says. “This is a sophisticated audience and private banks should give their clients a toolbox of how to assess impact and what questions they should be asking.”

Many private banks use philanthropy to appeal to the next generation, to the sense of legacy, but are often unable to carry out a deep dive analysis. “If private banks use philanthropy as a vehicle to secure clients, they have also got to treat it as a product offering, and approach it in the same way they approach investments,” he says. 

Private banks need to really educate themselves and donors on what it takes to operate a charity, should assess the management team, number of staff, their experience and examine accounts with a fine toothcomb, he says. 

It is also important to learn to identify the “red flags” when carrying out due diligence on a charity, such as significant churn on the management side. 

Due diligence is critical also for a reputational risk. “If you are giving significant money to a charity, especially if you are naming a project after yourself, and there is a scandal, it’s your reputation that will be destroyed, as well as the charity’s,” says Mr Liederman. 

Many donors forget that for a charity there is a certain amount of administrative cost associated to deliver the programme. If donors give ‘restrictive’ money, which can be used on the implementation of the programme only, this puts a huge burden on the charity. 

Banks should develop in-house expertise to carry out due diligence and identify the best charity from the regulatory, legal, tax and structure perspective and be able to assess and measure the impact. Alternatively, they should have a good roster of general experts to consult, states Mr Liederman.

Working together

Another major trend is that of ‘collaborative’ philanthropy. This allows the sharing of best practice and the building of an effective common strategy or funding between various players including donors, private foundations, public charities and governments. Carrying out projects on an isolated basis can be exhausting and not sustainable. 

Programmes to bring together philanthropists for networking purposes have been developed by a number of banks, either in small groups of discussion or larger events. But much more can be done.  

“Private banks could have a wonderful role to play, if they were able to do ‘smart networking’, as they already have the data and the relationship with very wealthy people,” says an ex-employee of a global bank in the US, who was responsible for advising global families and ultra high net worth individuals. 

The ultra high net worth and the family office space is considerably fragmented. Contrary to popular belief, the rich do not know one other and would greatly benefit from connecting with other people sharing their same mission or set of values, having similar life experience, influence and level of wealth and being able to write similar cheque sizes, he says. 

“Those private banks starting to realise their biggest clients care about their legacy much more than achieving a couple of extra basis points on their investments will do really well,” says the source, claiming that all the clients of his team, advising on a few billion dollar of assets, were acquired through philanthropy. 

But internal resources dedicated to “pure philanthropy” are too limited, only a couple of people even in a major bank in the most philanthropic country in the world, such as the US, he warns. 

There are huge opportunities to bring new clients in, which banks are missing out on because of their “myopic view”, as financial advisers and people in the philanthropy department are judged quarterly on their financial results. However, relationships develop over years, he explains, and most of the ultra wealthy who used the bank’s philanthropy services have become full clients of the bank only years later. 

An innovative CEO at a private bank who can allocate, say, $50m to build a proper philanthropy team will win the game, he says. “In a world where all investment services are commoditised, banks have to figure out a way to differentiate themselves and I cannot think of a better way of doing that than touching somebody where their heart and legacy are.”