The role of advisors in philanthropy

There is a seismic shift underway in the landscape of European philanthropy. Six out of ten of Europe’s most trusted advisors believe that philanthropy will become increasingly important over the next five years, to the point where it will become a core service they offer to wealthy clients.

The increase in philanthropic activity is beginning to be better documented in both the United Kingdom and Continental Europe. This is one of the factors that have led to an increase in levels of awareness of the meaning of philanthropy, as well as to an increase in demand for professional advice and services. Lawyers, bankers, financial advisors, trustees and specialised consultants are now becoming part of a network dedicated to setting up personal philanthropic vehicles for individuals or families. (See Figure 1)

This article reports on highlights from a recent research study that offers a unique insight into the changing face of European philanthropy. Wise – philanthropy advisors (Switzerland), New Philanthropy Capital (UK), and the Bertelsmann Stiftung (Germany) commissioned Scorpio Partnership to undertake research focused on the role of wealth advisors in offering philanthropy services to high-net-worth (HNW) clients. Interviews performed across Europe during the summer of 2008 included 100 private client advisors. The new study follows research commissioned in June 2007 to ascertain the opinions of ultra-high-net-worth individuals – 90 per cent of whom recognised the need for expert advice on philanthropy, but did not believe that traditional wealth advisors were meeting that need. This research suggests there was a large gap in the provision of advice at that time. The question that must now be asked is how to best proceed?

Philanthropy as core service in the next five years

Philanthropy is increasingly playing a key role in the services offered by specialist wealth advisors. Those interviewed gave philanthropy an average rating of 3.2 out of 5, in terms of importance to their business. 100 per cent of multi-family offices (MFOs) interviewed believe that philanthropy will be core to their business by 2013.

In fact, there is significant evidence of growing client demand for philanthropy services in Europe: 63 per cent of respondents receive more requests now than two years ago, with most receiving between one and five requests monthly. Naturally, this demand will be a driver of growth in philanthropy services. According to 71 per cent of participants, client demand is the principal motivation for implementing a philanthropic service line.

For the ‘early bird’ advisors, there are huge potential benefits if they have explicitly identified this gap in the market. These benefits are not just limited to increasing revenues (see Figure 2), but also towards intensifying client relationships over the long term with the additional possibility of further client referrals. They also support family governance and joint values within a family structure.

Private client demand is yet unmet

There is a perception among HNW individuals that traditional wealth advisors, including trustees, are not able to adequately respond to the HNW individual’s philanthropic needs. Most advisors taking part in the above-mentioned research direct their services towards the early part of the giving process, with particular focus on the structuring of a ‘giving vehicle’ and the advice on tax implications. However, this offering is not sufficient in today’s world, as practical experience is vital in this area. As one German multi-family office stated: ‘The families are not interested in being offered a second-rate service and will get very annoyed if the offer is sub-par. The advisors also need to understand that it will take nearly four years to build a strong [philanthropy] team and offering. Every situation and aim is different and the only way to offer a quality service is through experience.’

Key roles of external advisors

As one Benelux private banker observed: ‘I don’t want to do everything myself. This is a service for clients who want to give; it is not a profit centre in advice.’ Advisors and their clients can take advantage of external experts present in the market. These include philanthropy project specialists that have the resources and expertise to focus on the more strategic matters relating to the selection of an introduction to causes, as well as the ongoing monitoring and assessment of philanthropy projects.

Increasing awareness levels

Regrettably, in spite of the increasing range of philanthropic services on offer, many potential donors remain unaware of these, mainly due to the lack of proactive marketing by advisors. In addition, the majority of wealth advisors say that they are not adequately trained to discuss philanthropy with their clients and hence offer philanthropic advice on an ad-hoc and reactive basis. As a result, advisors are missing out on the opportunity to meet their clients’ growing philanthropic needs and miss the opportunity to proactively engage their clients in the field of philanthropy.

Interestingly, while larger private banks at the time of the survey tend to have the most structured internal marketing programmes for their philanthropy services, only 40 per cent of respondents feel their front-line private banking teams are well-trained in the field of philanthropy. 30 per cent think they are only somewhat trained. This compares with 60 per cent to 80 per cent of lawyers, accountants and multi-family offices who feel their teams are well-trained in this area.

This research has pinpointed an urgent need amongst wealth advisors for better training, more pro-active marketing and an open architecture to include external expertise. The use of a broad range of third-party expertise means that advisors need not provide end-to-end philanthropic solutions themselves.

The future

As in America, many wealthy European individuals are beginning to take their philanthropy as seriously as their businesses, and the growing profile of philanthropy in Europe presents exciting opportunities for all types of advisors: opportunities they cannot afford to ignore.

This trend will become increasingly important over the next five years, fuelled by a mixture of rising wealth, fiscal change and greater social conscience: trends that are almost certain to continue. Some private banks and multi-family offices are already leading the way in this field, offering a broad range of services to wealthy clients interested in philanthropy. But the majority is still missing the opportunity to fulfil clients’ needs.

There are many ‘gatekeepers’, such as trustees, lawyers, tax advisors, private bankers or asset managers, that might have the opportunity to proactively approach HNW individuals on the topic of philanthropy. Ideally, an advisor can take the lead to gradually introduce its services in philanthropy to its core client group in addition to the other services it provides. Introducing the discussion at an early stage helps to raise awareness of the possibilities to engage in philanthropy.

Apparently, more people do think about charitable giving than one would expect. Many have their individual mindset towards it. Some even possess their own donation habit and a strong commitment to giving. Among these, many have a strategic giving plan or work closely with an existing charity, or they already have their personal charity. Others again are very thankful to discuss the basics of the subject in an informal environment and are keen to learn more about philanthropy and their possibilities to engage in it.

In practice

In a specific case, a young entrepreneur was introduced to the concept of charitable giving three years ago during a regular meeting with his trustees and a financial advisor. Besides the usual agenda, the philanthropy topic was raised by the trustees and set aside by the settlor with a disapproving smile.

For the trustees, this raised the question of whether to try another approach to address the subject of giving or to leave it for good – bearing in mind that some people have had painful experiences with charities and giving in general. In this particular case, the philanthropic question became kind of ‘compulsory’ during the quarterly meetings and, slowly, a shift in the mindset of the entrepreneur was noticeable. The change was, in fact, triggered during the estate-planning discussions as to whom the valuable business was to be left should he die. The client started to establish a good general philanthropic understanding, which led to vivid discussions with the whole team – trustees, protector, spouse, financial advisors and business partners. The most difficult discussions were about finding a suitable cause to support, and the entrepreneur and his wife requested a large number of articles and books on family philanthropy, strategic giving and project opportunities to read before the next meeting.

During this phase of intense exchange the client became interested in the subject of social entrepreneurship and, at a later meeting, he declared that he wished to establish his own charity.

But the process of becoming really passionate about a cause can sometimes change course, and one should allow sufficient time to be sure about one’s true future philanthropic commitment. In this case, our founder started with the entrepreneurial idea to educate disadvantaged adolescents and reintegrate them into society and business life. Then, in one of the following meetings’ the theme of starving children suddenly appeared. This was great as everything seemed to start all over again, but the discussions were now at another, higher level and extremely fruitful for all those involved.

Defining one’s own charitable way, initially and time after time, is an interesting long-term learning process. Questions such as: ‘What am I really passionate about?’, ‘What are my priorities in life?’, ‘Where can I help to create an impact?’ are key. It sometimes takes years to answer them in a clear and determined way and it may take months to properly verify and define a thought-through cause of giving or a clear-cut objective for a charity. In a wider context it is sort of a ‘coaching’ on an individual or family level. It can involve jointly reading literature, establishing guidelines, asking crucial questions, conducting brainstorming sessions, discussing sample projects and bringing future philanthropists together with other network partners according to their interests. Depending on the causes to be supported, it can also be advisable to go on a field trip to a developing country to explore how different projects are actually set up and run in real life. This is a colourful learning experience leaving a deep impression.

In this specific case, the entrepreneur and his wife wished to increasingly dedicate time towards philanthropy and their own charity. It took another couple of months to agree upon the final cause. The founder finally came to the conclusion to concentrate on ‘children and their education’ as the objective of his charitable foundation. His idea was to help disadvantaged young people and reintegrate them into business life and society within his own business corporation training programme, as part of its ‘Corporate Social Responsibility’ scheme.

For the founder, the idea of philanthropic engagement has finally transformed into a real, well-thought-through and passionate cause. His personal charity, a Swiss registered charitable foundation, is now set up and he is looking forward to slowly changing his business life towards a philanthropic one.