Going to the bank for advice on giving

Listen to this article

00:00
00:00

Once upon a time, the family offices of private banks were quiet corners of the business where staff would give out tax and legal advice, help set up charitable trusts or draw up wills. Today, as wealthy individuals start to look for more say in exactly how their donations are being used, executives working in the family office are growing busier – and more creative.

They are beginning to function almost as brokers for philanthropic ventures, in much the same way that they have traditionally been the brokers for ventures aimed at making a profit.

With the dramatic rise in charitable contributions – inspired by recent disasters and global crises, as well as by philanthropic role models such as Bill and Melinda Gates and Warren Buffett – wealthy families and individuals are giving more away. But the way of giving is changing as a new generation of donors comes into their wealth.

Unlike their predecessors, the latest generation of high net worth individuals does not simply want to pass on all their money to their children. Increasingly, other donors are giving their cash away during their lifetimes rather than making bequests that will only come into effect after their deaths.

“They have, as a group, a radically different view, generally, on wealth and money than their parents,” says Susan Hartley, a managing director at Deutsche Bank Private Wealth Management. “They want to enjoy their wealth and be much more involved in the process.”

They also want to be involved in the giving process – and sometimes that means getting their hands dirty. A study published last month found a correlation between those writing the biggest cheques and the volunteers that were most generous with their time.

The survey – conducted by the Center on Philanthropy at Indiana University for Bank of America – found that respondents who volunteered one to 50 hours a year gave an average of $31,092. Those dedicating 51 to 100 hours gave $92,717 and those volunteering for more than 201 hours gave $132,086.

Even when the donation is in cash, individuals and families want to maximise the impact of their gift. Many want to take a far more hands-on approach to giving by establishing long-term relationships with their beneficiaries or taking a place on the board.

Moreover, the new philanthropists are often former businesspeople who are keen to see the skills and strategies of the private sector brought to bear on voluntary organisations. Many are turning to venture philanthropy – in which philanthropists work with the management to enhance an organisation’s effectiveness – and socially responsible investment.

“We’ve seen a dramatic increase in the interest of living donors to engage deeply with their philanthropy,” says Mary Duke, head of wealth advisory services, Americas, at HSBC Private Bank. “They want to be involved in decisions about how and where it’s spent and sometimes they want to jump in the trench, roll up their sleeves and dig the well, too.”

As a result, financial institutions are starting to expand the range of services they offer the wealthy and become more active in the process of finding ways for clients to donate their money more efficiently.

The traditional services are still part of the package, including tax and legal advice as well as the investment management of endowments and other long-term gifts. Through the family office, banks give clients assistance with establishing vehicles such as trusts, foundations and donor-advised funds, to which clients can contribute, reap the tax benefits and make direct grants as and when they choose.

However, these services are rapidly becoming merely the support systems behind a broader interpretation of what constitutes donor advice. “The tax side of it is commodity-like, and we’ve done it for years through our trust department,” says Ed Orazem, director of family office services for Citigroup. “The investment of the assets is also rapidly becoming commoditised and we do that too – but that’s not what energises a client.”

The Bank of America report provides further evidence of this. More than half the respondents (56.1 per cent) said their giving would stay the same even if the estate tax were repealed and 51.7 per cent said their giving would stay the same even if there were no income tax deductions for gifts to charity.

For banks, this all points to new opportunities in the kind of services they can offer clients. “What we’re going to see is one or two institutions who will get their offering together in this area and once one or two have done it, the rest will follow,” says Michael Maslinski, a UK-based consultant who works with the banking sector. “And they’re going to have to get a lot more creative.”

For some institutions, philanthropy services remain firmly within the family office fold. In HSBC Private Bank’s Legacy programme, for example, philanthropy is part of a broader programme that is designed to teach the children of high net worth clients how to manage wealth.

“Certainly if a client were to come to us just for philanthropy we’d be delighted to work with them,” says Ms Duke. “But it’s not often a standalone – it’s part of an integrated solution.”

Similarly, at Deutsche Bank, the Wealth With Responsibility programme includes advice and services related to issues such as family governance, raising children among wealth, and art acquisition, as well as strategic philanthropy, socially responsible investing and grant making.

By contrast, UBS, the Swiss bank, has a separate team whose titles refer to UBS Philanthropy Services rather than simply “wealth management”. UBS is among those taking a more pro-active role in the management of donors’ funds.

“We’ve turned the traditional approach on its head and we now start by asking clients what is it that they really want to achieve with philanthropy,” says Maximilian Martin, global head of UBS Philanthropy Services. “So first we work with the client to work out the core of the philanthropic vision.”

UBS, he explains, will hold meetings with families and other stakeholders to identify the issues about which they are most passionate and the geographical regions to which they have a connection.

It looks at the risk appetite of its donors and how willing they are to support social entrepreneurs and early-stage ventures rather than established charities.

It also ascertains the extent to which they want to be associated publicly with their philanthropic activities.

“Then we develop an action plan, looking at how others that focus on similar issues are approaching this, and where the client could really make a difference,” says Martin. The bank also holds annual events around the world where, through panels and workshops, clients can exchange ideas with specialists and philanthropists.

At Coutts, the UK-based private banking division of Royal Bank of Scotland, a small team dedicated to philanthropy services works with bankers across the institution on everything from helping clients set up appropriate giving vehicles to researching causes, selecting charities and getting feedback on the projects. Coutts, too, organises regular roundtable discussion events where clients can meet philanthropy professionals.

Among the services offered by Pictet & Cie, the Swiss private bank, is assistance to clients in identifying appropriate partnerships among non-profit organisations and checking on those organisations to ensure they are being well managed.

It is this ability to make connections between donors, charities and philanthropy professionals that, say the banks, is one of the most important aspects of what they now offer.

At Citigroup, the family office group is even starting to join the dots between some of the donors, creating what Mr Orazem calls “a philanthropic network” of the biggest philanthropists among its clients. “We think this will lead over time to co-philanthropy, joint investing and sharing of ideas between different clients,” says Mr Orazem.

The question for financial institutions is how far will they go in their role as brokers, making matches between those giving and their potential beneficiaries. This is happening informally already, says Mr Maslinski. “There is a role they’re playing as a sort of focal point for the networking,” he says. “And all these things are likely to formalise in the future.”

Martin argues that, for UBS, the role will remain one of a facilitator, helping clients make a connection with organisations in their field of interest rather than suggesting the specific charity or fund to which they should donate.

“Advisory work is mainly about providing a structural solution,” he says. “Our focus is on finding the right processes and structures and bringing the individuals in contact with organisations that are leaders in the field in which they’re interested. We can’t provide all the answers but we can enable [donors] to ask the right questions.”

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.