Philanthropists will actively engage in charitable giving despite initial fears the recent Oxfam scandal would deter donations in the sector, say private bankers.
Research by Private Banker International (PBI) shows a strong intent by the industry to donate to charities in the hope of achieving social empowerment.
Was the Oxfam scandal just short-lived noise or will wealth managers change anything in the way they recommend charities to their clients?
An estimated $390bn was given to charities in 2016, representing a 2.7% increase since 2015, according to non-profit website Charity Navigator.
Research by Coutts Private Bank shows that 310 people and organisations in the UK donated more than £1m in 2017 compared to only 189 in 2007 when Coutts produced the first edition of its Million Pound Donors report.
In February 2018, it was reported that aid workers belonging to Oxfam- a global confederation of 19 charitable organisations that focuses on social empowerment- allegedly hired prostitutes during their time providing aid in the aftermath of Haiti’s 2011 earthquake.
Since then, charities have come under greater scrutiny amid concerns HNW individuals may be less inclined to invest in them.
However, it appears private bankers are confident the scandal will not reduce large-scale philanthropy.
Michael Maslinski, partner and strategic advisor at family office Stonehage Fleming was quoted in a Financial Times article in February as saying: “I am absolutely certain that when it comes to reviewing charitable donations, the monitoring criteria are bound to be strengthened. The headline of the FT article said the scandal would deter donors from investing in charities [due to Oxfam].”
Speaking to PBI, Maslinski comments: “The headline of the FT article was rather misleading so I followed it up with a letter. The headline of the article suggested it would deter people from giving to charities. That is not what it said in the article itself.”
He tells PBI: “In fact quite the reverse is the case. We see more and more evidence of wealthy families wanting to increase their commitment to philanthropy and particularly the younger generation and it is all linked to the increasing awareness people who have got large wealth need to use it not only to benefit themselves but benefit the society in which they live.”
In the letter to the FT he said: “Those allocating very large sums to philanthropy tend to divide their money between a small number of specific causes that are close to their hearts. They are more likely either to run their own philanthropic projects or to donate to smaller very focused charities, than to give large sums to the major international organisations currently in the spotlight.”
He adds in the letter: “Their [major charities’] global infrastructure enables them to respond quickly and on a large scale to problems and emergencies around the world, so while there may be an urgent need for some of them to reform, it is surely to be hoped their current difficulties will not do lasting damage. “
Maslinski tells PBI: “The issue, for our clients is that many of them are allocating pretty substantial sums to philanthropy, often tens of millions, sometimes hundreds of millions into causes that they have a particular interest.
“So there is a tendency for them to either set up charitable enterprises of their own or invest in smaller personally driven individually led charities where they really can see the difference and where they are engaging with the charity’s decision makers.”
According to him this means the donors have more direct contact with the charity’s decision makers and how the money is being spent, making them less vulnerable to an Oxfam type scandal.
This view is shared by Jeremy Knowland, Citi Private Bank’s managing director and global markets manager.
“We deal with UNHW clients. They have a minimum of liquidity of $25m. [They often] set up their own foundations to either directly impact an issue which is close or dear to the heart and that they would like to influence.”
He adds: “We have not seen that group [UNHW] of people step back and that could be because the clients that we deal with are frequently entrepreneurs. Often given that they have built their own wealth they give in quite a controlled manner.”
But he warns: “That might well change. But certainly we have not seen any move on that basis.”
He continues: “If you are a client and you have gone to the effort of setting up a foundation you already have a strong view of what you are trying to achieve. You have typically taken the time to educate yourself and to connect with a group of people who already are experts in that field in order to hopefully have the greatest impact with the pounds that they donate.”
Donations by foundations (including grants made by independent, community and operating foundations) accounted for 15% of all donations in 2016. A total of $59.3bn was donated by charitable foundations in 2016. This represents a 3.5% increase compared to the previous year.
The private bankers told PBI that while those who have set up foundations will still continue to donate to charities, there will be greater scrutiny into the governance of certain charities.
Maslinski comments: “It may be people who are giving to larger charities perhaps have assumed that they are run with proper governance and perhaps they are not going to make that assumption quite so much in the future as they have in the past.
“We look at corporate governance for all of our investments. Whenever we look at investing money we always have a mechanism for looking at these things and how this company is run, who is running it, what are their values.”
Knowland says: “I think for more general charitable giving, the role of getting independent advice from charity experts [for donors] looking at understanding the impact of what a single donor might do, would become higher up on their list versus where it has been in the past.”
But Tom Hall, UBS’s executive director for charities, disagrees. “The realistic thing is that strategic advice for philanthropy is not free. If you are giving £10 a month you probably do not want to pay £3 a month for somebody to tell you how to give it effectively. There is a price sensitivity to that.”
Although Hall thinks advice for general charity giving may not necessarily grow, he highlights while 90% of UBS’ clients are donating to charitable causes, only 20% of that giving was effective according to research carried out by the private bank in 2015.
But Alex Shaw, director at advisory firm Progeny Wealth, notes a shift towards more localised giving following the scandal.
“We’ve seen a shift in focus to more localised and domestic giving. This has been coming for some time as people began to think that as so many others would be donating to the big charities their money would be better spent more locally, on causes closer to their hearts.
He adds: “At Progeny for example we have just invested in the Leeds Community Foundation, a local organisation that invests in thousands of charity and voluntary groups that work tirelessly across the city to address local inequalities and help the community.
He continues: “Local philanthropic companies and HNW’s are able to come together, pool their knowledge of the area and bounce ideas off each other to ensure donations have the greatest impact across the city.”
Hall says ‘strategic philanthropy’ is the way forward to ensure philanthropic giving yields the maximum impact.
Hall says: “We believe there is an approach to philanthropy called strategic philanthropy, which is really about having the end in mind, and trying to think about what problem you are trying to solve and then figuring out which organisation or which charity [to invest in]. Sometimes it won’t even end up being a charity.”
UBS has a charitable arm called the Optimist Foundation. The private bank typically adds between 10-100% of co-funding every time one of its clients donates to a charity.
Hall comments: “The more strategic you are in your philanthropy, the more line of sight you have between the money you give and the outcomes like the children who are educated, the lives that are saved.
“I think where people feel they have been let down is where they invested in what they believe to be overall brands, and that brand has let them down.”
“Typically you don’t see that type of brand-based giving with significant amounts of money. They tend to be more strategic and they focus more on programming projects.”
“Having said that, there are times when wealthy individuals, not Oxfam per se, who have invested significant sums in organisations where there wouldn’t be ones that are recommended. Perhaps where there is a governance flag issue or even the way that they are set up is not something that we think is accountable enough.”
While private bankers do not expect a decline in charitable giving, the impact of the Oxfam scandal should not be understated. It begs for increased due diligence.
Hall demonstrates that philanthropy should be approached strategically. Where the focus is more on the outcome, the greater contact there is likely to be with the charity’s decision makers. This often gives full transparency into the success and hardships facing the charities.
The Oxfam affair gives the wealth management industry a chance to assess how donors can be more directly involved on the ground with developments of the charity they are donating to.