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March 15, 2019

Giving the Givers a hand: Why private banks need to do more to help philanthropists

By Oliver Williams

Private banks are not doing enough to help clients that are interested in philanthropy, experts say. Oliver Williams finds out what they should be doing to help donors donate.

Philanthropy is not what it was. Today’s donors are results driven and involved like never before. And, if HNWIs cannot get what they want from charity, they will not bother donating at all.

The Modern Philanthropist

“People spend their money in the same way they make it,” Joanna Walker, head of private clients at CAF Philanthropy, tells Private Banker International. CAF (Charities Aid Foundation) provides various services to UK and international charities. “People who make their own wealth think about it very differently… they think about it in an entrepreneurial way”.

“The days of ‘chequebook giving’ are over,” says Dave Hillyard, philanthropy and partnerships director at Oxfam. Today’s entrepreneur-styled philanthropy is hands-on, he says: “It’s clear that donors want to give more than just their money. They are also keen to invest time and provide their own expertise.”

Like any businesses-owner, today’s donor also wants results, and preferably within their own lifetime. In June 2017, Jeff Bezos, the world’s richest person, announced that he would be donating to charities focused on short-term fixes. Writing on Twitter he said: “I’m thinking I want much of my philanthropic activity to be helping people in the here and now — short term — at the intersection of urgent need and lasting impact”.

Bezos follows the example set by his predecessor in the world-richest ranking, Bill Gates. The Bill & Melinda Gates Foundation focuses its efforts on eradicating certain diseases – such as polio – within the lifetime of the organisation. This lifetime is determined by the longevity of its founders. Gates has said the trust will, “spend all of its resources within 20 years after Bill’s and Melinda’s deaths”.

When trusts like these die, they will be replaced by young philanthropists opening foundations with new ideas, says Walker. “We are seeing more inheritance of wealth among the millennial generation. They think about their money in a very different way… their values need to be imbedded in every part of their lives. They want to be more actively engaged.”

The rise of impact and ESG (environmental, social and governance) investing is largely a millennial-driven trend, studies suggest. The expectation is this will translate to philanthropy, especially when the windfall of inheritance starts to be passed onto this generation.

Jeff Bezos is focusing his philanthropy on helping homeless families


Disappointing donations

Except the amount of money donated by the wealthiest appears to be falling not rising. By dividing the total donations of billionaires by their net worth, price comparison website Compare The Market found many donated less as a percentage of their wealth than the average non-billionaire. The average person gives around 2.2% of their lifetime earnings to charity according to the study. Billionaires, including Mark Zuckerberg and even Jeff Bezos, haven given less.

In the US the ultra wealthy donated an average of 1.2% of their wealth to charity according to Bridgespan Group, which advises charities and individuals. And in the UK, HNWIs give £2bn out of the £11bn of all public donations, says the Beacon Collaborative, a group that ‘celebrates philanthropy in the UK’.

Matthew Bowcock CBE, founder of the Beacon Collaborative, thinks wealth managers and private banks should be doing more. He says firms need to “move from philanthropy advice being referred to as add-on to something they see as a fundamental part of their relationship.

“We did a piece of research in which we identified 23 different types of advisory services [required for organised philanthropy]. Most people who say they provide philanthropy services provide fewer than five of these.”

The Beacon Collaborative aims to setup an accreditation of advisors who provide philanthropic services in order to better serve individuals with philanthropic motives.

ESG (environmental, social and governance) investing is proving a popular alternative among younger investors


Investment rules apply

Susan Wolf Ditkoff, a partner and co-head of Bridgespan’s Philanthropy Practice, thinks a better provision of philanthropic services will help strengthen relationships between advisors and their clients.

“Firstly, it’s very important that anyone providing services has a trust relationship with the family or individual,” Ditkoff tells PBI. “They need to know why is philanthropy important to them and what are their goals.

“Once they know that, banks can begin to build more profound relationships with clients. It becomes not only about portfolio returns.”

Building relationships that go beyond investment returns can also help with succession planning between generations. A report by Wells Fargo Private Bank in January showed that 90% of those surveyed say the most important thing they will inherit from their parents is their values and not their wealth.

But the work does not stop there, Ditkoff maintains. Once that trust is built, advisors need to provide a steady flow of philanthropic opportunities that match with their clients’ goals.

“Maybe they love social entrepreneurship or the environment; whatever it is the advisors must have enough deals and knowledge”, says Ditkoff.

Of all UK donations in 2017, £1.35bn went towards overseas causes according to the Coutts Million Pound Donors Report


Celebrating Giving

The philanthropic services of private banks should not be limited to the practical, argues Lenka Setkova, executive director and a philanthropy adviser at Coutts Institute. The British private bank aims to inspire would-be philanthropists with events and talks.

“We host events where we bring like-minded clients who share similar passions and interests, be they around the arts or tackling re-offending. So we bring clients to hear from really interesting philanthropists and hear from their peers,” Setkova tells PBI.

It is networking events like these that help inspire other philanthropists argues Bowcock: “We need funders networks where people get to meet other donors. We need to form these groups so people can find opportunities.”

Oxfam’s Hillyard thinks these network events will increase this year: “In 2019, we expect to see a growing demand for forums which allow people to discuss their experiences of giving and help them to think more strategically about where and how to donate to generate the biggest impact.”

These kinds of events can also serve to celebrate philanthropy, something that Bowcock believes is not done enough: “I think there are many philanthropists who don’t want to have their name up. Therefore we want to tell stories about what can be achieved.

Through its Million Pound Donors Report: Celebrating and inspiring philanthropy, Coutts has told the stories of a number of prominent philanthropists. Among them Lloyd Dorfman CBE, an entrepreneur who takes a ‘hands-on’ role with his donations. “I have led three commercial companies that have become successful businesses, and feel I can share that experience by serving on the boards of many of the charities I support,” Dorfman wrote in the report.

Why philanthropy is so important today

The services that private banks and wealth managers supply to philanthropists are only half the solution. Research from the Beacon Collaborative shows that around nine out of 10 wealthy people do not give in any meaningful way.

For those nine, the question Bowcock asks is: “How do we find out what makes them resistant to giving?” In order to answer his own question, the Beacon Collaborative is currently conducting research on the non-givers.

This is an area where private banks and wealth managers can assist. Rather than emphasise the ‘add-on’ services they currently provide, these firms should be more proactive on the topic. Donations should be given the same value as investments, especially if, as Ditkoff believes, it helps cement relationships between advisor and clients.

Philanthropic donations might be stemmed by economic uncertainty, but that should not hinder the cause. Political volatility and the rise of hard-left-wing political parties throughout Europe have been driven in part by rising inequality. Research from Oxfam in January showed billionaires increased their wealth by 12% in 2018 while the poorest half of the world’s population had theirs fall by 11%. A rise in donations from HNWIs can go a long way to help close this gap.

“There’s economic uncertainty and this effects everyone. We hear that a lot,” says Ditkoff. “That said, we also hear the increasing sense of people feeling more viscerally the inequalities that have been around a long time.”

The role of private banks and wealth managers in these causes is crucial. And while modern philanthropists might be front of mind, they should bear in mind the words of a pioneer in this field, Andrew Carnegie, who once said, “it is harder to give money away well than to make it.”

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