The reality of charity

Today’s philanthropists want to tackle big environmental and social issues. but Advisers to high-net-worth donors need to be prepared to hold their client’s hand on a long and sometimes unrewarding journey

it’s said Money can’t buy you happiness, but you can’t fault us for trying. An increasing number of high-net-worth individuals (HNWIs) are looking beyond accumulating things, to find happiness and meaning through their wealth in other ways. Giving back, either by donating to charities or setting up a foundation to do so in a more structured way, is becoming popular. 

Wealth management professionals in the Channel Islands may already have noticed an uptick in these sorts of conversations. Jersey alone holds £400bn in private assets and is home to more than 1,200 trusts and foundations (the two key structures used for philanthropy), according to research firm Gibson Strategy.

In Guernsey, while no central trusts register exists, making it difficult to estimate the correct number of trusts, 102 foundations are registered in the bailiwick. 

The introduction of a voluntary charities register in May 2018, which enables trusts and foundations to register as charities and become eligible for a number of tax exemptions and reliefs, has made Jersey a particularly attractive jurisdiction for potential philanthropists. Similarly, the Foundations Law introduced in 2013 in Guernsey has provided clear guidelines for foundations hoping to set up in the jurisdiction.

“The number of wealthy individuals giving philanthropically has increased, especially over the past 20 years,” says Tom Hall, Head of Philanthropy Services, UK, at UBS.

"For some, it might be about trying to create a family legacy so that their children and grandchildren can carry it on. Other people are driven by the same entrepreneurial attitude that helped them create their wealth, as well as a genuine desire to solve global health or environmental challenges of our time.

“In the past two or three years, we’ve especially seen interest in solving environmental issues, for instance, to do with climate change, wildlife and the oceans. Education and tackling issues like human trafficking and slavery are also prominent.”

There may be a couple of reasons for the increase in interest. Philanthropists are more visible than before. Two decades ago, it would have been typical to give quietly to a charity or donate to a hospital and have a wing named after you. Large donations are now given wider media coverage and this highlights giving as an option to other HNWIs. 

Take, for example, Bill Gates, whose Bill and Melinda Gates Foundation holds $50.7bn (£43.7bn), entrusted to it by Gates. The company has helped nearly wipe out polio. Such examples show the tangible, sometimes transformational, difference philanthropy can make.

Philanthropy is also presenting itself as an option for younger generations who might not want to join the family business, but still want to be involved in some way. 

“When you look at the family dynasty, it’s not always the people who generated the wealth who are the philanthropists,” says Sam Bird, Managing Director of Trust and Corporate Services at accountancy firm Moore Stephens in Guernsey. 

“Often, the money is being created from ongoing business activity, whether or not there’s input from the family. The next generation might be more interested in philanthropic giving than running the business. It doesn’t excite them; they want to give something back.” 

Managing expectations

For people who want to give back, the desire to do so will almost certainly come from a more intimate and personal space than their corporate interests. Rachel Harrington, Director of the Coutts Institute, believes that helping a client to explore the world of philanthropy requires “huge dollops of emotional intelligence”.

“Someone’s motivation to give will be intensely personal and nuanced,” she says. “Really try to figure out why they want to do it, because that will shape the questions around the potential beneficiaries [see box overleaf]. Encourage them to be honest. Some people are inclined to make giving almost a secondary career, being actively involved in the process, while other people might just be trying to get money out the door. It’s questions like these that are the successful building blocks to satisfactory giving.” 

Managing clients’ expectations – or helping them understand the realities of the situation – is key. Return on investment is far harder to measure when the profit is social change or defeating a disease. It’s important during these conversations to explain the true scale of the problem that someone’s invested in trying to fix. 

“I think it’s integral to the discussion,” says Harrington. “Ultimately, my job is to help the client create a strategy that’s an enjoyable and rewarding experience. It’s not so much about reining them in, but about helping them understand what some of the other realities might be and giving them the reassurance that it might not look perfect on day one, but given the time to develop, one day it might do.” 

The energy, enthusiasm and extraordinary way of thinking that entrepreneurs bring to their philanthropy can be transformational, Harrington adds. So it’s important such clients don’t lose heart over their giving. One way to avoid this is to introduce them to other clients who have already experienced that. 

High stakes?

Put like that, the role of wealth manager or a specialist tasked with advising someone on philanthropic giving sounds overwhelming. 

Not so, says Harrington. “Many [philanthropy advisers] have worked in the charity sector for a while. We’ve lived and breathed it. But you don’t have to be an expert in everything. Part of my job is knowing who can help, who to talk to, or networks where your clients may be able to meet with peers, talk to people who’ve been there, done that and bought the T-shirt.”

If the social or environmental problem concerned poses a seemingly overwhelming challenge, and the road to a solution is long, there’s a risk of losing money without making a tangible impact. 

Bird believes that objectives and conventional corporate governance can help to mitigate that risk. “It’s about checking that philanthropic objectives remain on course,” he explains. “Over-ambitious giving can become a bit of a mess very quickly. I would say that risk mitigation is about the structure, the governance of that structure, ensuring that you’re making a business model and that it’s well-thought out, well-controlled and professionally advised.” 

He recommends the foundation model for giving because of the degree of control it affords the philanthropist. 

As for wealth managers, Bird says the philanthropically inclined should be treated like any other client. “We are a regulated business, so we’d have to follow our handbook. We have to be comfortable about the source of wealth and what clients expect about what the underlying activities would be, by activity, asset class and jurisdiction. 

“We’re doing everything we would do with a corporate client. For us, this is another client, just with a different strategic objective.”

In the world of philanthropy, money really can make all the difference, and the advisers involved in facilitating that process are in the privileged position of helping to make that happen. 
Encouragement, with a dash of realism, can help inspire and direct the enthusiasm of the ultra-wealthy and create meaningful change in the world.