Private banks professionalise philanthropy services

Wealth managers stress the old amateurish approach to philanthropic advisory services is no longer adequate for wealthy family clients.

Private banks are increasingly seeing philanthropy as a way to encourage deeper engagement with wealthy family investors, particularly when dealing with the hard-to-please ‘next generation’ of clients.

According to US wealth manager Northern Trust, millennials are on the cusp of a $31tn wealth transfer, with this cohort thinking very differently than their parents about how financial resources should be used to affect positive wealth outcomes.

“They want to be good stewards of their family’s wealth, but their philanthropic interests may differ from their parents or grandparents, and that can create tension,” says Marguerite Griffin, director of philanthropic advisory services for Northern Trust Wealth Management.

“Our discussions with families increasingly focus on this rising gen, who want to feel ownership of their wealth, rather than being owned by it,” she says. “When I started the practice 20 years ago, the idea of offering philanthropic advisory services was relatively new and untested.” Now, she claims, philanthropy has become part of a “holistic advice model”.

Philanthropy as a business

Wealth managers are keen to stress that the old amateurish approach to these softer skills is no longer adequate for wealthy family clients. “To make impact, you really need to frame and focus your philanthropy and run it as a business,” says Karen Kardos, head of philanthropic advisory at Citi Private Bank.

She acknowledges that it can be tricky to even begin a conversation about these topics, when bankers are typically rewarded by products sold and assets under management rather than the success of value-based projects.

“Many bankers realise that philanthropy is important to clients and having a resource that can guide families in their philanthropic journey is a qualitative measure that cannot be captured with a KPI,” says Ms Kardos. “But some bankers are not always sure how to begin the discussion, or are unsure of what they want to get out of the discussion, so they don’t bring it up.”

Part of her role at Citi involves helping educate bankers, giving them confidence to engage in preliminary discussions with clients, before bringing in additional resources. “Relationships are critical in private banking. Having a deep understanding of your client’s goals will help set the bankers on the right path in terms of supporting them through their philanthropic endeavours,” she says.

Mentality shift

Changing the mentality of private bankers – typically motivated by financial incentives –is key to the philanthropic revolution, believe senior bankers. “The best private bankers always think about their clients’ holistic situations and how best to advise them,” says Paul Whelan, director of wealth management at the UK branch of Swiss bank Mirabaud & Cie.

“Long term, this position as a trusted adviser will help to distinguish those bankers from the broader industry. While this may not form part of their bank’s KPIs, this should only be part of what a banker considers when advising clients.”

Delving more deeply into a client’s philanthropic priorities can also help a bank paint a more detailed picture of investment needs, believes Mr Whelan.

“Understanding a client’s views on philanthropy, including its importance and approach to be taken, is a critical piece of the overall jigsaw when proposing approaches which align to the needs and ambitions of clients,” he says. “This is especially important when discussing with a broader family who may have very different priorities and social causes which they are passionate about.”

As well as dealing with all members of the client family, it is important to bring other advisers into the discussion, including lawyers and accountants. In this way, believes Mr Whelan, the philanthropy discussion becomes a valuable template for a broader discourse on the client’s ambitions, values and world view.

“Understanding the social causes which a private bank’s client base are passionate about can help them to support the building of impact investment products which deliver the most overall value – both relating to returns and the underlying cause.”

One of the major concepts which Mirabaud is working on with UK clients, for instance, is the expansion of donor-advised funds (DAFs), to establish greater control of the use of funds, rather than simply donating to a worthy cause. This also helps avoid the substantial cost of establishing and running specific charities or companies.

“DAFs have the ability to invest which means that clients can establish an appropriate approach with their private bank, often with the aim of supporting long term growth,” he says.

Many private bank clients set up a DAF under their family name. “This helps involve their children in giving decisions, so the next generation can learn and become committed to making a difference,” says John Canady, CEO of National Philanthropic Trust UK. “Donor-advised funds enable generous individuals to achieve greater impact with an efficient structure for their charitable giving.”

There are a number of approaches which Mr Canady looks at for wealthy families. “Our clients want to reduce poverty, protect the environment, improve education and fund cutting-edge research, among other things,” he says.

Sustainable Development Goals

“When assets have been set aside for charity as an endowment, increasingly donors want the investment of those assets to align with their broader values and philanthropic goal. This ranges from gender-lens investing to green bonds and investments focused on supporting the UN’s Sustainable Development Goals,” says Mr Canady.

Donors can also align the investment of their philanthropic capital with religious principles. Some of his clients from the Middle East, for instance, recommend sharia-friendly investments for assets that have been set aside as an endowment for future grant-making.

At Northern Trust, Ms Griffin believes younger generations tend to be driven by impact metrics, rather than social status or peer expectations when it comes to philanthropy. “They want to understand what goals will be achieved and how their gifts of time and financial resources will be used to create lasting change, whether it concerns civil rights, social justice, the environment and/or basic human needs.”

She mentioned one family client she deals with, where one of their children is interested in helping fund the work of legal aid organisations. “Rather than giving to these organisations on an individual basis, they are working to create a forum where the organisations’ leaders can get together to discuss high-impact solutions and network with service providers to support the larger ecosystem,” she says.

In another case, a family decided to “spend down” their foundation’s assets over 10 years to provide more immediate help to people experiencing homelessness. “They recognised the urgency of the community’s needs and adjusted their giving accordingly,” says Ms Griffin.

Legacy journey

For many families, agree bankers, this philanthropic journey can be a vital part of leaving a family legacy. “Bill Gates will of course be remembered as being a co-founder and architect of the success of Microsoft, one of the world’s most valuable companies,” suggests Mirabaud’s Mr Whelan. “However, through the Bill & Melinda Gates Foundation he will also be remembered for the great progress he has enabled in targeted areas, such as polio.”

Before starting or further shaping philanthropic endeavours, it is vital to hold “extended family identity-led conversations”, says Zita Verbényi, founder of The Legacy Atelier. “This may also increase family anchoring, engagement, alignment and inspiration in the long-run.”

Wealthy families, she believes, have much more control of their family legacy and destiny than they actually realise. “Many don’t realise that family legacy is at their fingertips, and it relates to everyone within the family, the scientists, artists as well as the family members who are more involved in the various family business, office, foundation, and other activities,” she says.

“It’s the very family aspect that they all share and can have a say about. As Hannah Rothschild mentioned in an interview several years ago: of course, banking is what the Rothschild family is most known for, however that’s not necessarily what they are most proud of. The pride relates more to philanthropic activities.”

Priorities for this legacy are gradually changing. One major emerging field, according to Ms Verbényi, involves enhancing access to, preserving and advancing knowledge in the GLAM (galleries, libraries, archives and museums) sector. “It’s a field rarely talked about with regards to families of wealth, except for their donor status, patronage, collections, or investments,” she says.

Establishing philanthropic priorities, she adds, can help define the identity and public profile which a family is comfortable living with. Not only will it help current generations make sense of their business and wealth, but it will also allow them to leave their own unique mark on a multi-generational history.