The groundswell of philanthropic giving provides new challenges for those providing advice, Simon Mumme reports.

The inherent goodwill underpinning phil­anthropic advice does not come without potential pitfalls. “We must understand clients’ objectives and not throw products at them,” Bruce Christie, a financial planner with Centric Wealth says.

“We’re selling advice, not products.”

Christie says that there is a possibility that some planners might promote philanthropic vehicles that benefit themselves. Some might be tempted to recommend setting up a Prescribed Private Fund (PPF), for example, when distribu­tions to a Perpetual or ANZ charitable trust or a community foundation might better suit the client’s circumstances.

Retaining an emphasis on client goals should prevent any manipulative activity, Stacey Martin, financial adviser with NAB private bank, counters. While providing advice on strategic giving through a PPF is ‘good’ business, since the original capital placed in a PPF can’t be withdrawn, it is “not about getting funds under management”.

The integrity and cost-effectiveness of the charities which will be receiving donations is also an issue to consider. Advisers should be aware of things such as the cost-ratio of a charity, a measure of its fiscal efficiency and exactly how many cents in each gifted dollar are actually put to social causes. Tim Hardy, philanthropy adviser with Enrich Australia, says his company has encountered some charities with “strange” or lax accounting practices.

However, some advisers might find that the time or resources required to properly analyse charities to this extent can be quite challenging. For example, NAB private bank cannot research charities, similar to the way it cannot research some investment options, such as property, Martin says. To gather this information on charities, advisers would need to access information provided by philanthropy consultants.

Options Matter

Another concern is the inherent risk of overkill, borne by the rapid emergence of philanthropic ad­vice.

“I don’t want to be seen as wanting my clients to give to charities,” Christie says.

“There’s a fine line between being public and potentially alienating people, because you seem a bit like a devotee.”

The solution, he says, is to inform new clients that phi­lanthropy is one component of his advice offering, and always optional.

Nevertheless, Christie always includes this option as a part of his advice. He feels that the spare wealth high net worth individuals continue to accrue will drive the current phase of philan­thropy further. Enduring community needs and government moves to make it financially easier to give money will precipitate more private donations, Christie says.

Charting the course

If the recommendation of setting up a PPF fits the client’s portfolio, these vehicles can of­fer enhanced philanthropic benefits. With their founding capital locked away, PPFs can weather economic downturns in which other donors, who have put some money aside for charities, find their gift money has dried up. Donations from PPFs also help to span the community-need shortfall left by the traditional government and charity sector mechanisms.

“There must be [donations] to substi­tute, otherwise we are going to create a bigger gap,” Christie says.

NAB’s Martin says that advice on strategic giving emerged with the advent of PPFs, which promoted the increased availability of philan­thropic information. “A lot of financial planners have started thinking about it,” she says.

And some advising groups are already providing their own training in philanthropy. Enrich Australia, for example, currently runs courses on methods of bringing strategic giving into values-based discus­sions with clients and on the range of philanthropic vehicles available.

If widely adopted throughout the industry, philanthropic advice could eventually evolve into a specialisation, with a professional body offering training and assessing development.

“The last thing you want is shonky advice because there hasn’t been a good representative body to provide training,” Christie says.

“But at the moment, you can’t sepa­rate one from the other.”

Martin observes that advisers working in this niche space are becoming increasingly attuned to the role that philanthropy can play in assisting clients achieve social goals.

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