Big losses from financial markets underline the value of philanthropic knowledge to broadening planners’ advice offerings, writes Simon Mumme.
Conversations about investment losses can only last so long. Many planners are understandably searching for a different discussion, and philanthropy is one that can extend client relationships beyond the realm of expected – and unexpected – returns.
For many advisers, the flood of client donations towards relief efforts for people affected by the Victorian bushfires brought home the value of knowledge about strategic giving and philanthropic vehicles.
“People were giving in lots of different ways, and advisers with a planned response to this were able to have a far more significant impact, as donated money was used more wisely,” says Christopher Thorn, executive director of philanthropic services at Goldman Sachs JBWere (GSJBW).
These planners were able to discuss a range of giving options with clients: whether to donate immediately; channel money to an appropriate foundation; or set up another foundation to provide strategic grants to future bushfire relief efforts or to ongoing community work to help those affected by the disaster.
“It was a case where planners who were engaged with philanthropy could add value through making a thoughtful response,” Thorn says.
But in between such trigger events for giving, discussions about philanthropy and personal legacy can enrich client relationships – particularly in a bear market, when bigger issues overshadow the hunger for higher returns, and some clients may be thinking more philosophically about their role in the community.
“If you can bring something that’s new and different, and not related to investment markets, it provides another value-add,” Thorn says.
“If planners know their clients are interested in philanthropy and can help them structure their affairs and think about tax in a different way it gives them a way of re-engaging their client in a difficult time.”
Due to the long-term nature of philanthropic vehicles – it is said in philanthropic services circles that the average life of an investment portfolio is five years and the average life of a philanthropic vehicle is 37 years – advisers in this space can be provided with a source of sticky business, helping them retain clients while also enriching the relationship.
While prescribed private funds (PPFs) are often the vehicles of choice among high-net-worth donors or people receiving a sudden influx of capital through the sale of a business, inheritance or divorce, an “untapped market” exists among clients whose annual salaries stand between $100,000 and $500,000, Thorn says.
These people can donate to a community or charitable foundation, or set up a sub-fund within a foundation, which can be done with $20,000 or less, depending on the foundation chosen.
“If their income is still more than they need, and they have philanthropic motives, they will continue to give at a solid rate,” Thorn says.
There is no minimum amount that donors must commit to a community foundation; what they give is purely up to them, and the foundations usually have existing sub-funds focused on specific projects.
For example, the Sydney Community Foundation (SCF) runs the Sydney Women’s Fund, an endowment dedicated to projects that aim to increase the wellbeing of girls and women in Sydney. GSJBW also runs a charitable endowment fund within which donors can establish an account and make grants from the investment earnings of the endowed capital.
“We’re building up a permanent endowment for Sydney,” says Jane Kenny, head of the SCF.
“When all the current donors are gone, it will still be there.”
Because most serious client donors focus on particular causes or projects, and aim to engage their children in their philanthropy, advisers should be aware of the vehicles that suit these themes. Advisers who aren’t well versed about strategic philanthropy are sometimes reluctant to refer clients to colleagues with knowledge of the area, as they fear they will lose their client altogether.
“The problem with a competitive market is that if you’re seen to not know something and pass the client off to someone who does, the planner might lose that client,” Thorn says.
This risk of losing business indicates that philanthropy has become a part of many advisers’ offerings. Giving involves clients and their money, and hence the business of financial advisers. There is suspicion in the planning industry that some recent advocates of philanthropic advice see it purely as another line of business, rather than a value-add that, while also garnering sticky income, ultimately enriches clients’ lives and the wellbeing of the community.
“You have to be careful in this space,” Thorn says.
“If you’re doing it for business and don’t have empathy for what they’re trying to achieve, clients sniff that out. You have to be doing it for the right reasons.”