The outpouring of donations after the earthquake in Haiti was clear evidence that Americans have not lost their philanthropic inclinations, in spite of the recession. But even the Bill & Melinda Gates Foundation, which now has an endowment of around $33.9 billion, has seen its assets decline from a record high of almost $39 billion at the end of 2007. Many of the wealthiest Americans have either reduced their giving or revamped their approach to philanthropy in the past year. For most of these people, the aim is to give more strategically. Their efforts to measure the effectiveness of their philanthropy present an opportunity for wealth managers to offer added services, not just help clients set up charitable vehicles but also determine who the recipients should be and how to set up a philanthropic strategy that has as much impact as possible.
Philanthropic advisory services are an important part of the client service menu at many multifamily offices, private banks and wealth advisory firms. But there is also more detailed service that helps the client figure out what charitable causes would enhance his own life, then helps him find the best candidates for funding. "With the tools we have, wealth managers could be doing a lot better," says Rob Hanna, who runs the philanthropic consulting firms Social Wealth Partners and Social Wealth Investment Management. "There is a lot of opportunity to use the same skills we use for helping clients be successful and realistic in their investments, but giving them ideas about the best non-profits."
Bruce Bickel, senior vice president of PNC Wealth Management and head of private foundation management service, says ultra-wealthy philanthropists are becoming more mission-driven and governed less by emotion. What that means in practice is that they are less likely to write checks upon request, choosing instead to concentrate on specific charitable goals. Part of the reason is that people are becoming philanthropic at a younger age than they did a few decades ago, says Cary Grace, national philanthropic management executive for Bank of America Merrill Lynch. "With baby boomers starting to retire and seek second and third careers, many of them are deciding they want to make a significant philanthropic impact," she says.
Bickel's division provides management services including grant distribution for 23 family foundations, and also oversees PNC's annual Wealth and Values Survey, the latest of which was released in March. In that survey, PNC found that 24% of the ultra-wealthy respondents (those with $5 million or more in investable assets) said they had cut their giving, although 55% of all respondents said they felt they had an obligation to give back to their communities. "Many foundations are giving fewer grants, or smaller grants, but they want to be sure their money will have a strong impact," says Bickel. "That has put more due diligence responsibility on our staff."
At Bank of America Merrill Lynch, the private bank division conducts its own survey of the philanthropic landscape every two years. The most recent survey, which came out in late 2008, (the next will be out in October 2010) found that the other seemingly important economic influence-tax treatment-did not affect philanthropic decisions as much as conventional wisdom might assume. Overall, high-net-worth households reported there would be very little change in their giving if there were no tax deductions for donations; just over 50% said their charitable giving would stay the same if they received zero income-tax deductions for donations. And just over 60% said the amount they would leave to charity in their estate plan would stay the same if the estate tax were repealed.
The findings, says Grace, indicate that a large portion of high-net-worth philanthropists are motivated by deeper factors than tax breaks. Even so, the survey found that most high-net-worth people who seek advice on philanthropy turn to their financial advisors. One of the most striking changes from the 2006 survey to the 2008 one is a dramatic increase in donors' use of lawyers and financial professionals to help them in this area. While the 2006 study found that donors relied on non-profit personnel (40.2%) and their own peers (35.6%) more than any other source for philanthropic advice in this area, the 2008 data finds accountants (44.3%), attorneys (42.9%) and financial/wealth advisors (27.8%) to be among the leading sources of charitable advice.
"Part of the reason is that philanthropy is a maturing industry," says Grace. "As people move away from being check writers to being strategic donors, they go to the advisors they already have strategic relationships with."
Bank of America Merrill Lynch has 156 philanthropic specialists across the country, working with its wealth management teams. Philanthropic advisors reach existing clients of Bank of America Private Wealth Management and U.S. Trust through a variety of programs. The bank hosts workshops on raising philanthropic children, sessions in which advisors help parents and grandparents explore their own philanthropic passions and provide exercises in how to introduce philanthropy to the next generation. "Raising Philanthropic Children" addresses issues that are of concern to those trying to promote philanthropic values within their families. A lunchtime workshop for women clients, titled "Philanthropy With Passion & Purpose," gives participants a chance to network and hear about ways to make the most effective decisions when it comes to charitable contributions. "Part of what they learn is how to say no when necessary," says Gillian Howell, national private philanthropy executive for Bank of America Merrill Lynch. For young adults, the bank hosts a financial empowerment program, part of which is aimed at helping participants identify what they would like to do to change the world.
How To Reach Clients
Any wealth manager can initiate a conversation about philanthropy and build a team of philanthropy advisors, estate and tax experts to help the client set up a complete strategy. But, says Hanna, it is relatively rare for a wealth manager to get into a conversation with a client about philanthropy as a part of wealth and expectations, legacies, generational wealth transfer and family relations. "It doesn't generally happen unless the wealth manager is personally interested in philanthropy," he says. "In that case they might even be meeting potential clients through serving on non-profit boards in their community."
Martin Shenkman, an estate lawyer in the New York City area, happens to be an impassioned philanthropist himself, and when clients come into his offices they see magazine articles about Shenkman's philanthropy mounted on the walls. "That often starts a conversation," says Shenkman. If the office displays aren't enough to remind clients of what they could be doing, he also publishes a monthly client newsletter about philanthropy. And to show fellow professionals how they can benefit from helping clients do good, this spring Shenkman and his wife have begun a series of lectures around the country, on behalf of the National Multiple Sclerosis Society and the Michael J. Fox Foundation for Parkinson's Research, in which he will speak to estate planners, financial advisors and accountants about planned giving.