Budget 2012: Raising the giving question

The budget doesn’t often have direct consequences for my role at NPC—working to promote more and better philanthropy amongst individuals, families and their advisors. But yesterday’s announcement included two very relevant developments. We were disappointed to see the cap on higher-rate tax reliefs for charitable giving, although hope that the Treasury will find ways to minimise the impact on major gifts.

But it is yesterday’s confirmation of the reduction in inheritance tax from 40% to 36% if at least 10% of an estate is left to charity that I find most interesting. Not because there’s likely to be a dramatic increase in the amount given to charities in people’s wills—there isn’t. It is estimated that of 552,000 deaths in 2010/11, only 3% of estates will actually pay any inheritance tax. And on an estate of £1m with a 10% gift to charity, it only reduces the tax bill by £24,300.

However there are two reasons to get excited about this inheritance tax change, which comes into effect for any death from 6 April 2012. First, it shows government commitment to improving the UK’s philanthropy culture through a practical measure, alongside their White Paper and proposed Giving Summit. We hope that philanthropy remains high on their agenda.

And second, and of real significance, legal and tax advisors talking to their clients about their wills will now have to raise the issue of leaving money to charity. We are always surprised at the reluctance of advisors to raise the subject—even in the US where philanthropy is generally more talked about, a 2010 Bank of America survey of high net worth individuals found only 10% of advisors raise the subject with clients. The vast majority wait for clients to start the conversation.

But is asking the question about leaving money to charity in a will enough? At NPC, we are constantly seeking to improve not only the amount of charitable giving but the quality of that giving. Advisors are perfectly positioned to help clients think through the best use of the money they want to leave to charity, rather than flicking through a charity yearbook and choose a charity they’ve heard of at random.

As any advisor will tell you, once they’ve had a detailed conversation with their clients about philanthropy, they gain a better understanding of the client’s values and passions, which develops the relationship considerably. As an example, NPC worked with a lawyer and his client in a series of workshops where we created specific guidelines for the foundation that would come into existence on the client’s death. At the end of the project, the lawyer said to us “this process has really allowed me to get to know the client so much better, I’ve learnt more about him during those two mornings than I have in five years”.

We don’t hold particularly high hopes for a considerable increase in the amount people leave to charity in their will as a result of the changes to inheritance tax. Having said that, it is encouraging to see the various campaigns launched recently to promote more giving, including Trevor Pears’ Give More Campaign, Spear’s Magazine’s 1 Per Cent Campaign, and the Legacy10 campaign, launched by Roland Rudd, where a number of public figures have pledged to leave 10% of their estate to charity.

But we have higher hopes that legal and tax advisors will now become more proactive about raising the giving question. And we hope that the conversation extends from pure tax and legal advice to broader questions around the objectives of giving, choosing really effective charities and how people can make the biggest difference with their money.

Making a difference in the places that matter to you

So many of us are eager to get more involved in our local community—but local giving often raises a lot of questions. How do I begin to understand what are the most pressing issues in the community I care about? What is the most effective way for my support to make a difference?

These were questions raised during an event run by Coutts last week to launch their latest publication, Inspiring local philanthropy. NPC and the Community Foundation Network (CFN) collaborated with Coutts to produce the report, and it was wonderful to see it brought to life through the inspiring stories of the speakers at the event.

In the current environment of doom and gloom pervading the country, Andy Preston’s story particularly stood out. A former London hedge fund manager, he returned to his home town of Middlesboroughin 2008 and was struck and increasingly frustrated by the level of social and economic need in the town. He decided to launch a philanthropic foundation to help regenerate his local community, encouraging local individuals and businesses to join forces, raise funds and support local projects, such as a boxing club at risk of closure. ‘I was driven by a sense of, “If I don’t do it, who will?”’

The other keynote speaker was Marcelle Speller, an entrepreneur and 2010 Secret Millionaire. She is also the founder and CEO of Localgiving.com, an online searchable database of local organisations vetted by their local Community Foundation. She told us how she is continually inspired by small local charities—‘they are the glue that holds local communities together’. In the UK today there are 145,000 small charitable organisations with an annual income of less than £100,000 and another 600,000 community groups that fall ‘below the radar’ of statistics. Marcelle set up Localgiving.com after discovering that online giving was unavailable to large swathes of these small charities.

These two speakers embodied two different sides of the report. On the one hand, it’s a set of inspirational case studies—describing the work of philanthropists supporting the communities that matter to them. And on the other hand, it’s a very practical guide suggesting steps donors can take to support their local community, whether they want to volunteer, fund local charities, collaborate with other funders or establish their own operating charities.

Inspiring local philanthropy also helps to answer those initial questions of understanding local needs and finding the most effective ways to make a difference. Using local snapshots of five areas across the UK, the guide helps donors build a picture of key challenges in their community and identify funding gaps so their support can make the greatest difference.

I really hope that the guide and events like the one held last week at Coutts will inspire more of us to follow in Andy and Marcelle’s footsteps and take small steps (or in their cases, large leaps) to making a difference to places that matter to us.

UK giving still has a long way to go

It’s good to see that the launch on Monday of the Giving White Paper garnered some attention for philanthropy. It’s encouraging too that the paper put forward some concrete initiatives to promote giving and volunteering in the UK and new funding.

Some aspects of the paper were particularly welcome – the proposed campaign to increase the dismal take up in this country of payroll giving, a new philanthropy committee to review candidates for honours, and the recent tax changes announced in this year’s budget (reducing inheritance tax for those leaving 10% or more to charity in their will).

But I was disappointed that some key issues were either missing or brushed over very quickly:

1. There was little in the paper on encouraging more giving amongst the wealthy. This is important if we are to see a sea-change in charitable giving here. Instead the focus was on rounding up pennies and tiny donations at cashpoints. (No surprise then that the press coverage focused on this and the fact that poorer donors give a higher percentage of their income than their wealthier counterparts.)  What was missing was ideas like introducing a ‘giving pledge’ in the UK akin to Bill Gates and Warren Buffett’s initiative across the pond.

2. There wasn’t enough about  encouraging the provision of philanthropy advice by private client advisors (bankers and laywers) to their wealthy clients. The paper mentioned that Minister for Civil Society, Nick Hurd MP, has agreed to attend the next Philanthropy Advice Forum in June. This is good news. But I’d hoped to see more and government has a role to play in pushing this higher up on the agenda of banks and law firms. There is much that can be built on. For example this philanthropy advice forum of private client advisors and philanthropy experts, which was initiated by NPC in late 2009, has gained broad support. Similarly, several banks are taking a more active role in promoting philanthropy to their clients and J.P. Morgan Private Bank’s report, Philanthropic Lives (published last week) is a case in point.

3. There could have been more about impact. Interestingly, of the 400 or so responses to the green paper, the question around social impact reporting solicited the second highest number of responses – so people do care about impact. But the white paper focused (and only very briefly at that) on what charities could do to report their impact better. There was no mention of how institutional funders (grant-making trusts & foundations) could better share their knowledge of effective organisations. Nor was there any reference to how private donors could be encouraged to think more about impact in their funding decisions – a theme being picked up in an excellent new book Give Smart: Philanthropy that gets results, and an accompanying website.

4. And finally, where were ideas about boosting corporate giving? Last December the Culture Secretary, Jeremy Hunt MP, announced  that 2011 would be the year of corporate giving. And yet we have heard nothing since. You’d have thought that the White Paper would be a good opportunity to explain what they meant by that initiative. Does this indicate a lack of co-ordinated thinking between government departments or was the original announcement an attempt to grab the headlines and appease the arts sector which was so put out by funding cuts?

While it is heartening that the White Paper (and the Green Paper before it) was so consultative and emphasised the role of many players in encouraging giving, it would be a shame if the government were to underplay its own role here. After all, it has the budget and the capacity to run campaigns and fund programmes. And it also has the ability to lean on influential individuals and organisations such as banks, foundations, businesses, charities and the media and get them to do their bit.

Indeed, I hope that Nick Hurd is making the most of his position and that his diary is full of meetings with important donors, charity leaders, heads of private client firms and so on. If he wants any introductions, NPC would be happy to make them.

The giving needs of wealthy families

Little is known about very wealthy families in the UK—they like to keep themselves to themselves for fear of being actively pursued by people asking them to buy something or to donate their money to good causes.

Which is why it is interesting to see the responses from NPC’s latest research report into family philanthropy, jointly conducted with Global Partnership Family Offices where a survey was sent to over 600 family offices, exploring the challenges wealthy families face and the rewards they get from giving.

We weren’t surprised by a few aspects of the responses—that a large majority with children under 21 either discuss or actively involve their children in their giving, or that more than 90% of families either plan all or some of their giving (although this could of course just mean that they have set up a foundation, rather than being actively strategic in their giving).

But the key finding for us was that 60% of families would find some kind of philanthropy advice useful, particularly when it comes to monitoring the performance of the charities they fund. Many wealthy families want to apply the same kind of business mentality to their philanthropy that helped them make their wealth in the first place, which may involve setting milestones or KPIs for projects they set up, or evaluating the impact of organisations they fund. But they often don’t know how best to do that and this research shows they’re asking for help in this area.

The report ties in well with the first anniversary of the Philanthropy Advice Steering Group, a committee of private client advisors and philanthropy specialists who have the aim of increasing the provision of, and take up of, good philanthropy advice. In a nutshell, the group wants to get more advisors discussing philanthropy with their wealthy clients, and more wealthy individuals and families knowing that philanthropy advice exists (over and beyond the tax and legal aspects) and where to get that advice. This group now has over 34 organisations involved and is making good progress on various initiatives such as developing training for bankers and lawyers to increase their knowledge on the philanthropy sector. Our website will keep those interested updated on the group’s developments.

What philanthropy advisors can learn from the rise of the fork and the iPod

Lesson number 1

The Florentine princess, Catherine de Medici, is credited with introducing the fork to France. She brought them with her when she married the French King Henri II in the mid 16th century. Before this, people ate with their fingers.

Before de Medici’s wedding there was no demand for forks, but her use and promotion of them gradually converted people, and they became widespread. It’s a story echoed in other innovations like the iPod or the PC.

It’s a story we had in mind when we started thinking about how you could develop the market for philanthropy advice. In our opinion the market is not flourishing – less advice is sought by donors than expected, and philanthropy advice is not, on the whole, pro-actively supplied by private client advisors.

The first lesson is that the social aspects of nurturing the demand side of a market are incredibly important. We think that is especially the case in the philanthropy advice market given the general reluctance of philanthropists to talk publicly about their giving. Advisors need to feel confident talking to their clients about philanthropy, and clients need to feel comfortable and happy talking about philanthropy with their lawyer, accountant or banker, but also with their friends.

Take a look at our new report out today, The business of philanthropy. We’ll be sharing more lessons from the report soon on this blog.

Launch of new advisory service for HNW donors in the US

We are delighted to see this week’s launch of a new advisory service in the US for high net worth donors (with more than $1m of philanthropic assets) – Tactical Philanthropy Advisors.

What particularly interests us is their tie up with some of the leading providers of donor-advised funds – Schwab, Fidelity and others to “provide robust, institutional quality back office, administrative services to clients.”

NPC has been examining the market for philanthropy advice in the UK, in a report to be published later this year, where we feel that rhetoric often exceeds reality in terms of the quality and quantity of philanthropy advice offered to clients by private client advisors. During this research, we were astounded to discover the size of donor-advised funds in the US (approaching $28bn of assets in 2007), with evidence that more families are switching their giving from private foundations to these more cost-effective donor-advised funds.

And yet in the UK, there is no similar model – the only types of donor-advised funds are either CAF accounts or run by community foundations, rather than those offered by financial services institutions where giving can be incorporated into the overall wealth management of a client’s assets.

It strikes us that wealth management firms in the UK might be missing a significant opportunity to offer these funds to donors as a low-cost, hassle free way of giving money away.

If potential donors in the UK were offered a cost-effective way of giving money away, combined with some strategic advice on how to make the most impact with their funds, this might go some way to closing the gap between US and UK giving levels.

As always, we welcome your comments