A book published this year sets out the ideas and challenges that advisors to philanthropists need to take on board. It frames arguments in a compelling way and deserves wide attention.
The business of advising high net worth individuals on how to
carry out their philanthropic and impact investing ideas has gone
from being a relatively niche part of the wealth industry to one
that has a much higher profile today. There are many reasons for
this, not least because advisors know that this is a topic
clients are emotional about in a way that doesn’t apply to the
delights of hedge funds or tax planning.
When I attended a recent short panel discussion held in London, I
was struck by how political (with a fairly strong pro-tax,
pro-Leftist tilt) a lot of the discussion on philanthropy
and impact investing is. (The seminar, held by Boodle Hatfield, was
under Chatham House rules, so I am not stating who said exactly
what.) For example, one view that got quite an airing was that
because many wealthy individuals make a living in “extractive”
ways – echoes of the Marxist notion of exploitation – their
philanthropy simply perpetuates an unjust situation. Instead of
encouraging billionaires to give away fortunes, let’s have no
billionaires. (This is based on the underlying, zero-sum
assumption, rarely spelled out explicitly, that wealth is never
really created, but rather taken from A and given to B. It’s as
if ideas such as entrepreneurial risk-taking and the seeking of
opportunities are never considered.)
Another view I heard is that philanthropy can be more about the
wishes of the giver than the genuine interests of recipients. It
was argued that some forms of philanthropy, if they are driven by
certain political, cultural and social ideas, can lead to people
trying to impose their views, particularly if philanthropists can
work in tandem with governments possessing coercive power. (There
is a lot of truth in this insight. Think, for example, of an
anti-alcohol charity working in tandem with government to push
for minimum pricing, bans on advertising, etc.) A
better way, so it was argued, was a more community-based, more
bottom-up approach that plugs into ideas about mutual aid
and self-help. Even if one contests some of the premises of these
ideas (and I think you can guess where I am on this), the
discussion shows that advisors have a difficult role.
An important role
But while the role can be difficult, it is also important.
Because advisors to HNW people must be adept at nudging and
encouraging clients to use their philanthropic wealth wisely.
Sometimes that means suggesting that writing a cheque to an art
gallery and getting their name on the side of a wall is not the
best way to go. It might even mean that just giving $10 million
to a good cause could do more harm, and that it would be better
to encourage the intended beneficiaries to start a genuinely
profit-making business, and focus more on education instead, for
example. To that extent then, a good advisor must adopt the
same stance as they would on regular investment and asset
allocation. If a client is all fired up about cryptocurrency,
high-yield emerging market bond issuance, or real estate in
China, the advisor needs to learn the value of “no” or “let’s
pause to think about it.” They must be that friendly hand on
the shoulder. This, incidentally, is why good advisors must
cultivate emotional intelligence as well as being smart.
These points are driven home, in detail and with a lot of
actionable information, by a new guide, called Advising
Philanthropists: Principles and Practice, by Emma Beeston
and Dr Beth Breeze. Beeston advises philanthropists and has
worked with organisations such as BBC Children In Need, and has
lectured on the subject. Dr Breeze, among her many roles,
co-founded the Centre for Philanthropy at the University of Kent,
and has published books including In Defence of
Philanthropy (that she thought it necessary to write a book
of that title is telling).
Running to 272 densely-argued pages, the book’s eight chapters
highlight the role of philanthropy advisors; why they have arisen
in the first place; the difference between impact investing and
philanthropy; understanding donors, and the impact of
philanthropy on wider society. The book comes with a handy
glossary that takes readers through the sometimes mind-bending
terms and acronyms. The book, while written in the UK, has
lessons for advisors outside the country, although some of the
specific structures, such as in the US, continental Europe and
Asia, for example, will differ.
Defending philanthropy
One of the big strengths of the book is that once it sets out the
criticisms sometimes made today about philanthropy, it also shows
what the responses might be. For example, here are five
criticisms that the authors said are regularly used:
— Philanthropy is ineffective;
— Philanthropy is inefficient;
— Philanthropy is conventional and lacking in
ambition;
— Philanthropy is patronising or dehumanising; and
— Philanthropy is self-indulgent or ideologically driven.
There’s arguably some truth to all these points, but at times
they also rest on unchallenged assumptions (such as the zero-sum
approach I mentioned above) and the idea that because welfare,
for example, is deemed by some to be a “right,” one
shouldn’t depend on charity. What’s useful about the book is that
it gives advisors a set of responses to such criticisms that I
found particularly good:
— Philanthropy is not above the law. Politicians decide
what should be a deemed a “non-profit” and qualify for tax
relief. Avoiding tax by such entities is not illegal (evasion
is);
— Some philanthropists advocate for paying more tax, such as the
US-based Patriotic Millionaires movement. (In my view, if such
folk are consistent, they should immediately give most of their
wealth to the IRS);
— Philanthropy helps drive a thriving civil society on which all
healthy societies depend. (This is one of the reasons why, in my
view, America has been a relatively strong society in certain
areas, precisely because it is not assumed that the state will do
everything);
— Philanthropy can move into areas that politicians are
reluctant to talk about (such as the HIV/AIDS crisis of the
1980s); they can be more innovative and entrepreneurial rather
than wait for governments, given the usual horse-trading of
politics, to act;
— Philanthropists are not just about tackling poverty and
inequality (and of course, much depends on whether one accepts
egalitarian ideas about wealth in the first place) – they can
also be about supporting cultural, artistic, sporting and other
activities, some of which are simply about having fun;
and
— Many philanthropists have made their money honestly and in
ways that have already enriched others via free market exchange,
not coercion. They aren’t discharging some sort of guilt via
philanthropy because they did not do anything wrong in the first
place.
The book is plainly designed to spark conversations, to
encourage advisors to consider smart ways to think about
philanthropy, and its place in a wider context. For wealth
advisors who know that their clients are interested in this
topic, this book is an excellent primer.
One final thought – for some wealthy individuals who don’t have a
clear idea of what to do with their fortunes, perhaps the most
good they can do is to stop fretting about
“legacy,” and invest in growing businesses, and the jobs,
services and products these involve. In my view, Bill Gates’
greatest achievement, for example, isn’t about how much money
he’s giving away. It’s about what he did with computer software.
That’s not to throw shade on philanthropy, but to realise that
the building of a successful business, at least in a genuine free
market, is what makes so much else possible.
Advising Philanthropists: Principles and
Practice is published by Directory of Social Change
(2023).
Credit:Source link
