Call for FCA to make philanthropy advice training mandatory

Call for FCA to make philanthropy advice training mandatory

The Financial Conduct Authority should make philanthropy advice training mandatory for financial advisers and introduce regulation to ensure it is discussed with clients, according to a report.

Research for the Law Family Commission on Civil Society, carried out by Pro Bono Economics, has called on the FCA to act to improve “the quality and the quantity of financial advice and guidance on philanthropy” in the UK.

In the report, titled Giving advice: The case for the FCA to act on philanthropy, it stated that currently, philanthropy in the UK is worth close to £20bn annually, but there is an opportunity to grow this significantly.

Article continues after advert

Last year, research for the Commission found that the top 1 per cent of earners cut their typical charity donation by a fifth between 2011 to 2012 and 2018 to 2019, despite incomes increasing. 

The Commision said greater action by financial advisers could help turn that decline around.

Nicole Sykes, policy and communications director at Pro Bono Economics, said philanthropy is a major source of finance for charities in the UK.

“With the country's highest earners shown to be giving less to charity with each year, financial advisers have a huge role to play in turning this around, as the people who the wealthiest talk to about their money,” she said.

“As demonstrated in the US, widespread specialist philanthropy advice reaps enormous benefits for society and financial services firms alike, and we need to see the same in the UK.

“This requires leadership and stewardship from the FCA, which has the tools and influence required to help unlock far more of the true potential of philanthropy in the UK.”

The Commission, which is chaired by former cabinet secretary Lord Gus O’Donnell, found that if every individual in the top 1 per cent of earners who is currently donating below 1 per cent of their income raised their giving to that level, it could generate up to £1.4bn a year for charities.

The report put down the current situation to several factors, including “lack of incentive”, “traditional mindsets and culture” and a “lack of regulatory clarity and leadership”.

In contrast, the report pointed to the US as an example of what good financial advice on philanthropy can achieve for society and financial services companies alike.

It argued that a strong philanthropy offering enables firms to deepen their relationships with clients, meaning they provide better services, and puts them in a more competitive position for attracting new business from younger clients.

Recommendations to the regulator

According to the report, in improving the quality and quantity of philanthropy advice, the FCA would be “fulfilling its duty to ensure that consumers receive the products, services and advice that they are requesting from the sector”, as well as advancing its own ESG ambitions. 

The group made four key recommendations for the City watchdog. These include:

  • Review the market for financial advice and guidance on philanthropy. Through desk-based research, data requests to firms and visits to firms, the FCA should build a comprehensive picture of the financial services sector’s philanthropy offering.
  • Demonstrate to the financial services sector the important role that philanthropy can play in unlocking public benefit. This could include a ‘soft leadership’ role, for example with the FCA’s senior team incorporating the topic in their speeches.
  • Mandate education and training on philanthropy for relevant financial advisers. As part of the FCA’s regular reviews of its compulsory qualifications for financial advisers, it should undertake a vigorous effort to ensure philanthropy’s inclusion in relevant courses.
  • Introduce sustainability requirements into suitability assessment, with an emphasis on philanthropy’s role in contributing to sustainability efforts. As is already under consideration, the FCA should pursue regulation to require financial advisors to discuss sustainability intentions with their clients, alongside philanthropy.

In the US, where financial advice on philanthropy is offered to clients as a matter of course, the benefits have been quantified, the Commission said.