Long Read  

IFAs need tools to give good philanthropic advice

IFAs need tools to give good philanthropic advice
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It is a sad fact that the wealthiest in Britain today are giving less to charity than they did a decade ago. 

recent report by the Law Family Commission on Civil Society, exploring the state of philanthropy in the UK, found that the top 1 per cent of earners cut their typical donations by more than 20 per cent between 2011-12 and 2018-19, despite income among this group rising by 10 per cent over the same period.

Among the many recommendations made in the report was a call for financial advisers to receive training to provide better philanthropy advice.

But currently advisers face a quandary.

They are encouraged to offer philanthropy advice as part of financial planning conversations to foster stronger client relationships, yet most lack the training – let alone the time – to discuss much beyond basic tax principles, such as the gift aid rebate. 

Charitable giving is an emotionally charged activity that can lead to tremendous satisfaction if enough time is invested in the process – time that advisers simply cannot justify spending on most of their clients, except the very wealthiest. 

And even in private banks, philanthropy advice is often available from just one overworked specialist.  

Discussing philanthropy is undeniably good for the advisory business. 

Client expectations 

But studies in the US and UK also show a glaring disconnect between how advisers and their clients view the experience. 

Clients feel their advisers over-emphasise the technical (legal and tax) aspects of giving, rather than providing guidance on the personal, such as choosing a cause or selecting a high-performing charity to support.

Advisers misperceive their clients’ hesitation to give as being wealth-related, when in fact the clients say it is lack of knowledge. 

According to a recent US Trust study, in partnership with The Philanthropic Initiative, two-thirds of clients who discuss philanthropy with their advisers want to learn more but are given inadequate resources, while only 27 per cent feel their advisers are "very capable" to recommend charities. 

A majority of clients want their advisers to assist with philanthropic decisions, but only a tiny number feel their advisers know how to "give to make a difference”.

Donors large and small all ask the same question, 'Is my donation making a difference?', and yet the very individuals who spend hours online researching a holiday, a new car or an insurance policy will spend less than 15 minutes investigating the charities they support. 

When asked, they reveal they care deeply about the impact of their gifts but do not bother to seek out high-performing organisations. 

Measuring impact

Their giving is strongly influenced by recommendations from friends and family, rarely by comparing charities doing similar work. In fact, they would welcome a TripAdvisor or Yelp that ranked Britain’s 166,000 charities according to a star system. 

A truly fair and accurate rating system for the entire charitable sector will probably never exist – metrics are too varied and the evaluation capacity is too weak, particularly in smaller charities.