A 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.
Clients feel their advisers over-emphasise the technical (legal and tax) aspects of giving. 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.
Many charities communicate their impact poorly. And all the while the desire from donors for instant answers is compounding their disappointment.
Only a tiny number of clients feel their advisers know how to "give to make a difference”. The solution is for advisers to give their clients simple, practical tools to make their own thoughtful and effective giving decisions.
This is the best way to ensure donor satisfaction and a grateful client to boot.
Indeed, brain-imaging technology shows that the midbrain lights up when people donate to charity, the same area of the brain linked to cravings and pleasure rewards.
When the gift is spontaneous or ad hoc, this ‘warm glow’ dissipates after about two hours. However, when donors spend even a little time planning their giving, satisfaction levels improve by almost 50 per cent.
Boosting education
Some financial advisers currently offer their clients access to virtual financial literacy courses, which require no staff time to run and are inexpensive to produce.
A similar virtual donor education course that is both informational and emotionally engaging, practical and specific, providing both concrete case studies and personalised guidance, could generate outsized returns in client satisfaction.
In the US, my extensive research on small and mid-size donor behaviour highlighted the crucial role of personal recommendations, so who better than a trusted financial adviser to recommend an investment in donor education?
But dozens of conversations with advisers also revealed their time and budget constraints.
My mission moving forwards is to educate financial advisers in the UK and beyond about the important role that they can play in unlocking the philanthropic potential of their clients.
I have seen how taking a strategic approach to giving can make a real difference to the amount that charities receive, and the quality of service delivered.
Sylvia Brown is founder of Sylvia Brown Smart Donors
