Philanthropy: generosity reaps rewards

Private bankers are sometimes involved in helping their clients consider how to put their wealth to good use. Philanthropic investments are not made lightly: they need mature reflection and often have a social impact objective. Read more about Philippe Depoorter's role in this article from the Belgian daily L'Echo/DeTijd devoted to philanthropy

"Philanthropy must be properly thought through. Time was when you made a donation hoping that the money would be invested in something good. Every euro should generate a maximum return, just like any other asset even if it brings a social rather than financial return on investment," explains Tine Bourgeois, Head of Business Development Philanthropy at BNP Paribas Fortis.

Is there an overlap between private banking and philanthropy? Private bankers are readily available to their clients to give them advice if they want to do something good with their money. Interest in philanthropy is constantly growing, not only among older people with no heirs but also, for example, among forty-somethings who have sold their business. "In such cases, philanthropy forms part of our standard service offering and the majority of clients give it careful thought," says Tine Bourgeois. "It doesn't always lead to a concrete project as some people prefer to give a more open donation or get involved in a friend's project."

Philippe Depoorter, Member of the Management Board of Banque de Luxembourg and Head of Philanthropy, notes a similar trend. But he puts it into perspective: "We shouldn't exaggerate. The percentage of clients who invest significant sums in philanthropic projects year after year is really quite small."

Wealthy clients who choose to make donations every year to particular charities or organisations do not really need advice from their banker. But those who want to take a step towards having a greater impact may call on the advice of a specialist philanthropy team. Silvia Steisel from Banque Degroof Petercam adds: "Clients see the enormous scope of our work and knowledge so they ask us to play a role of facilitator in the world of philanthropy which is unfamiliar to them and can seem a little opaque."

"Before launching our philanthropy service, we asked ourselves whether it is legitimate for a banker to play this kind of advisory role," explains Philippe Depoorter. "Traditionally, our work is to protect and grow our clients' wealth, not spend it. But in the end, we think that our role as a trusted partner for the management of our clients' finances does give us this legitimacy. It is often simpler to add a philanthropic dimension to our relationship than to explain everything afresh to a third party. In any case, a philanthropy project is a key part of the overall management of the client's wealth."

Profile

Initially, and this is true for all client relationship advisers, you start by building up a donor profile. "Most of the time, the client wants to do something but only has vague ideas, perhaps in education or healthcare," says Silvia Steisel. "We take it a step further: what are the objectives, how much does the client want to invest?" "We start by extending the client's vision and then subsequently rein it in," explains Philippe Depoorter. "Often the choice relates to a subject that the client has personal experience of – support for medical research is a good example, particularly for people who turn to philanthropy because they have no direct heirs. We discuss what their legacy could achieve. Sometimes this is difficult because they have to face up to their mortality."

Once the objectives have been determined, the donations and rollout need to be defined. Silvia Steisel describes the market survey currently being conducted at her bank: "We are looking at what is already available? What hasn't worked in the past? Which solutions deliver results? Are there unmet needs?" At BNP Paribas Fortis, clients can drill into a massive databank of available projects: "Banking advisers understand the pros and cons and can help clients in their choice. For example, did you know that at UNICEF any money not used after a year by the local department reverts to the parent organisation? If you are absolutely determined that your money should be invested locally, this is something you need to know," says Tine Bourgeois.

But not all private bankers go this far. At Banque de Luxembourg, the philosophy is to keep a certain distance. "We don't pronounce on the quality of one organisation over another and we don't evaluate the projects. We don't think that's our role."

Structuring

The philanthropy adviser then has to work out the best structure to establish for the client. Many prefer to align with an existing initiative. Collaboration and networking are playing a greater part. Although the client's initial idea may be to create their own foundation, that is not always the best solution.

"Creating your own foundation is certainly a possibility," says Tine Bourgeois."But it's not always ideal. You have to draw up articles of association and then submit accounts every year. But if this is the solution chosen by the client, the bank will lend its support." A "light" solution would be to create a fund in your own name with a specific objective but have it managed by a third party. In Luxembourg and Belgium, this is where the Fondation Roi Baudouin can step in. "It's a popular solution and you can join with a donation of 75,000 euros," says Tine Bourgeois. "Then you have to decide whether to create a closed-ended fund (the capital gradually winds down) or an open-ended fund (which only uses the interest) and to what extent the client wants to be involved."

Examples of significant amounts of private capital devoted to philanthropy remain the exception. The extent of the services offered will depend on the amounts in play. People who want to invest 75,000 to 100,000 euros on a one-off basis can get help to define their objective and draw on the knowledge of individual private bankers to organise their projects.

Impact

For bigger projects, the bank can help its clients monitor progress. Nowadays, philanthropists want to know whether their money will make a real difference and be sure that it is invested as effectively as possible. "Our social investment strategy is the same as the one we apply to the portfolio as a whole," says Silvia Steisel. "The funds are structured, managed, optimised and valued every year. They receive as much attention as the rest of the assets, sometimes more. Clients are often more interested in issues they care about and which matter to them more in the long run."

Philanthropists expect the same level of transparency from charities and projects in terms of the allocation of resources and results obtained. Tine Bourgeois emphasises this point: "These days, the philosophy of philanthropy is about doing good and doing it better. The demand for transparency of its impact is becoming increasingly important. Donors want to be sure that their donation is effective."

For the beneficiaries, this means they must show its value and surrender their natural reserve. "Transparency is vital," says Tine Bourgeois. "Some organisations are already working on clearly defined objectives and close monitoring of them. I think that all charities need to adopt this attitude if they want to survive."

Wealthy families

A particular group of clients is composed of families who have a tradition of philanthropy, often with their own foundation, but want to review their approach: Are we still on the right road? Are we up-to-date and up-to-speed with the latest ways of working? These questions will keep reverberating as the family integrates the next generation in its philanthropic activities. The question then arises as to how best to convey this commitment to the children: Should they be given a role in the management of the family foundation? Should the operation or the mission of the family foundation be adjusted to align more closely with the concerns of the younger generation? They are not always on the same page as their grandfather's "good works".

Studies show that young people are looking for new forms of philanthropy like the social economy or impact investing. For example, they may be interested in creating a small business which gives work to people who have difficulty finding a place on the standard job market and which adds to the resources of the foundation by generating its own income from the manufacture of a product.

"Involving the children in philanthropy is a life lesson which helps show them that value creation does not necessarily involve hard cash," adds Philippe Depoorter. "At the same time, you have to realise that investing some of the family wealth in philanthropy cannot be undertaken lightly. You have to accept - and preferably take a family decision - that you are giving away some of the money that would normally be passed on to the next generation. Families engaging in philanthropy need to take time to discuss their approach and the project's objectives. This process sometimes takes two years or more."

"Those who take the leap get loads of satisfaction," says Tine Bourgeois. "We certainly have clients who say: 'It's the best return I ever got for my money.' "

Source: L'Echo/De Tijd private banking article, 31 May 2017