Advising the giving generation
Dubbed the ‘Great Wealth Transfer’, £5.5 trillion is set to pass between generations within the next 30 years in the UK.1 Forward-thinking advisers are conscious of the risks this poses; however, the majority of advisers are seemingly unconcerned about retaining next-generation heirs as clients. This confidence may be misplaced. Indeed, research in the US has found that 92% of affluent investors who use their own adviser did not consider their parents’ adviser in their selection process.2 How can advisers futureproof themselves against this risk? Part of the solution may be to engage the next generation by advising on charitable giving. Recent research conducted by the Charities Aid Foundation (CAF) found substantial demand among millionaires for help with their charitable giving. What’s more, this demand was significantly greater among younger millionaires aged 18-34 (57%) and 35-54 (49%) than among those aged 55 or older (34%).3
So, how well are advisers meeting this demand? To what extent are they offering this advice, and how could they be doing more? That’s what we set out to discover in this research report, which is based on findings from 215 IFAs, wealth managers and chartered planners who work with high-net-worth individuals. Read on to hear more about the benefits of advising on charitable giving and how you could be improving your offering.
How philanthropy advice could head off a client crisis
57%
49%
34%
aged 18-34
aged 35-54
aged 55 Or older
of affluent investors did not consider their parents’ adviser in their selection process
92%
Kings Court Trust, ‘Passing on the Pounds: the rise of the UK’s inheritance economy’, 2017 Cerulli, 2023 CAF brand study – Savanta MillionaireVue, 2023
The benefits of advising on philanthropy
or browse other chapters
chapter
3
2
1
4
A patchy implementation: the current state of philanthropy advice
The knowledge deficit: why advisers are lacking in confidence
Building your knowledge base
Registered charity number 268369
Visit www.cafonline.org to find out more
demand among millionaires for help with their charitable giving
INTRODUCTION
CHAPTER 1
CHAPTER 2
CHAPTER 3
CHAPTER 4
Dubbed the ‘Great Wealth Transfer’, £5.5 trillion is set to pass between generations within the next 30 years in the UK.1 Forward-thinking advisers are conscious of the risks this poses; however, the majority of advisers are seemingly unconcerned about retaining next-generation heirs as clients. This confidence may be misplaced. Indeed, research in the US has found that 92% of affluent investors who use their own adviser did not consider their parents’ adviser in their selection process.2
introduction
bridging the generations
Touchpoints over a lifetime According to Mark Greer, Managing Director, Giving & Impact at CAF, philanthropy advice helps to build client relationships because it offers the chance to periodically re-engage. “Because charitable giving can be done in so many ways throughout a person’s lifetime, it provides an adviser with multiple touchpoints over time.” He adds that it is also a great way to bridge the generations and reach out to other members of a client’s family. “Many individuals view philanthropy as a family affair,” he says. “They may want to make decisions collectively or create a family legacy. “We also know of several family offices who have given their younger representatives control over pots of philanthropic funds to invest in innovative ways. That way they can learn about what it means to be responsible for significant amounts of wealth.”
Mark Greer, Managing Director, Giving & Impact at CAF
“Because charitable giving can be done in so many ways throughout a lifetime, it provides an adviser with multiple touchpoints”
A role for regulation? One adviser that we interviewed as part of the research was clear about the benefits of advising on philanthropy, and even argued for regulation to encourage it. “There are certain things from the regulator that say we now have to ask questions around a client's view on ESG,” they said. “I think during inheritance tax planning or just in estate planning, there should be something in there on charitable giving. “Because even if a client isn’t interested, at least that puts it on their agenda, maybe for the future.” They added: “The FCA remit is you have to understand your customer; you need to know what's important to them.”
In which of the following ways has offering philanthropy advice affected your business?
It’s good for our image and shows we're not all about money
These figures are constructed by combining “strongly agree” with “tend to agree”, and “strongly disagree” with “tend to disagree”. The following responses are excluded from the chart: “Neither agree not disagree” and “Don’t know”.
I feel closer to those clients I have discussions on philanthropy with
It has been key in retaining the heirs of clients as clients themselves
It has been key in establishing new client relationships
61%
25%
3%
12%
23%
21%
33%
AGREE
DISAGREE
But there are broader benefits too. Many more advisers said philanthropy advice is important to build existing relationships with clients. Notably, 56% said it provides an opportunity to get to know their clients better, and nearly half said it makes them feel closer to their clients. The feeling is likely to be mutual. In a separate survey conducted by CAF, two-thirds of high-net-worth individuals said that giving to charity is “an important part of my life”, and a third said they “see themselves as a philanthropist”.4 Having an adviser who can assist with these goals can only be beneficial.
y y y CAF brand study – Savanta MillionaireVue 2023. Conducted among high-net-worth individuals with more than £1m of investable / liquid assets
“Two-thirds of high-net-worth individuals said that giving to charity is ‘an important part of my life’, and a third said they ‘see themselves as a philanthropist’”
For advisers, providing a holistic service has long been an important way of ensuring client satisfaction. Now, with attitudes towards philanthropy changing, the need to provide advice on charitable giving is ever greater. Indeed, a fifth of advisers responding to our survey drew a direct link between giving philanthropy advice and winning new business. Those who gave philanthropy advice more often were also more likely to make this connection.
Why do you discuss philanthropy with your clients?
56% It’s an opportunity to get to know my client better
53% It’s important to my client
44% There are tax incentives to discuss
21% Helps establish new client relationships
14% Good for the business’s reputation
18% It's important to me
Philanthropy remains essential to individuals and families who want to drive social and environmental change. However, the concept has significantly expanded over recent years. Younger donors are far more likely to be involved in impact investing or other mechanisms which allow them to choose both financial and social or environmental returns. Just as you would look to put together a portfolio of for-profit investments, the next-generation are showing a growing interest in putting together a portfolio of philanthropic investments – marrying a balance of risks with potential social returns.
Respondents could give more than one answer
Despite the broad agreement that philanthropic advice is beneficial for advisers, the implementation is patchy, to say the least. One of the simplest ways that advisers can broach the subject of charitable giving is to include philanthropy as part of their initial fact find. It’s also the most tactful way to raise a subject that some clients may simply not be interested in. Yet nearly three-quarters of advisers told us that they don’t do this, meaning they may be missing out on the chance to build deeper, more trusted relationships with clients.
Do you have questions on philanthropy as part of your fact-find when onboarding new HNWI clients?
72%
28%
NO
YES
Of course, they could raise the topic verbally in discussions, but the evidence here is mixed too. Some 32% of advisers said it was mainly them who raised the subject, but 30% said it was mainly their clients. 29% said they and their clients were equally likely to raise it. ‘An incredibly personal act’ CAF’s Mark Greer says he feels strongly that advisers should be seeing the value in proactively raising philanthropy with clients. “From a purely financial standpoint, there are tax incentives, as well as potential risks associated with giving money away, depending on the amounts, timing and type of donation,” he says. “But from a more holistic perspective, philanthropy can be an incredibly personal act, which can reveal so much about a person, their motivations and their priorities. “By including the subject in an initial fact find, it provides a brilliant opportunity to get to know a client better and develop a relationship.”
How often does philanthropy come up during advisory sessions with your clients?
1% Always me
32% Mainly me, sometimes my clients
29% Both me and my clients equally
30% Mainly my clients, sometimes me
8% Always my clients
1% Every meeting
6% Most of the time (4 of every 5 meetings)
11% Some of the time (3 of every 5 meetings)
20% Occasionally (2 of every 5 meetings)
45% Rarely (1 of every 5 meetings)
19% Never
“From a purely financial standpoint, there are tax incentives”
One reason that some advisers might be reticent about broaching the topic of philanthropy is a lack of skills and knowledge in the area. Our survey found that 28% aren’t confident advising on charitable giving, and a further 38% are only somewhat confident. Only 5% feel very confident. When asked to give reasons for this, advisers gave lack of training as by far the most common response, with half not having received any. Some concerns were also raised about where to signpost clients to for the expertise they need, and the possibility of additional administrative work. In terms of topics, 73% said they wanted more knowledge on giving tax-effectively, 45% wanted advice on legacy giving, and 43% wanted advice on giving structures and vehicles.
Low knowledge of Donor Advised Funds (DAFs) This lack of confidence is even more widespread when it comes to donor advised funds (DAFs). They’re the UK’s fastest-growing philanthropic giving vehicles, enabling donors to give in a flexible and tax-effective way, yet 73% of advisers said they lacked confidence in talking about them with clients. Only 9% were either “very” or “fairly” confident. This contrasts starkly with high-net-worth individuals themselves, of whom nearly three-quarters say they have either used a DAF or are interested in doing so.5 Specialist philanthropy advice is available to help those who don’t feel they have the knowledge themselves. Yet three-quarters of those who responded to our survey said they have never referred a client to another individual or organisation for further help. There’s clearly more work to be done not only in upskilling advisers on philanthropy matter, but in making them aware of the specialist support that is available.
y y y y CAF brand study – Savanta MillionaireVue 2023
29% Not at all confident
44% Not that confident
18% Somewhat confident
8% Fairly Confident
1% Very confident
how confident would you be talking about donor advised funds with clients?
Why do you not feel completely confident advising on philanthropy?
I've never had any training on philanthropy
I don't know where to signpost clients to in order to get the expertise they need
I'm concerned it could require a lot of additional administrative work
I'm concerned that some charities might not be legitimate
I'm not sure of the benefits for my business
I'm not clear on what the benefits are for my clients
I've had negative reactions from clients when bringing up philanthropy up in the past
Other reason
What is a donor advised fund (daf)?
LEARN MORE
50%
22%
19%
16%
15%
11%
5%
7% Not at all confident
21% Not that confident
38% Somewhat confident
30% Fairly confident
5% Very confident
How confident do you feel advising clients on philanthropy?
What is a donor advised fund? A DAF is a convenient way for your clients to give to charity over the long-term. Instead of setting up their own charitable foundation and registering it with the Charity Commission, they can use a donor advised fund, such as CAF's Charitable Trust, to give. DAFs offer several advantages over charitable foundations, namely cost savings, tax-efficiency, flexibility, and ease of administrative, fiduciary and reporting requirements. The fund acts as a one-stop shop for your clients’ giving needs, enabling them to make tax-efficient, irrevocable charitable contributions. They can request for the fund to be invested on the markets to grow it, and then make grants to charitable organisations over time.
CLICK TO LEARN MORE
Many advisers recognise their knowledge gap and intend to rectify it. Some 42% said they plan to increase their knowledge of philanthropy and how to advise clients on it. However, nearly a quarter said they didn’t know where they intend to obtain this information. We’ve included some helpful resources at the bottom of this page which should be of assistance. However, there is room for a more structured approach, and CAF would like to see philanthropy added to CPD for financial advisers and the curricular of industry qualifications. The Chartered Advisor in Philanthropy course in the US provides a good example of what this could look like. That all said, it’s important to emphasise that while it is valuable for financial advisers to understand more about philanthropy, they don’t have to be experts. Help is available from specialist philanthropy advisers, whether independent ones or those at private banks and organisations like CAF. “This added value can deepen the client-adviser relationship,” says Mark Greer. “Philanthropy advisers can partner with an individual’s team of advisers to develop a giving strategy that achieves the desired impact,” he says. “This can be through advising as well as carrying out the administrative tasks like due diligence and payment processing.”
“It’s important to emphasise that while it is valuable for financial advisers to understand more about philanthropy, they don’t have to be experts. Help is available from organisations like CAF”
Understanding a client and their goals Specialist philanthropy advisers will work with clients to understand what motivates them, asking the right questions to find out what their goals are, whether they want to give long term or short term and whether they want to involve their family. This sort of advice can be really important in helping clients to understand the charity sector and how it works, says Greer. “For example, it is possible to restrict your donation to a specific cause but this is not something we would always advise. With the cost-of-living crisis showing no sign of ending, unrestricted funding is more crucial than ever for charities, allowing them to use donations to support their running costs and stay active. “This type of funding might not be glamorous or offer a straightforward success story for the client, but it is gold dust to a charity.” The next generation are expected to be the most significant donors in history. But it is how they approach their giving that makes them different from previous generations. It is essential that those advising them understand their motivations, values and attitudes as well as the mechanisms available to them. This in turn can bring about better client relationships.
Do you have plans to increase your knowledge about charitable giving or philanthropy?
42% yes
58% NO
Useful philanthropy resources
Guides
articles
The Giving Toolkit for Professional Advisers, including: • Six ways clients can use money for good • The spectrum of impact • What to consider when developing a giving strategy • Tax-effective giving with a donor advised fund (DAF) • Tax-effective giving for dual UK and US taxpayers • Philanthropy jargon buster
Donor advised funds: A guide for wealth advisers
Learn more about how CAF can help you with philanthopy
The Guide to Giving for clients, for potential donors.
Five misconceptions about good philanthropy
Five key steps to developing a giving strategy
