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Wendy Spires explains why Philanthropy is more of a priority for wealthy individuals than ever, and how to give effectively.

Philanthropy is on the rise worldwide, with Europe’s wealthy now almost as active as their US counterparts in the charitable giving stakes, according to new research underscoring just how important giving back is to today’s high net worth individuals.

For its 2015 Individual Philanthropy Index, French banking group BNP Paribas surveyed 400 wealthy individuals across Europe, Asia, the Middle East and the US to investigate their current and projected rates of charitable giving. Despite ongoing economic uncertainty, it was found that philanthropy worldwide is booming, increasing by 5 points on average in 2015. And, while the US continues to lead the world in this area, wealthy individuals in Europe are rapidly catching up.

The calculations behind the index are fairly complex, but they highlight just how big a part philanthropy is playing in the wealth management strategies of today’s wealthy individuals. For an individual philanthropist to score the highest score for giving, for example, they would have to currently donate at least 25% of their annual income to charity and also plan to leave at least 50% of their fortune to charitable causes after they are gone. Also included in the assessment were how much philanthropists are actively promoting good causes and how committed they are to innovation in this space. Today’s philanthropists are not content simply to write a cheque and are instead increasingly getting actively involved to ensure that their donations have the maximum possible impact.

While many of the best-known names philanthropy – like the Rockefeller dynasty or the Bill and Melinda Gates Foundation – are American, Europe is edging ever closer to parity with the US on this front. The overall index score for the US for 2015 was 55.7, with Europe close behind with 55.7. Asia-Pacific followed with 49.5, with the Middle Eastern region scoring 30.3 for the overall philanthropic efforts of its wealthy population.

Differing motivations

In terms of the areas philanthropists are lending most support too, health is number one across all four regions. Interestingly, however, the study suggests that very different motivations lie behind these efforts. In Asia and the US, the study found that the most commonly cited reason for donating was a desire to give back to society whereas in Europe a sense of duty was the main driver. In the Middle East, religious faith is the foundation of philanthropic activity, which is unsurprising considering the fact that it is enshrined in Islamic law (although of course it is not only Muslims who are enjoined to give to charity by their faith): the practice of “Zakat”, which is the systematic giving of 2.5% of one’s wealth each year to benefit the poor, is the third pillar of Islam.

Looking at where philanthropy is heading, impact investing is seen as the most promising global trend by philanthropists, followed by collaborative philanthropy, whereby donors share best practice and work together to build an effective funding strategy. Philanthropy, like every other element of life today, is also increasingly bound up with technology. The BNP Paribas reports that top technology solutions helping people promote philanthropy today are social (42%), crowd evaluation (42%) and crowd funding/online fundraising platforms (41%).

But while philanthropists are forging ahead with new technologies and taking a far more active role in helping good causes than ever before, they also seem anxious to ensure that they are approaching charitable giving in the best way possible. Almost seven out of ten wealthy individuals believe having advisers is essential to effectively navigate the sector. Family members are most often consulted (51% of respondents said this), but specialist philanthropy advisers and external experts in a particular focus area are consulted by four in every ten donors.

The fact that close to half of philanthropists are now consulting experts before embarking on a programme of giving is really positive news – both for the causes and individuals concerned. Systematic giving which is geared towards clear outcomes can generate far better results in the long term, and it is also the case that philanthropists are now increasingly willing to give their time and skills to good causes as well as their cash.

Wealth managers have long been alive to the fact that giving back is high on the agenda of many wealthy individuals, but that making donations effectively – both for the good causes concerned and the donor’s own financial circumstances – can be more complex than it first appears. Many wealth managers have specialist units of philanthropy experts who will work alongside the firm’s investment managers and financial planners to ensure that charitable efforts are embedded within a holistic, efficient financial plan for clients. Some wealth managers even provide in-depth consultation on the best approach to take, so that if someone wanted to help in the fight against cancer, for example, they can find the most impactful research projects to fund.

The philanthropic spectrum

Philanthropy is of course a deeply personal area and wealthy individuals all differ in their approach. Some are committed to “giving while living” and gradually giving away all their wealth before their death, while others will prefer to bequeath a modest amount to a favourite cause after having left the bulk of their assets to family. Your level of wealth and family circumstances, along with how much of a financial commitment you want to make, will all influence your philanthropy strategy. A professional advisor will be able to devise one which maximises positive results, whether you wish to make large, sustained donations or to implement something more modest as part of your will.

Charitable giving is of course about doing good for its own sake, but wealthy individuals should also remember that donating – and quasi-philanthropic efforts like impact investing – can confer significant tax benefits on a number of fronts. Building a charitable donation into your will could significantly reduce the Inheritance Tax liability on your estate, yet there are also tax advantages to be had on an ongoing basis while you are living. Investors in social enterprises, for example, could shave 30% off their Income Tax bill under Social Investing Tax Relief, for example.

You may not have considered charitable giving to be a topic to discuss with a professional financial adviser, but it certainly should be part of the conversation if this figures in your plans. Wealth managers are in the business of looking at your wealth and aspirations in the round and if your investments, tax planning and charitable giving are all aligned you are far more likely to reach your goals – both financially and with the causes close to your heart.

To find a professional adviser to help you get the most out of your wealth – both for yourself and the causes you believe in – simply try our smart online tool.