Wealth planning issues of various kinds have been a real feature of our conversations with High Net Worth Individuals in recent weeks.
You might first think of philanthropy and wealth management as belonging to separate realms, but actually wealth managers are increasingly offering philanthropy-related services to their clients.
The first reason for this is that there are many tax-efficient strategies for charitable giving you can pursue as part of your wider plan, so it clearly makes sense that this is all part of a holistic wealth management strategy devised with your adviser. The second reason is that there are several routes to giving to your chosen causes, either while you are living or as a gift once you have passed away and these need to be optimised with your investments and tax position.
Philanthropy is a big part of wealth management at every level of wealth. At the upper end, wealth managers have special teams to help ultra high net worth families set up trusts and foundations which will support a charity in their name for generations. At a more modest level, wealth managers can help clients build a bequest into their estate (which may carry reduce the inheritance tax due against the whole) or could instruct them how best to give to a charity on a regular basis, if for example, this is part of religious observance for them.
Philanthropy is another of those areas where several disciplines intersect. Legal services and wealth planning will be needed to set up structures and wills, but investment management might also play a big part too.
Some argue that you cannot think about making money and then giving it away as two unrelated activities – that there may be inconsistency seen in giving to a humanitarian charity on the one hand yet making some of your money from investments which undermine their work on the other. They instead advocate that investors align their investment strategy with their ethical beliefs and philanthropic goals. There are many shades of this kind of investing, ranging from screening out companies associated with pollution or poor labour conditions through to positive or impact investing (there is where funding is given to businesses where the financial and social/environmental returns they produce are indivisible). How far you want your investment portfolio to reflect your ethical beliefs is a matter for careful consideration with your adviser since there may be ramifications for portfolio performance from narrowing the investment universe open to you. Whether you choose to fully align your strategies for investing, wealth planning and donating, or go for something more light touch, your wealth manager will have a range of appropriate approaches.
Wealth managers are actually particularly useful for those who are just getting started in philanthropy – those who want to put their wealth to good use but are unsure where to start.
Many wealth managers help philanthropic networks of clients meet to share ideas and even join forces on specific projects. Others have specialist advisers to help clients give strategically, so that they aren’t just handing a large cheque over.
The trend for “giving while living” is growing because it means that you can see the impact of your gift during your lifetime. Younger investors are also very active in philanthropy today and wealth managers can offer a lot of educational and networking opportunities here too, for both clients and their children.
Wealth management is really about making your wealth “do” what you need and want it to for you and your family. Along with achieving financial security and a range of aspirational goals, helping a particular cause might actually figure quite highly. You may or may not wish to make philanthropy part of how you manage your wealth but if you do, how much you would like to give, when, and how all need to be factored into your financial plan.
These are nuanced conversations which are a prime example of why a longstanding, personal relationship is going to help you get the best wealth management advice. Really understanding the ultimate objectives for your money is core to what wealth managers do.
Find out which investment professionals can help you achieve your combined wealth and philanthropic goal try our online smart tool here.