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Opinion Of The Week: Advising Philanthropists – It's Harder Than You Think

Tom Burroughes

5 June 2023

The business of advising high net worth individuals on how to carry out their philanthropic and impact investing ideas has gone from being a relatively niche part of the wealth industry to one that has a much higher profile today. There are many reasons for this, not least because advisors know that this is a topic clients are emotional about in a way that doesn't apply to the delights of hedge funds or tax planning. 

When I attended a recent short panel discussion held in London, I was struck by how political a lot of the discussion on philanthropy and impact investing was. Boodle Hatfield, was under Chatham House rules, so I am not stating who said exactly what.) For example, one view that got quite an airing was that because many wealthy individuals make a living in “extractive” ways – echoes of the Marxist notion of exploitation – their philanthropy simply perpetuates an unjust situation. Instead of encouraging billionaires to give away fortunes, let’s have no billionaires, was the view.

Another view I heard is that philanthropy can be more about the wishes of the giver than the genuine interests of recipients. It was argued that some forms of philanthropy, if they are driven by certain political, cultural and social ideas, can lead to people trying to impose their views, particularly if philanthropists can work in tandem with governments possessing coercive power.   A better way, so it was argued, was a more community-based, more bottom-up approach that plugs into ideas about mutual aid and self-help. Even if one contests some of the premises of these ideas , the discussion shows that advisors have a difficult role.

An important role
But while the role can be difficult, it is also important because advisors to HNW people must be adept at nudging and encouraging clients to use their philanthropic wealth wisely. Sometimes that means suggesting that writing a check to an art gallery and getting their name on the side of a wall is not the best way to go. It might even mean that just giving $10 million to a cause could do more harm, and that it would be better to encourage the intended beneficiaries to start a genuinely profit-making business, and focus more on education instead, for example. To that extent then, a good advisor must adopt the same stance as they would on regular investment and asset allocation. If a client is all fired up about cryptocurrency, high-yield emerging market bond issuance, or real estate in China, the advisor needs to learn the value of “no” or “let’s pause to think about it.” They must be that friendly hand on the shoulder. This, incidentally, is why advisors must cultivate emotional intelligence as well as being smart. 

These points are driven home, in detail and with a lot of actionable information, by a new guide, called Advising Philanthropists: Principles and Practice, by Emma Beeston and Dr Beth Breeze. Beeston advises philanthropists and has worked with organizations such as BBC Children In Need, and has lectured on the subject. Dr Breeze, among her many roles, co-founded the Centre for Philanthropy at the University of Kent  and has published books including In Defence of Philanthropy . 

Running to 272 densely-argued pages, the book's eight chapters highlight the role of philanthropy advisors; why they have arisen in the first place; the difference between impact investing and philanthropy; understanding donors, and the impact of philanthropy on wider society. The book comes with a handy glossary that takes readers through the sometimes mind-bending terms and acronyms. The book, while written in the UK, has lessons for advisors outside the country, although some of the specific structures, such as in the US, continental Europe and Asia, for example, will differ. 

Defending philanthropy
One of the big strengths of the book is that once it sets out the criticisms sometimes made today about philanthropy, it also shows what the responses might be. For example, here are five criticisms that the authors said are regularly used: 

-- Philanthropy is ineffective; 
-- Philanthropy is inefficient; 
-- Philanthropy is conventional and lacking in ambition; 
-- Philanthropy is patronizing or dehumanizing; and 
-- Philanthropy is self-indulgent or ideologically driven. 

There’s arguably some truth to all these points, but at times they also rest on unchallenged assumptions and the idea that because welfare, for example, is deemed by some to be a “right" and part of a "social contract," one shouldn’t have to seek charity. What’s useful about the book is that it gives advisors a set of responses to such criticisms that I found particularly good: 

-- Philanthropy is not above the law. Politicians decide what should be a deemed a “non-profit” and qualify for tax relief. Avoiding tax by such entities is not illegal ; 
-- Some philanthropists advocate for paying more tax, such as the US-based Patriotic Millionaires movement. ; 
-- Philanthropy helps drive a thriving civil society on which all healthy societies depend. ; 
-- Philanthropy can move into areas that politicians are reluctant to talk about ; they can be more innovative and entrepreneurial rather than wait for governments, given the usual horse trading of politics, to act; 
-- Philanthropists are not just about tackling poverty and inequality – they can also be about supporting cultural, artistic, sporting and other activities, some of which are simply about having fun; and 
-- Many philanthropists have made their money honestly and in ways that have already enriched others via free market exchange, not coercion. They aren’t discharging some sort of guilt via philanthropy because they did not do anything wrong in the first place.