Wealth managers seek to break down philanthropy barriers

By demonstrating impact and setting up more efficient philanthropic structures, wealth advisers can help encourage clients to increase donations, particularly during the festive season.

With the festive season well under way, philanthropy advisers at private banks are entering one of their busiest periods. Their role is crucial in guiding clients through the complexities of charitable giving, ensuring donations are both impactful and aligned with personal values.

December accounts for 30 per cent of annual giving, with 10 per cent occurring in the final three days of the year, according to Bank of America Private Bank in the US.

Philanthropy bridges the gap between government capabilities and business initiatives, addressing large-scale challenges through collaboration between nonprofits and donors. While progress may appear slow, this often reflects complexity of issues rather than inefficiency, explains Dianne Bailey, national philanthropic strategy executive at Bank of America Private Bank.

“Philanthropy plays a unique role by fostering innovation and amplifying nonprofit efforts, but it complements rather than replaces government initiatives,” she says. Philanthropic contributions in the US reached $557bn in 2023, a significant sum but still overshadowed by the trillions managed by public institutions.

Wealthy Americans are notably generous, with nine in 10 of those holding more than $3m in investable assets regularly contributing to charitable causes, according to Bank of America Private Bank research. This contrasts sharply with the general population, where only half report similar giving habits.

Yet, charitable giving accounts for just 2 per cent of personal disposable income in the US. Broadening participation could unlock significant resources for nonprofits, while thoughtful planning, both in wealth strategies and daily financial decisions, can inspire greater confidence in giving, states Ms Bailey.

Moreover, charitable giving does not have to rely solely on cash. Donations of securities, property, or other assets can enhance generosity while aligning with financial goals. “One of the most powerful assets to use for charitable giving, particularly in the current environment, is long-term appreciated securities,” she says.

By donating publicly traded stocks, donors can avoid capital gains tax and, if they meet certain conditions, qualify for income tax deduction. This strategy also aligns giving with distribution of wealth, as most US wealth is held in financial assets and real estate.

Trust erosion

Financial security concerns and family care priorities have traditionally been key barriers to charitable giving. However, the biggest obstacle today is a growing lack of trust in institutions. While nonprofits are ranked as the most trusted entities for addressing social issues, only 21 per cent of affluent Americans express high confidence in them. Trust in Congress is even lower, at just 4 per cent, reports Ms Bailey referencing the bank’s research.

This broader erosion of trust reflects deeper societal challenges, including polarisation and prevalence of unreliable information.

Nonprofits can overcome these barriers by prioritising transparency, demonstrating impact and aligning their missions with donor values, says Ms Bailey. “Nonprofits should connect with donors on a personal level, showcase tangible results, and reflect shared values. By adopting donor-centric strategies, personalised communication, and impact-driven storytelling, nonprofits can rebuild trust and inspire greater generosity.”

Volunteering also allows individuals to connect deeply with a nonprofit’s mission while addressing resource constraints. Volunteers give two and a half times more than non-volunteers. “Engaging donors through time and talent, in addition to their treasure, fosters meaningful involvement, often leading to increased financial support,” she says.

Impact measurement is equally essential and should be collaborative from the start of the donor-nonprofit relationship. Success hinges on agreeing upon shared goals and leveraging existing metrics rather than creating new ones, she explains. By focusing on measures already identified as critical by nonprofits, donors can streamline evaluation processes and deepen the relationship.

Donor collaboratives are another effective way to “magnify impact”. By pooling resources and engaging in shared learning, donors can align efforts, leverage expertise, and maximise contributions.

Building confidence

Yet, one of the most powerful approaches is offering specific consulting services, which help donors build strategic giving plans tailored to their values and priorities.

“There’s a huge need to professionalise and elevate philanthropic advising in the private banking sector,” says Ms Bailey. “Wealthy Americans, particularly the rising generation, are prioritising philanthropy earlier in their financial planning, sometimes even before establishing an investment strategy. Making sure that advisers are prepared to have these conversations is very important.”

Succession planning is a key priority for clients, with a particular focus on preparing the next generation to “build their confidence and acumen in philanthropy”.

It is important for private bankers to equip future trustees of private foundations with tools to navigate regulatory and compliance frameworks, as well as unique restrictions on investing and deploying nonprofit assets. “The skills developed through active involvement in a family’s philanthropic efforts also equip individuals to steward the family’s legacy on a broader scale,” she says.

Through its “five stages of charitable giving” framework, the bank supports families at every stage of their philanthropic journey, adapting to evolving needs over time.

Introducing children to philanthropy early can foster lifelong giving habits. “We believe it’s never too early to talk with kids about giving,” says Ms Bailey, explaining the bank offers tailored guidance for children as young as four. Activities like volunteering at food pantries or park clean-ups help instil philanthropic values.

The holiday season offers opportunities for families to create traditions around giving, fostering a sense of shared legacy. An effective practice is allowing children to choose a nonprofit to receive a financial contribution made in their name. For many young children, animal-focused charities like the Humane Society are favourites, reflecting their love for animals, she says.

Generational shifts in giving priorities reflect evolving focus areas. Older generations tend to support religious organisations and veterans’ charities, while younger donors prioritise environmental causes, climate action, and social justice. However, addressing basic needs and supporting local communities remain shared values across all age groups.

Younger donors prioritise direct action more, (71 per cent younger versus 48 per cent older), including volunteering, fundraising and mentorship.

Younger generations are also more likely to use structured giving vehicles, including charitable trusts, leveraging family foundations and donor-advised funds, according to the bank’s research.

Effective giving

While the UK has historically lagged the US in philanthropic ambition, the gap is narrowing. Charitable donations in the UK rose by nearly 10 per cent in 2023, reaching £13.9bn ($17.6bn) in 2023. Notably, nearly a quarter of contributions came from the UK’s 100 wealthiest individuals.

A major contribution has been the rise of donor-advised funds (DAFs), which has transformed the philanthropic landscape, providing high net worth individuals with flexible giving tools, says John Canady, CEO of independent charity National Philanthropic Trust (NPT) UK.

“In my experience, many high net worth individuals are keen to give but often find it challenging to determine how to make the most meaningful impact, choosing the right causes, ensuring their contributions are effective, or structuring their giving for long-term success.”

The time and effort involved in managing traditional structures, such as private trusts or foundations, can also be a significant hurdle, as these typically require extensive legal, financial and administrative oversight to establish and operate.

“That’s why more wealthy individuals and their families are turning to DAFs, which offer a simple and flexible alternative,” says Mr Canady. “Donors can make contributions and direct grants as they see fit, enabling them to give to charitable causes in line with their philanthropic goals and timing.”

NPT UK’s 2024 research revealed a 16 per cent increase in grants distributed through DAFs. Critical sectors such as health research experienced an 80 per cent increase in grants from DAFs managed by NPT UK over the past year. Donations to cultural institutions rose by 62 per cent, while contributions to higher education increased by 49 per cent.

Private banks in the UK and globally can break down barriers to giving and encourage high net worth clients to donate more to charity by fully integrating philanthropy into their services, believes Mr Canady. Examples from the US, Singapore and Switzerland demonstrate the benefits of embedding philanthropy into financial advisory services.

In practice, this requires private banks to broaden their services to include “innovative and effective” charitable giving structures, providing strategic advice on the most suitable options and outlining the specific tax, financial and operational benefits they offer, he says.

The broader financial system can also foster greater philanthropy by expanding tax incentives and simplifying giving processes. Policies allowing a broader range of assets, such as non-listed shares, to qualify for charitable tax relief could open new pathways for giving.

Governments can also support early-stage funding for charities, particularly in areas like health research, where philanthropic capital often fills gaps left by public funding, suggests Mr Canady. Charities fund 62 per cent of non-industry cancer research, compared to 38 per cent funded by the government, according to Cancer Research UK.

“While the government may not be prepared to ring fence funding for certain causes, it can still create a policy environment that is favourable for philanthropy and therefore make it easier for people to donate to important causes.”