This news service talks to Bernstein Private Wealth Management about a particular segment of philanthropy and its importance.

In the space between the multi-billionaire philanthropy of Warren Buffett and Bill Gates, and charities supported by the broad public, sits a middle ground that can get overlooked, argues Bernstein Private Wealth Management.

The US wealth firm talks about the “meaningful middle” – donors who give between $1 million and $25 million a year, and who often carry out the work of supporting local initiatives in the US and abroad.

“They are people who want to give and make a positive difference but who don’t have the same resources (staff, infrastructure, professional guidance, etc.) as 'mega donors,’” Clare Golla, national managing director of philanthropic services at the firm, told Family Wealth Report. Many contributing to this level of philanthropy also aren’t just concerned about writing a check, she said. They often want to add value in other ways, and are well placed to act.

“This part of the philanthropy universe is where our practice is growing fastest,” Golla continued. “We have seen enormous wealth created from enterprises and where there are liquidity events, and people are thinking about the world in a less binary way. They no longer want to just make the money and then 'give back'; they are thinking holistically.”

This news service has spoken to several practitioners in the HNW and UHNW philanthropy space in the weeks leading up to the “Giving Season” during the fall and much of December. There are plenty of reasons to give: The aftermath of the pandemic; geopolitical turmoil and natural disasters such as hurricanes and forest fires. And there are ongoing problems of crime, substance abuse, treatments for illnesses such as cancer, and relief of hardship. To take a different angle, a desire to build up sports, the arts, protect habitats, and foster new ways of living, are also important. 

The philanthropy sector is having to move with the times. That means digital technology. For example, as reported here, Foundation Source, which provides cloud-based solutions for private foundations, announced last week that it had bought Vennfi, a fintech that powers Charityvest, a sponsor of donor-advised funds. 

At the same time, the role of philanthropy advisors is becoming more demanding, especially when arguments erupt about purpose and values. Philanthropy can be controversial, and managing disputes among founders and families is part of the mix. Above all, philanthropy is no longer a niche offering for private banks, wealth managers and family offices, but is often a high-priority area. 

Generosity endures. A study from Bank of America Private Bank and the Indiana University Lilly Family School of Philanthropy at IUPUI found that 85 per cent of affluent households gave to charity in 2022 with the value of their average gifts rising 19 per cent. Large banks have had philanthropy offerings in place for some time. At UBS, the Swiss bank created the Family Advisory & Philanthropy Services business in 2015; the Family Advisory group existed in Europe and Asia-Pacific from 2010 and the UBS Optimus Foundation, originated in 1999, focused on helping clients deploy philanthropic capital.

Tools and structures
As philanthropy has become increasingly significant, so has the need to find more ways to structure it. In the “middle” area that Bernstein PWM’s Golla talked about, a variety of charitable vehicles are used, such as foundation models (operating foundations, or private foundations), as well as donor-advised funds (DAFs).

All structures have their advantages. For those who seek anonymity, for example, DAFs can provide it. For those who want more freedom of action, a structure such as a charitable LLC is an option, Golla said. Charitable Limited Liability Companies (LLCs) offer greater flexibility than private foundations and allow philanthropists to deploy both charitable and impact investment dollars with fewer disclosure requirements and more control. With operating foundations, donors can directly engage in social change work, rather than just fund it.

When considering this “middle ground” of philanthropy, FWR asked Golla about the argument that there is value in encouraging philanthropists to pool their resources to create economies of scale and thereby reduce costs. Golla agreed – up to a point.

“Yes, there is value in donors coming together…such as through pooled funds and community foundations and giving circles – as much for developing knowledge and peer-to-peer relationships as for economies of scale. There are also enormous opportunities for middle-tier donors to independently make a huge impact in their local communities,” she said. 

“Donors are increasingly seeking ways to both maximize their existing resources and leverage additional support for the causes and issues most important to them. They’re increasingly looking more broadly at how they can effect positive change and what resources they can bring to the table to achieve it. What skills, relationships, or other assets beyond my liquid balance sheet can I bring to the table? Who else may be interested in 'co-investing' in this important issue or initiative? What else can we be doing beyond traditional grantmaking?” she said. 

Clients often come away from a conversation with an advisor with a different perspective than when they began to ask for help, Golla said. 

“Often what clients come to us for, or what they think they’re coming to us for, is not what we end up advising on. For example, we often receive questions like, 'how do I start a foundation?' What we end up advising on is their response to our follow-up question, which is, 'what is it that you’re seeking to achieve with this foundation (or nonprofit, or donor-advised fund, etc.)?' The guidance we ultimately provide is often on strategies and structures that will help them achieve and amplify the positive impact they’re seeking,” she said. 

No longer willing to wait
One trend is that instead of waiting until a person dies and assets in a will to come into play, people are gifting assets to charities during their lifetimes so that they can see the impact. 

Golla was asked if there is much of a trend of philanthropists putting “sunset” clauses into a foundation so that â€“ at a future point â€“ his or her heirs can reconstitute the purpose and function of a foundation to suit new ideas.

“We do partner with a number of clients who decide to sunset – spend down or distribute all assets to charity – either during life or throughout a finite period like 10 or 20 years after death,” Golla said. “In most cases, the donor simply wants to experience the joy of giving now, and perhaps they have no immediate heirs. For families with multiple generations of decision-makers, there is often some tension regarding translating original donor intent into practices and principles that are relevant for current and future generations.”

“We have one client where the next generation of decision-makers is moving to incorporate an environmental sustainability lens on their decisions across investments, grants, and even choices pertaining to other overhead purchases/costs. Another has grown significantly through an estate settlement, and the next generation is figuring out more efficient and effective means of maintaining the original mission while distributing larger dollar amounts to a smaller cohort of grantees than generations past. Every family is different,” Golla continued. “In the cases where people simply cannot agree or want to give separately in their own local communities across the country and the globe, we do see divisions of foundation assets and/or making large distributions into separate DAFs across various family members so they can subsequently do their own giving independently. If family infighting is occurring, particularly as part of an estate settlement, it’s not likely that reconstituting the purpose of the foundation will reduce arguments occurring otherwise across family factions,” she continued.

The pandemic and other turmoil certainly affected philanthropy. 

“We have lived through recent bursts of specific philanthropic activity catalyzed by historical events. Some have likely contributed to shifts in giving patterns which we’ll be able to see more clearly a decade or so from now. Others maybe not so much. One burst that was likely just a burst was the increase in the number of donors giving across the US in the depths of the pandemic. Post-pandemic, we’ve reverted to the number of donors trending downward across the US year-over-year, while the average gift size increases,” Golla said.

“So, philanthropic giving continues to grow over time, with an increasing percentage of the overall funds being given by a shrinking pool of larger donors. Likewise, in terms of the upcoming election, CCS Fundraising recently published data reflecting increases in overall philanthropic giving in nine out of the last 10 presidential election years. Certain very broad trends just continue across short-term bursts,” she said.

“On the topic of social and civil unrest, however, there was an immediate response across philanthropy after the death of George Floyd among others, urging nonprofits, foundations, and donors broadly to incorporate a racial equity lens into all practices and decisions which may be the beginnings of a more sustained shift. NACUBO (National Association of College and University Business Officers) started tracking whether respondents to their annual survey on investment practices are incorporating DEI into their investment decisions. This has remained at or slightly below 10 per cent of respondents in the three years they’ve collected this data,” she said.