A book published this year sets out the ideas and challenges that advisors to philanthropists need to take on board. It frames arguments in a compelling way and deserves wide attention. Published in the UK, its lessons and insights have global relevance.

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 (with a fairly strong pro-tax, pro-Leftist tilt) a lot of the discussion on philanthropy and impact investing was. (The seminar, held by 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. (This is based on the underlying, zero-sum assumption, rarely spelled out explicitly, that much wealth is never really created, but rather taken from A and given to B. It's as if ideas such as entrepreneurial risk-taking and seeking opportunities don't really apply.)

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. (There is truth in this insight. Think, for example, of an anti-alcohol charity working in tandem with government to push for minimum pricing, bans on advertising, etc.)  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 (and I think you can guess where I am on this), 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 (UK) and has published books including In Defence of Philanthropy (that she thought it necessary to write a book of that title is telling). 

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 (such as the zero-sum approach I mentioned above) 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 (evasion is); 
-- Some philanthropists advocate for paying more tax, such as the US-based Patriotic Millionaires movement. (In my view, if such folk are consistent, they should immediately give most of their wealth to the IRS); 
-- Philanthropy helps drive a thriving civil society on which all healthy societies depend. (This is one of the reasons why, in my view, America has been a relatively strong society in certain areas, precisely because it is not assumed that the state will do everything, as opposed to the European model); 
-- Philanthropy can move into areas that politicians are reluctant to talk about (such as the HIV/AIDS crisis of the 1980s); 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 (and of course, much depends on whether one accepts egalitarian ideas about wealth in the first place) – 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.

The book is plainly designed to spark conversations, encourage advisors to consider smart ways to think about philanthropy and its place in a wider context. For wealth advisors who know that their clients are interested in this topic, this book is an excellent primer. 

One final thought – for some wealthy individuals who don't have a clear idea of what to do with their fortunes, perhaps the most good they can do is to stop fretting about "legacy," and invest in growing businesses. In my view, Bill Gates’ greatest achievement, for example, isn’t about how much money he’s given away. It’s about what he did with computer software all those decades ago. That's not to throw shade on philanthropy, but to realize that building a successful business, at least in a genuine free market, is what makes so much else possible.  

Advising Philanthropists: Principles and Practice is published by Directory of Social Change (2023).