With the winter holidays and end of the year approaching, now is the time that many of us take a closer look at our charitable giving -- maybe it’s the mushy Hallmark movies or maybe it’s the fear of tax season approaching. However, philanthropy should be more than occasional donations to your favorite charities; rather, it should be part of your overall financial picture. Philanthropy has become a growing component of investors’ financial discussions as generations from Baby Boomers to Millennials increasingly look for new tools and strategies that allow them to grow their assets in ways that fit their values, whether through impact investing, charitable trusts, private foundations, donor-advised funds (DAFs), or socially-responsible investing (SRI). And many investors aim for their assets to help others after they have passed as well, as nearly two-in-five American high-net-worth (HNW) investors plan to leave at least one-third of their fortunes to charity, according to the BNP Paribas Individual Philanthropy Index 2016.
Oftentimes, we as individuals tend to think of investments and philanthropy as separate endeavors; with the former, we’re trying to grow our money and, with the latter, we’re using our money to help others. And yet, in order to make our philanthropic efforts more effective, the two must go hand in hand. That’s where a new term coined by Bank of the West Wealth Management Group comes in; it’s called “purpose-built philanthropy.” Unlike unstructured philanthropic efforts, such as one-time donations to charity, purpose-built philanthropy helps investors structure their wealth and powerfully use their capital in support of their philanthropic goals by combining wealth management, philanthropy and investment management opportunities in a holistic approach.
I recently had the opportunity to discuss purpose-driven philanthropy and philanthropic-giving trends among HNW investors with Steve Prostano, Head of Family Wealth Advisors for Bank of the West Wealth Management Group, a regional financial services firm (and BNP Paribas subsidiary) that has $11.4 billion in assets under management in the United States.
April Rudin: What are some qualities that make up purpose-driven philanthropy?
Steve Prostano: Some of the key qualities that make up purpose-driven philanthropy are a clear vision, using a variety of vehicles and methods to achieve impact and, most of all, integrating them into a holistic plan. The whole is greater than the sum of its parts. By dedicating finances, time, resources, and expertise, philanthropists can create a robust and lasting philanthropic legacy. Viewing philanthropic efforts strategically and holistically can unlock ways to magnify results. Purpose-driven philanthropy sets the foundation so that donors and investors can build higher and bigger (2 + 2 = 5!).
April: What are some advantages of grouping together impact investing, environmental and social governance (ESG), socially responsible investing (SRI), microfinance, social impact bonds, and mission-related investments (MRIs) as “purpose investments”?
Steve: The main advantage goes back to the core message of purpose-driven philanthropy: a variety of approaches amplifies the effectiveness of a philanthropic strategy. Different initiatives require different approaches, and purpose-driven philanthropy is responsive to that. For instance, while a one program might be best tackled with a social impact bond, investing in companies that promote environmental practices is best done through an ESG investing focus. In the same vein, financial inclusion and economic empowerment in low-income communities is best addressed via microfinance. It is not difficult to see how a philanthropic portfolio might include several types of vehicles to address a variety of problems—or a single problem—from different perspectives in order to achieve maximum impact.
April: What are some questions or concerns that clients tend to have about philanthropic giving?
Steve: Most clients are always searching for a clearer sense of focus and a more targeted strategy. Because social and environmental problems can be complex, it can be hard to know how to best approach them. It’s difficult to know how much is too much (or too little), or which approach works best under a current context (environmental, social, political). Not to mention the fact that many problems seem to be moving targets. Other common questions often fall under the general category of administration and operational efficiency. Most donors seek guidance in knowing which structure or vehicles are best for their philanthropic giving levels (e.g. whether to establish a private foundation, donor-advised fund, charitable trust, etc.), as well as guidance on which vehicles maximize the type of assets they are most likely to contribute (e.g. public stock, private stock, real estate, etc.).
Obviously, there is still the misconception that you have to sacrifice financial returns in order to realize a positive social impact through impact investing, ESG, SRI, microfinance, social impact bonds, MRIs. This goes directly to the need for education and why we are focused on increasing awareness of purpose-built philanthropy
April: What steps are involved when Bank of the West Wealth Management helps clients create their own personalized purpose-driven philanthropy toolkits?
Steve: We help clients structure a philanthropic plan only after we have a reached a deep, holistic understanding of their philanthropic goals, background, and values. Together we determine the best course of action and from there guide the client through some key steps in the process. Depending on the client’s needs, we work with them on: setting values and vision, developing the strategy, structuring the program, selecting structures and vehicles, conducting due diligence, and finally making the actual grants and investments. Other important components that happen throughout this process include education, engagement and facilitation to make sure that discussions and decision-making can be as fruitful as possible, as well as monitoring and evaluation to ensure grants and investments are having the intended impact with measureable progress.
April: What trends in philanthropic giving are you seeing among HNW investors?
Steve: The biggest trend is a very high interest in complementing their philanthropic giving with investing with purpose. More and more, philanthropists are seeing the value and the necessity to align their traditional philanthropic grant-making with investments to unlock new ways to generate social change, as well as to make sure some of the effects and externalities of their profit-generating activities are not unintentionally cancelling out some of the positive social change they are trying to champion.
Another trend connected to this phenomenon is the high interest of Millennials in impact investing. Because HNW families tend to prefer approaching their philanthropy as a united front as a way to strengthen a family’s values and legacy, the interest of the younger generations in investing with purpose is further magnifying the attention all generations are placing on this topic.
Impact investing no longer needs to be a silo on the side generating concessionary returns. With a purpose investments approach, all types of investments can be aligned in single portfolio that captures a client’s values and also is integrated with their traditional philanthropic giving.