9 Oct 2008

Wealth and philanthropy management

A landmark study into the attitudes of the rising number of Australians enjoying increasing wealth has revealed that while they recognise the need for the support of a number of specialist services to assist with the management of their wealth, they want to retain control of the process, and seek further knowledge to assist them in that objective.

Brisbane wealth advisory company, Goodman private wealth advisers (Goodman) recently received the findings of a research study conducted as a result of a grant by the company to The Australian Centre for Philanthropy and Nonprofit Studies (CPNS) at Queensland University of Technology (QUT).

The study comprised personal in-depth interviews with a number of families, mostly from South East Queensland, with an investment asset wealth of more than $5 million.

Dr Kym Madden of the CPNS who headed the project said such a study was long overdue and filled a gap in what was known about the advice wanted by better off Australians in managing their wealth.

"The study is significant because it is the first of its kind to give voice to what wealthier individuals think of advisory services, especially in areas of emerging interest such as philanthropy. As such it represented an important and significant window into a segment of the market that can be somewhat reclusive. The findings will be valuable to both the nonprofit and advisory sectors," said Dr Madden.

Goodman is a private company of 21 years standing providing advisory services to HNW individuals and families.

John Goodman, Chairman and founder of Goodman, said that with financial markets so volatile at the moment, advisory firms may become overly focused on the short-term for their clients. He said the study is significant because it is the first of its kind to give voice to what wealthier individuals think of advisory services and to provide a more comprehensive insight into the practices and behaviour of high net worth (HNW) Australians especially in areas of emerging interest such as philanthropy.

Mr Goodman said his company's initiative in supporting the program was timely in view of the acceleration of personal assets in Australia and around the world over the past two decades. Such growth has been exceptional for the already wealthy and, despite market fluctuations, is expected to continue unabated with more and more families joining the HNW group in Australia and globally.

"There are changes in our client profile that are important for us to be aware of in order to continue to maintain the relevance of our services to our clients and our position of leadership in our market category," said John Goodman.

The study found, perhaps not unexpectedly, that the personal and financial needs of the HNW are complex and are met by a range of financial advisers and planners, private bankers, investment advisers, stockbrokers and tax and estate lawyers seeking to meet their wealth management requirements. The needs of the ultra-wealthy are even more complex, requiring even broader skills and services.

Such expectations present challenges for advisers as clients demand more care and expertise as their wealth escalates – while at the same time demanding value. The result is that advisory services are expanding beyond traditional financial planning and investment advice and the multitude of associated taxation and legal issues.

Notwithstanding access to the proliferation of advisory services used, it was notable that the majority of respondents expressed a desire for control of the process – that such families need to take responsibility for their own circumstances.

While clients expected advisers' financial and investment knowledge to be greater than their own, they also sought advisers who were genuinely interested in helping them and expressed a need for education to increase their own understanding and knowledge.

Respondents understood the need for deeper research on companies or opportunities than they could access themselves, but enjoyed their involvement in the preparatory work and research. They saw their professional advisers as equals, offering specialised information and experience that justified the cost of involving them. Equally, they disliked "paternal" advice from firms claiming to know what was best for them, preferring a relationship in which they could discuss and test their ideas and concepts – "a partnership of equals".

Philanthropy

"It is more difficult to give money away intelligently than it is to earn it in the first place" (Andrew Carnegie 1835 – 1919)

Mr Goodman said one of the reasons the study included philanthropy was that there had been very little Australian research on the subject from the viewpoint of the wealthy donor. It is known from CPNS' recent analyses that Australia's affluent are more likely to donate than those on lower incomes, and to donate larger sums. This study offered important insights into motivations and triggers, as well as information needs with which advisers might assist.
"Philanthropy has become a subject of increasing significance for wealthy families, not only the ultra-wealthy but those who are comfortably placed as well. Financial advisers need to know how they can best support clients who are wishing to explore giving in a more organised way. There are many tax-benefits and considerations with which we can assist."
Mr Goodman believes advisers need to treat clients holistically in dealing with wealth and philanthropy. "As substantial discretionary income becomes more commonplace, issues arise around how clients can protect, manage and grow a high level of family wealth across generations as well as how wealth can be applied to fulfil family objectives or interests, build a family Foundation or develop a family tradition," he said.

"It also opens up considerable opportunities to available programs and products. One strategy is to create family and intergenerational benefits by assisting families incorporate philanthropy into their planning such as with Prescribed Private Funds (PPF).

"Understanding those with the potential to make significant donations and how best to develop philanthropic resources and support for this segment is critical," Mr Goodman said.

One of the most important insights gained from the study was that while wealthy families recognise the value of giving to the community, they don't necessarily recognise how philanthropy can benefit their families. "Many families know that giving is important to them. An adviser can play a key role in helping the family convert this value into a sustainable process for the benefit of their family and their community," he said.

Dr Madden said the study revealed a widespread view that charitable giving is seen as a personal matter. Philanthropy - and indeed money - tends not to be discussed with friends or peers. "Many of those we spoke to didn't know whether their friends were givers or not, nor did they know much about different ways they might give. They were frequently surprised to hear that so many options existed," she said.

Mr Goodman sees an opportunity for advisers to help their clients with information about philanthropy so that they can better assess their options and better organise their giving if that's what they want to do.

The report highlights the increasing importance of private funding for the charitable sector as governments face budget pressures, redefine their policies of support and rethink their public/private partnership policies. It suggests that philanthropy by those with means will be crucial to the capacity of the nonprofit sector to meet challenging social needs and ultimately the well being of our communities.

Dr Madden, Senior Research Fellow at CPNS, says that today's philanthropists fill a unique role that cannot be met by governments. Australians who move into this space do not need to be Rockefellers – the vast majority simply realise that they have more than enough to go around and are looking for meaningful ways to spend some discretionary funds. "Once they start getting involved, they find it enjoyable, especially if they can do it well," she said.

Key Findings of The Study

• HNW individuals are highly efficacious: they take responsibility for their financial affairs and like to maintain control. Level of involvement may drop as they age.
• They do not want to be told what to do, preferring to obtain expert input and guidance for their own decision-making
• HNW individuals are looking for advisory services that:
  • Offer what they don't know or can't access quickly or cost-effectively
  • Put client needs and circumstances first. Active listening, responsiveness, and taking the time necessary to build a strong relationship are all critical
  • components
  • Deliver value for money. They did not mind so much paying for great service but the real value to them had to be very clear.
• Few were organised in their approach to charitable giving despite making donations and awareness of philanthropic options and benefits was low
• There was a need for wealth management advice and services from a family perspective, including intergenerational wealth preservation, ageing and aged care and philanthropy while maintaining family values and connections despite geographic spread
• There was interest in the benefits of philanthropy to wealthy families as well as to the charities that needed funds.

Backgrounder – History of Wealth

Since the earliest aeons of civilisation the world's inhabitants have found ways of measuring wealth in commodities able to be bartered including ochre, shells and beads and in the first days of the colony of New South Wales, rum.

The Babylonians introduced a Codex in 1760 BC which formalised the role of money in society, some 1100 years before the Greek and Roman civilisations introduced coinage as money.

Almost 2700 years later, society is arguably more fascinated than ever with wealth. Newspapers and magazines run "wealthiest" features - who has it, how they gained it, how they look after it and what they do with it

And while paper money was not introduced until the 13th century (by the Chinese) and today is rapidly being replaced by electronic money, interest in all aspects of wealth has not diminished but rather is greater than ever.

In 2007 the HNW population of the world was estimated at more than 10 million individuals holding financial assets of at least US$1 million.
(Source: Capgemini / Merrill Lynch World Wealth Report 2008)

The HNW segment has seen its personal wealth accelerate the most, with those at the wealthier end experiencing the greatest upturn. Since 2006 those with the equivalent of US$30 million or more in net assets have grown in number by 8.8% and individual wealth has risen by almost 15% in two years.
(Source: Capgemini / Merrill Lynch World Wealth Report 2008)

Australia strongly reflects this trend to escalating personal wealth despite recent market conditions and short-term falls. In 2006 Australia joined the world's top ten countries for absolute numbers of HNW individuals with a 37% increase in the preceding three years (from 117,000 to 160,000) which has since increased to 172,000.
(Source: Capgemini / Merrill Lynch World Wealth Report 2008)

In Australia, there is a trend to family wealth coming to the fore; of the 200 largest fortunes, 54 now are attributed to families rather than individuals, up from 46 in 2007, and their total net worth increased over the past year from AU$28.1 billion to AU$32.6 billion.
(Source: Stenshot 2008)

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