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How to advise HNW clients about high-impact philanthropy

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Many ultra-wealthy individuals and families — those who hold $500 million or more in assets — say they want to achieve more with their philanthropy. But current giving levels fall far short of these donors’ potential.

In the United States alone, more than 140 billionaires have signed the Buffett-Gates Giving Pledge, committing to give half of their wealth to philanthropy during their lifetimes or upon their death.

Despite such aspirations, our analysis shows that ultra-wealthy American families donated just 1.2% of their assets to charity in 2017. That falls considerably short of average, long-term investment returns on assets. Compare 1.2% to the S&P 500’s 20-year, average annual returns of 9%, for example. The clear-eyed math shows that if an ultra-wealthy family wanted to spend down half its wealth in a 20-year time frame, the family would need to donate more than 11% of its assets per year — a tenfold increase over average current levels of giving.

Given rising wealth accumulation and declining social mobility, the gap between the very wealthy’s current giving and their full potential to give has implications for us all. At its best, private philanthropy, in partnership with innovative nonprofits and citizen-led movements, has helped secure major social advances, such as eliminating age-old infectious diseases and securing important civil rights for repressed populations.

At the same time, the social problems we haven’t solved will continue to grow. We have arrived at a decisive moment. The ultra-wealthy, having amassed resources of unprecedented magnitude, have the capacity to support innovative initiatives that could benefit millions.

Against that backdrop, The Bridgespan Group’s research team, with support from the Bill & Melinda Gates Foundation, set out to spotlight barriers that impede giving to social-change efforts — think ending homelessness or eradicating polio. The team then identified pathways that could make meaningful progress towards doubling annual ultra-wealthy giving from $45 billion to $90 billion in the coming years. The team interviewed more than 60 ultra-wealthy families, their advisors and staff, and experts in the field, and paired insights gleaned from those interviews with lessons from behavioral science and the experiences of community leaders and fundraisers.

Some of the barriers that impede the wealthiest from giving to social-change efforts include the following:

Finding the right funding opportunities can be challenging
One reason donors aren’t betting big on reducing social inequities is because of a vicious cycle that makes it irrational for nonprofit leaders to ask them to. Since donors rarely make large financial commitments to social-change efforts, most nonprofits are unpracticed at making the case for gifts of eight figures (or more). Leaders who address social inequities need financial incentives that make it worthwhile to invest in developing large-scale fundable ideas.

Giving to social change efforts often requires a change in mindset
Behavioral science shows that for many, for a risk to be worth taking, the probable gains must far exceed the potential losses. Donating to social change efforts can feel quite risky when compared to more familiar, trusted alternatives. There is also a mindset challenge to overcoming inertia — that is, avoiding delay and leaning further into giving while living.

The marketplace for matching funding with opportunities is broken

The gap between the very wealthy’s current giving and their full potential to give has implications for us all.

The barriers to funding social change — as well as the gap between the wealthiest donors’ ambitions and actions — signal that the marketplace matching great opportunities to philanthropy is broken.

What’s more, the evidence suggests that the market’s flaws will worsen over time as donors retreat from supporting perpetual, large-staffed foundations and are left to seek out big opportunities on their own.

Having identified these barriers, we set about envisioning a compelling future state for ultra-wealthy giving. Our assessment identified four significant pathways to greater giving. These pathways, individually and collectively, have the potential to unlock billions of dollars to drive social change. Without these mechanisms, philanthropists have virtually no access to social change efforts (and virtually no access to local/community-driven solutions driven by people of color).

However, we also realize that philanthropy is personal and deeply enmeshed with family, legacy and values. A core challenge — creating solutions at scale for donors who are accustomed to bespoke approaches — should not be underestimated. Scaling strategies that assume all donors behave alike will likely fail.

Path 1: Aggregated funds become a common asset class for ultra-wealthy donors
Platforms like Blue Meridian Partners and The END Fund, which enable funders to marshal resources and invest collectively to address structural barriers to equity, are among the most prominent models for collaborative, aggregated funding. We estimate that an array of philanthropic options such as these could spur more than $5 billion in annual giving.

Path 2: A high-impact way for philanthropists to bet big on improving economic mobility
U.S. economic mobility has declined sharply over the past half century. A promising model for accelerating donors’ efforts to put millions more Americans on an upwardly-mobile trajectory comes in the form of matching donors to great community-led opportunities.

This pathway replicates, on a national scale, community foundations’ most effective elements — for example, utilizing straightforward structures like donor advised funds and offering tailored donor services and content knowledge. Such a community foundation for America would enable donors to give seamlessly to advance economic mobility. If successful, we estimate this approach could unlock $5 billion annually.

Path 3: Philanthropists have access to high-quality services that support their giving
Private wealth management firms in the for-profit sector, such as JPMorgan Chase and Morgan Stanley, offer high-touch relationship managers who connect customers with the right investments and asset managers to address their financial needs. The same does not occur at scale with philanthropy.

If donors, at scale, could access those services readily, we estimate they could unlock more than $2 billion annually.

Very few organizations provide strategic philanthropy services that support, say, more than 20 ultra-wealthy donors simultaneously. Even though philanthropy is personal, many of the services that these donors need most have similar characteristics — for example, referrals to quality providers, access to high-impact funding opportunities, and reliable measurement and reporting. If donors, at scale, could access those services readily, we estimate they could unlock more than $2 billion annually.

Path 4: Philanthropists have consistent access to those qualified grantees that are prepared to put their big bets to effective use
Compared to institutional nonprofits like hospitals and universities, social change organizations operate at a major disadvantage. It is often easier for philanthropists to give to institutions, with their large development offices offering a menu of options for large gifts.

Although some high-performing nonprofits are prepared to put big philanthropic investments to immediate use, more capacity-building work needs to be done to ensure these nonprofits are prepared to structure and absorb significant investments, especially if the ultra-wealthy double their giving. Strengthening social change nonprofits in this way could unlock upwards of $10 billion annually, according to our estimate.

We are at the beginning of a $30-trillion wealth transfer from baby boomers to their heirs, which will play out over the next two to three decades. If the wealthiest families surmount the challenges to giving more, they will seize a once-in-a-generation opportunity to help put society on a path to enduring progress.

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