Philanthropy as a customer retention tool 2008

Philanthropy is growing worldwide. This brief presents the extent and characteristics of giving based on several important external studies, and proposes that wealth managers offering strong philanthropy services can retain their existing client base, and the children of those clients.

Report Highlights
In the United States, charitable giving is on the increase due to the generosity of entrepreneurs. In 2006, charitable giving in the United States amounted to $289.5 billion, representing 2.2% of GDP, and an 11% increase on giving in 2005.

Smith Barney appeals to emotive reasoning, highlighting mutual benefits: ""We all have personal reasons for giving to charity, but many of us give out of a common desire to share our good fortune with others. And while our generosity can certainly improve the communities in which we live and work, it can also help us financially.""

37% of European HNWs earned their wealth though entrepreneurship, according to Datamonitor's Wealth Management Market Leaders Survey. The extent to which HNW individuals earned their wealth from business entrepreneurship ranged from 28% in the UK to 43% in Italy.
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DATAMONITOR VIEW 1
CATALYST 1
SUMMARY 1
ANALYSIS 2
Charitable giving is a large and growing market among the world's wealthy 2
Legal and social frameworks differ between countries and lead to different incentives to give 2
Charitable giving in the US is growing and totaled $289 billion in 2006 2
Charitable giving in the UK totaled $29 billion in 2006 and there are positive trends emerging within the UK philanthropy sector 6
Philanthropy is increasing in Europe, although there is a lack of standardization in reporting requirements 7
Foundations in both Europe and the US have increasing budgets for charitable work 8
Australians gave $11 billion (USD9.6 billion) to charity in 2004 8
Vehicles for giving used by high net worth households 9
Foundations create a structured process for giving 10
The motives of the new philanthropists are strategic 10
The philanthropic customer base is changing to one where philanthropists are driven by a cause and want to give in their own lifetime 11
The source of wealth of HNW clients has implications for the strategic advice offered by banks 12
The changing philanthropic customer base reflects changes in the motives for giving and results in a different type of giving 13
Traditional motives for giving revolve around recognition of a need to ""give back"" to society 13
The wealthy give for essentially four reasons 15
Banking institutions aiming to retain high net worth clients clearly link their clients' motives to the provision of services 15
Banking institutions targeting high net worth clients can use philanthropy to retain these valuable clients for generations 16
HNW customer retention is a problem for banks 16
Mixing investment and philanthropy is a valuable way of ensuring that banks retain their HNW clients 16
Intergenerational wealth transfers are increasing 16
There is a generation of young, wealthy people who are contributing to the increase in philanthropy 16
Banks differ in how they are marketing their philanthropy services on their websites 17
Coutts 17
Smith Barney 17
Private Family Foundations - private family foundations are• legal entities established and funded by individuals to aid charitable causes. Importantly, Smith Barney points out that foundations give donors and their families the maximum ability to control their charitable investments and grant making. 18
Deutsche Bank 18
UBS 18
Goldman Sachs JBWere 19
APPENDIX 21
Four different types of foundation exist 21
Methodology 21
Bibliography 21
Further reading 22
Ask the analyst 22
Datamonitor consulting 22
Disclaimer 22
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Table 1: Allocation of total donations from high income US households, 2005 4
Table 2: Private charitable donations in the United States, 2005 5
Figure 1: Allocation of total donations from high income US households, 2005, $ billion 3
Figure 2: Private charitable contributions in the United States, by segment, 2005 5
Figure 3: Vehicles used for giving by high net worth households in the US, 2005 10
Figure 4: HNWs whose wealth is acquired through entrepreneurial activity ranges from 28% of HNWs in the UK to 43% of HNWs in Italy 12
Figure 5: Motivations for charitable giving by US high net worth households 14
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