Commission calls on FCA to improve guidance on philanthropy in the financial services sector

Regulator should mandate training for advisers and pursue regulation, report says

  • Philanthropy in the UK is worth over £20billion every year
  • But expert advice on charitable giving needs improvement
  • Better guidance would benefit business and society, as seen in the US
  • If the top 1% all donated 1% it would generate £1.4billion a year for charities
  • The Commission identified 8 issues and made 4 recommendations

According to a report, the Financial Conduct Authority (FCA) should make philanthropy advice training mandatory for financial advisers and introduce regulations to ensure it is discussed with clients.

New research for the Law Family Commission on Civil Society, led by Pro Bono Economics, has called on the FCA to act to improve “the quality and quantity of financial advice and advice on philanthropy” in the UK, making four key recommendations.

Currently, philanthropy in the UK is worth nearly £20 billion a year, but there is an opportunity to grow it significantly. Last year, research for the Commission found that the top 1% cut their typical charitable giving by a fifth between 2011-12 and 2018-19, despite rising incomes. Greater action by financial advisors could help reverse this decline.

The Commission, which is chaired by former Cabinet Secretary Lord Gus O’Donnell, found that if every person in the top 1% who currently give less than 1% of their income increased their giving to that level , it could generate up to £1.4billion a year for charities.

The new report, titled Giving Advice: The Case for FCA to Act on Philanthropy, notes that outside of a handful of leaders in the field, such as Coutts and C. Hoare and Co., providing high-quality philanthropic advice to all clients is not widespread. The report attributes this to several factors, including “lack of incentives”, “traditional mindsets and culture” and a “lack of regulatory clarity and leadership”.

In contrast, the report cites the United States as an example of what good financial advice on philanthropy can do for society and for financial services companies. He argues that a strong philanthropic offering allows companies to deepen their relationships with their customers, which means they provide better services, and puts them in a more competitive position to attract new business from younger customers.

According to the report, by improving the quality and quantity of philanthropy advice, the FCA would “fulfil its duty to ensure that consumers receive the products, services and advice they demand from the sector”, while advancing its own ESG. ambitions. The report highlights four key recommendations for the FCA:

  • Review the market for financial advice and philanthropy advice. Through desk research, company data requests and company visits, the FCA is expected to build a comprehensive picture of the financial services sector’s philanthropic offering.
  • Demonstrate to the financial services industry the important role philanthropy can play in unlocking public benefits. This could include a “soft leadership” role, for example with the FCA senior team incorporating the subject into their speeches.
  • Mandate education and training on philanthropy for relevant financial advisors. As part of the FCA’s regular reviews of its mandatory qualifications for financial advisers, it should undertake a vigorous effort to ensure the inclusion of philanthropy in relevant courses.
  • Introduce sustainability requirements into the suitability assessment, emphasizing the role of philanthropy in contributing to sustainability efforts. As already being considered, the FCA should pursue regulation to require financial advisers to discuss sustainability intentions with their clients alongside philanthropy.

In the United States, where philanthropy financial advice is routinely offered to clients, the benefits have been quantified. Research suggests that companies that offer charitable planning to their clients have three times the median organic growth of those that don’t, 1.3 times the median new funds per investor, and significantly higher customer satisfaction scores.

The strongest supply of philanthropy in the United States has also directly contributed to the dramatic increase in donor-advised funds, which more than tripled between 2015 and 2020, reaching the one million mark during the pandemic. Of $159.8 billion in assets under management in these funds, $34.7 billion was paid out in charitable grants in 2020, compared to $14.2 billion in 2015.

The report identifies eight “systemic and intertwined reasons” for the lack of high-quality financial advice on philanthropy in the UK. As well as “lack of incentives”, “traditional mindsets and culture” and a “lack of regulatory clarity and leadership”, the report also cites the “organizational structure” of UK businesses as an obstacle, as well as a ” poor understanding of available products”, “limited reporting on impact”, “poor understanding of social impact” and “poor understanding and availability of tax incentives”.

Nicole Sykes, Director of Policy and Communications at Pro Bono Economics, said:

“Philanthropy is a major source of funding for charities in the UK, contributing £20 billion each year. But there is a real opportunity to develop this.

“With the highest earners in the country giving less to charity each year, financial advisors have a huge role to play in turning the tide as the people the wealthiest tell about their money.

“As demonstrated in the US, specialist advice in large-scale philanthropy generates huge benefits for society and financial services companies, and we need to see the same in the UK.

“This requires the leadership and stewardship of the FCA, which has the tools and influence to help unlock much more of the true potential of philanthropy in the UK.”

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