4.1 Overview of HNW and UHNW Giving in Australia Compared to Overseas ...
Australian HNW and UHNW do not give at the same level as their peers in other ...
Strategies for Increasing High Net Worth and Ultra High Net Worth Giving Prepared for the Commonwealth Department of Families, Housing, Community Services and Indigenous Affairs Final Report Approved for Publication 17 February 2011
Prepared on behalf of Philanthropy Australia by Effective Philanthropy E –
[email protected] E –
[email protected] T – 03 9417 5440 or 0411 156 159 1
Contents
1
Executive Summary
2 – 10
2
Project Overview and Scope
11 – 12
3
Methodology
13 – 15
4
Report 4.1 Overview of HNW and UHNW Giving in Australia Compared to Overseas 4.2 Factors Influencing Propensity to Give and Giving Behaviour 4.3 Consultation Findings 4.4 Recommendations
16 – 60
5
Bibliography
61 – 66
6
Appendices
67 – 70
2
Executive Summary Overview: • Australian HNW and UHNW do not give at the same level as their peers in other countries. − Australian HNW and UHNW tend to give at a relatively low level when calculated as a percentage of income or investable asset base. − Although Australian HNW and UHNW giving has increased in recent years, it has not kept pace with the increase in wealth. − Since 1999 the Government has put in place a range of tax incentives and structures to encourage HNW and UHNW giving including the introduction of private prescribed funds in 2001 (now private ancillary funds). − Notwithstanding that, many HNW and UHNW give on an ad hoc basis through periodic donations rather than through a formal trust or foundation structure. • The differential in giving between Australia’s HNW and UHNW population and its overseas peers appears to be influenced by a number of factors: − Relatively recent growth in the size and wealth of the HNW and UHNW population in Australia − A different social welfare and taxation tradition that prioritises the perceived role of Government over the private sector in addressing socio-economic and environmental issues and promoting cultural and civic participation − A differing association between wealth and philanthropy such that, unlike the USA, where a person’s wealth status is seen as being reflected not only in the asset base that a person has but also how much they give away, wealth in Australia is predominantly measured by asset base alone and − A hesitancy on the part of many HNW and UHNW who do give to promote their giving activity, and in doing so, help cultivate a culture of giving, linked in part to the “tall poppy” syndrome in Australia. 3
Executive Summary (continued) Overview (continued): • As the number of HNW and UHNW in Australia grows, increasing focus is being placed on how best to encourage giving amongst those groups. • A range of strategies have been used to promote giving overseas; that activity has been most effective where: − A range of strategies has been employed to promote donor activity − Activity has been tailored to take into account the diversity across different target donor groups and − Investments have been made in underlying philanthropic sector infrastructure to support implementation. Factors Influencing Propensity to Give and Giving Behaviour: • Research in Australia and overseas indicates that there are a number of factors that influence the propensity of HNW and UHNW to give including: − The cultural context in which the individual lives and whether or not there is a practice or expectation that individuals with wealth will or should give (i.e. whether being recognised as having wealth and being accepted into the HNW or UHNW group is linked not only to the assets you have but also what you give away) − The personal or family values that they have − Whether or not they see themselves as having the financial capacity to give. • Whether or not an individual is likely to continue to give will be influenced by both the above factors and whether or not they have a positive experience when they give and so are encouraged to give again. • What individuals give to and how they give are often influenced by and / or reflect a range of personal preferences and decision making characteristics. 4
Executive Summary (continued) Factors Influencing Propensity to Give and Giving Behaviour (continued): • Giving often increases over time as individuals move from giving small donations to giving larger amounts, often in a more regular or structured way. • Attitudes towards giving are often laid down early in an individual’s earning / asset accumulation cycle. • Strategies to promote giving by HNW and UHNW need to take into account all of the above factors. Consultation Findings: • Research and consultations conducted as part of this project indicate that the ideal giving environment is one where giving is valued and is easy to do. • Subject to limited exceptions, in general people interviewed as part of this project believe that existing legal and tax structures are adequate to support HNW and UHNW giving. • Outside of that, the consultations indicate that many of the factors that operate to encourage giving in other countries are under-developed in Australia. • There is strong support for the introduction of a Charities Commission for England and Wales style regulator to improve donor confidence in the NFP sector and make it easier for donors to identify organisations to fund. • There is also support for a more proactive peak body to promote philanthropy and the development of the philanthropic sector. • There is not support for a national foundation or pooled funding model involving Government and philanthropic contributions. • These findings suggest that to promote giving Australia needs to build a stronger cultural expectation around giving and adopt strategies to more proactively engage potential HNW and UHNW donors and enable giving. 5
Executive Summary (continued) Recommendations: • Following is a series of ten recommendations that forms a structured strategy through which the Government can promote HNW and UHNW giving and support the long term development of social capital in Australia. • The recommendations fall into two categories: − System Recommendations – that cover actions that aim to strengthen the underlying service system supporting the philanthropic sector to better enable / facilitate giving activity − Program Recommendations – that cover targeted initiatives that aim to increase the number of HNW and UHNW involved in giving and increase the amount of money that they give. • Some of the system based recommendations identified in this paper have been identified previously and are critical to supporting the ongoing development and professionalisation of the philanthropic sector. • In the absence of investments in those areas, the proposed program based initiatives are likely to be less successful. • In prioritising activity in this area it is therefore recommended that particular focus be placed on implementing System Recommendations 1 – 5 and Program Recommendations 7.1 – 7.4.
6
Executive Summary (continued) Recommendation1
Strengthen the ability of the philanthropic sector to promote and cultivate giving by supporting the development of a strong, sustainable national peak body to promote and cultivate giving in Australia. In order to do that it is recommended that the Government: • Make provision for the sector to fund activity relating to the development of the sector by: − Making a special listing or providing specific naming in an act of parliament granting DGR status to Philanthropy Australia as the national peak body for the philanthropic sector on the basis that it is a not for profit organisation that operates to promote charitable giving or − Introducing a DGR category covering the promotion of philanthropy or − In the absence of being prepared to grant DGR status, then support the establishment of an independent special purpose fund for the promotion of philanthropy that has capacity to allocate funds to organisations without DGR status including Philanthropy Australia • Contribute seed / project based funding to (or through) Philanthropy Australia to support the coordinated development of the philanthropic sector.
Recommendation 2
Appoint Giving and Philanthropy Ambassadors to promote philanthropy and encourage HNW and UHNW giving.
Recommendation 3
Establish a national Registrar for Community and Charitable Purpose Organisations in accordance with the recommendations of the Productivity Commission in its Report on the Contribution of the Not For Profit (NFP) Sector1 to: • Make it easier for donors to identify and access information about NFP organisations • Improve confidence in NFP organisations’ governance, accountability and performance.
Note: (1) Productivity Commission, Contribution of the Not-For-Profit Sector, Research Report, Canberra, 2010.
7
Executive Summary (continued) Recommendation 4
Establish a regular forum or dialogue between the philanthropic sector and Government.
Recommendation 5
Establish dedicated structures to improve communication between the ATO, Treasury and the philanthropic sector and encourage take up of available tax incentives and charitable giving structures by: • Establishing a dedicated Australian Tax Office (ATO) Philanthropy Consultative Committee to improve dialogue between the ATO, Treasury and the philanthropic sector • Making the annual minimum distribution rate requirement associated with private and public ancillary funds a legislative rather than a regulatory requirement • Taking more active steps to promote available tax incentives and charitable giving structures to encourage adoption through the ATO website and communications. Encourage the development of intermediary organisations that operate to promote charitable giving to support the development and professionalisation of the philanthropic sector by: • Introducing a DGR category covering the promotion of philanthropy or supporting the establishment of an independent special purpose fund for the promotion of philanthropy that has capacity to allocate funds to organisations without DGR status • Allowing expenses paid by PAF funds to non associate individuals and/or companies for research and due diligence to facilitate grant making to count towards the 5% minimum distribution requirement up to a maximum of 1%.
Recommendation 61
Note: (1) Declaration of Interest: It is noted that the author of this report, Effective Philanthropy, is an organisation that would potentially benefit from the implementation of this recommendation.
8
Executive Summary (continued) Recommendation 7
Contribute seed / program funding to (or through) the national peak body to support the development and implementation of a structured program of activity targeted at promoting philanthropic giving and engaging HNW and UHNW in giving activity including: 7.1 Strategic social marketing and promotional campaign targeted at: • Aspiring / Next Generation HNW, HNW and UHNW groups - to build a culture and practice of giving • Advisors working with HNW and UHNW groups and associated professional bodies - to get them to include the discussion of philanthropy when doing financial and estate planning with their clients • NFP organisations and fundraising staff and professionals - to reinforce how to ask effectively for funds and manage relationships with donors. 7.2 Advisor education and training program targeted at accountants, legal and other professional advisors working with HNW and UHNW and associated professional bodies to get them to help cultivate HNW and UHNW giving. 7.3 Targeted donor engagement programs that operate on a personal and peer group basis to: • Engage aspiring / next generation HNW in giving activity early in the income / asset accumulation cycle • Encourage HNW and UHNW at the low end of the giving spectrum to increase the level and / or regularity of their giving activity and move up and across the giving spectrum. 9
Executive Summary (continued) Recommendation 7 (continued)
7.4 Formal and informal giving circle programs designed to provide participants with information about specific issues / areas and encourage individual and collaborative giving. 7.5 Research program to map philanthropic activity by issue / funding area to: • Better understand and profile the role being played by philanthropy • Support the development and implementation of giving circle / collaborative giving activities • Facilitate cross-sector engagement between Government and the philanthropic sector. 7.6 Register of intermediary services that provide support to donors to set up grant making structures and give effectively.
Recommendation 8
Utilise matching grant and / or innovation fund models to encourage philanthropic engagement in specific areas.
Recommendation 9
Introduce a national Philanthropist of the Year Award as part of the Australia Day honours program to recognise leading philanthropic activity.
Recommendation 10
Support the development of social investment products and markets.
10
Contents
1
Executive Summary
2
Project Overview and Scope
3
Methodology
4
Report 4.1 Overview of HNW and UHNW Giving in Australia Compared to Overseas 4.2 Factors Influencing Propensity to Give and Giving Behaviour 4.3 Consultation Findings 4.4 Recommendations
5
Bibliography
6
Appendices
11
Project Overview and Scope • Philanthropy Australia (PA) has been engaged by the Commonwealth Department of Families, Housing, • • •
• • •
Community Services and Indigenous Affairs (FaHCSIA) to explore strategies to encourage greater levels of giving among Australia’s high and ultra high net worth individuals (HNW and UHNW) 1. As part of that project PA was initially asked to conduct a feasibility study into the establishment of a national foundation as a mechanism to strengthen HNW and UHNW giving. PA engaged Effective Philanthropy to undertake the above study. In undertaking that study Effective Philanthropy was asked to conduct desktop research and undertake stakeholder consultations to: − Review trends in high and ultra high net worth giving activity in Australia and overseas, in particular the USA and the UK − Identify incentives and disincentives (barriers) influencing giving activity amongst that group in Australia − Test the concept of using a national foundation to promote increased giving by that group and gauge potential interest in contributing to such a foundation and − Identify potential models for the establishment and operation of a foundation. Early in the consultation process it was identified that there was not interest in a national foundation amongst the target group. As a result of those findings the scope of the feasibility study was redefined by FaHCSIA to explore the broader question of what could be done to encourage HNW and UHNW giving in Australia. This paper outlines the findings of the resulting study.
Note: (1) Definitions of HNW and UHNW are provided in the Methodology section of this paper (see page 4).
12
Contents
1
Executive Summary
2
Project Overview and Scope
3
Methodology
4
Report 4.1 Overview of HNW and UHNW Giving in Australia Compared to Overseas 4.2 Factors Influencing Propensity to Give and Giving Behaviour 4.3 Consultation Findings 4.4 Recommendations
5
Bibliography
6
Appendices
13
Methodology • This paper is based on a detailed literature review and a series of stakeholder interviews conducted over a five week period in June – July 20101. • The literature review covered materials from Australia and overseas and identified: − Trends in HNW and UHNW giving in Australia, the USA and the UK − Incentives and disincentives (barriers) to HNW and UHNW giving and − Foundation models and other strategies used to promote HNW and UHNW giving. • Thirty-six (36) individual interviews were conducted with a range of stakeholders from across Australia: HNW and UHNW
18
Community Foundations / Venture Philanthropy Funds
4
Financial advisors
5
Fundraisers
2
Intermediary Service Providers
1
Community Development Financial Institutions
1
Researchers
5
4 female and 14 male Age group 40 years and above
• Interviews were conducted on a semi-structured basis and were either done face-to-face or by telephone.
Potential HNW and UHNW interview candidates were recruited through Philanthropy Australia’s membership network and researcher contacts. Participation was voluntary. Other interview candidates were identified through research conducted as part of the study or through referral from Philanthropy Australia or other interview candidates. • In addition to the above one-on-one interviews three small group interviews were conducted. One of those groups was made up of sixteen (16) philanthropists and community foundation representatives. The other two were made up of ten (10) aspiring / next generation HNW representatives (age group 25 – 40 years). Note: (1) See Appendix 1 for an overview of the approach taken in this project.
14
Methodology (continued)
• Data on giving in Australia is limited. In order to be able to reference this project to published data the following definitions have been used to define HNW and UHNW groups. Aspiring HNW
Low high net worth individual with assets outside of the family home and debt of over AUD$1.2M and / or an annual personal taxable income of $0.1M $0.5M
Mid HNW
Mid high net worth individual with assets outside of the family home and debt of over AUD$1.2M and an annual personal taxable income of $0.5M $1M
High HNW
High net worth individual with assets outside of the family home and debt of over AUD$1.2M and an annual personal taxable income of $1M plus
UHNW
Ultra high net worth individual with investable personal assets of $30M or more
• The above definitions draw on those used by the Centre of Philanthropy and Nonprofit Studies, QUT in their recent work on giving in Australia, the Merrill Lynch / Capgemini World Wealth Report and the Australian Tax Office (ATO) high income band categories1.
Note: (1) Madden & Scaife., Good Times & Philanthropy: Giving by Australia’s Affluent., Brisbane: Centre of Philanthropy and Nonprofit Studies, QUT., March 2008., p.3. (Madden & Scaife 2008).
15
Contents
1
Executive Summary
2
Project Overview and Scope
3
Methodology
4
Report 4.1 Overview of HNW and UHNW Giving in Australia Compared to Overseas 4.2 Factors Influencing Propensity to Give and Giving Behaviour 4.3 Consultation Findings 4.4 Recommendations
5
Bibliography
6
Appendices
16
Overview Australian HNW and UHNW do not give at the same level as their peers in other countries
•
•
•
because of variations in what countries count as giving and how they measure it1. 1.8 1.67 Available research suggests that: % GDP Gifted Avg Annual Income 1.6 − Overall giving levels as a percentage of GDP are slightly 1.4 lower in Australia than the UK and Canada and 1.2 1 significantly lower than the USA2 and 0.73 0.72 0.69 0.8 − On average Australia’s HNW and UHNW give at a lower 0.6 level than their counterparts in the USA, Canada and 0.4 the UK despite comparable wealth levels3. 0.2 Australians with a taxable personal income of more than 0 $1M contribute less than 2% of their income, compared to USA UK Canada Australia 3.2% in Canada and 3.5% in the USA (>7% for those with HNW Contribution Rate (donations as incomes in excess of $US10M)4. percentage of pre-tax income)2 The 2007 World Wealth Report estimates that globally, the 4 wealthiest investors (people with investable assets 3.5 equivalent to $USD30M plus) who contribute to 7%+ for HNW with 3 philanthropic causes give away approximately 10% of incomes >$10M USD 2.5 their assets annually and people with investable assets of 2 $1M or more who contribute to philanthropic causes 1.5 allocate between 3% and 12% of their assets annually5. 3.2 1 3.5 1.9 By comparison, tax statistics in Australia indicate that 0.5 making substantial donations still constitutes an exception 0 rather than a norm for our HNW and UHNW5. Donations as % GDP
•
Donations as a Percentage of GDP shown against Average Annual Income (2004)2
USA Note:
(1) (2) (3) (4) (5)
Canada
45 40 35 30 25 20 15 10 5 0
Avg. Annual Income USD$K
• Comparisons of giving between countries are difficult
Australia
Madden & Scaife 2008., p.4. Charities Aid Foundation., CAF Briefing Paper: International Comparisons of Charitable Giving., November 2006., p.6. (excludes legacies and religious taxes and direct gifts to the poor). Madden & Scaife 2008., p.ii. Tracey and Baker., How the Wealthy Give., Asia-Pacific Centre for Philanthropy and Social Investment Swinburne University of Technology, Melbourne, October 2004., p.18. World Wealth Report 2007., CapGemini & Merrill Lynch., 2007. (World Wealth Report 2007)Madden & Scaife 2008., p.iii. (asset figures exclude primary residence, collectibles, 17 consumables, and consumer durables).
Overview Australian HNW and UHNW tend to give at a relatively low level when calculated as a percentage of income or investable asset base • Approximately 65% of HNW and UHNW Australians claim deductions for their charitable giving1. • Some HNW and UHNW give in a substantial way, setting aside a significant proportion of their income or assets for philanthropic purposes; in some cases they have committed to giving away the full amount that they have set aside for that purpose during their lifetime2. • In general, however, Australian HNW and UHNW tend to give at a relatively low level. • Measured as a percentage of taxable income, tax deductable donations across most of the HNW population are only marginally higher than lower income Australians1 (see below). HNW Giving Profile3 HNW Segment
Aspiring / Low
Mid
High / Ultra
Taxable income
$0.1 $0.5M
$0.5 $1M
$1M+
466,130
13,230
4500
Percentage claiming charitable donations
59.2%
62%
66%
Value of total donations
$310M
$64.5M
$176.6M
Average gift per donor as a percentage of taxable income (compared to average for Australians on incomes of
