Episode 4: What do I do if…I want to make a difference with my wealth?

00:00:06 David Lee, Host

Hello, my name is David Lee and welcome to Podcasts by Brodies.

Experts from Brodies operate in many areas of the law everyday and their clients ask a wide range of questions during their time working with lawyers, whether they're navigating new or more familiar situations together.

In our series, "What do I do if…?" those experts from various fields explain how they help clients when faced with some of those different and often difficult questions.

The latest episodes feature Brodies personal family team, and today we're looking at the question, “what do I do if...I want to make a difference with my wealth?”

I'm joined for this discussion by Kenneth Pinkerton, a partner in the charities and third sector team at Brodies and Amy Blackwell, an expert in philanthropy in its impact and multi generational wealth.

Welcome to both of you and Kenneth, if I can come to you first.

If you're approached by a client who says, “I want to make a difference with my money,” what's your initial response and advice to them?”

00:01:09 Kenneth Pinkerton, Partner, Brodies LLP

Well, my initial response would be fabulous! That is absolutely fantastic!

As someone who has now managed to clock up, and I can't believe I'm saying it, over 20 years of experience in the charities and third sector, both on the philanthropic side and also on the operational side, I know how much good, somebody wealth can make.So that would be my initial reaction.

Then I would politely start to investigate what they mean by “my wealth,” so that I can start to identify where they sit amongst the range of charities that they might want to assist and how they might want to assist them.

00:01:58 David Lee, Host

Amy, just a very basic question to begin with, when we talk about philanthropy what do we mean?

00:02:06 Amy Blackwell, Partner, Acorn Capital Advisors

The main definition for philanthropy is public good, financed by private means.

I think that philanthropy is a somewhat loaded word in today's world, and many people prefer to call themselves impact investors or engaging with impact.

I think the main point is do you want to be a net giver? Do you want to leave it better than you found it?And anyone at any age can be a philanthropist. People think that they can't do it unless they're Bill Gates or Mackenzie Scott.

Regardless of the size of your wallet, you can be an effective philanthropist.

00:02:51 David Lee, Host

And is there a type of person more inclined to be philanthropic, Amy?

00:02:57 Amy Blackwell, Partner, Acorn Capital Advisors

I don't think so. I think that people come to philanthropy for different reasons.

Some people come because it's part of the legacy of their family and it's part of the responsibility of being a member of the family. And they come sometimes unwillingly or without great enthusiasm.

It's our job as advisors to show them how exciting and rewarding it can be.

Other people come to philanthropy because they've had a crisis in their life, whether its health related or they've lost someone or they've had an experience that has fundamentally changed them, and they realize that they want to give back or they want to finance research or they want to make a difference, so someone doesn't go through what they've been through.

So I think that there are a million reasons why people come, and the role that we play is to make sure that they get the most out of whatever it is that they're willing to commit to the effort.

00:03:56 David Lee, Host

What are the key questions that you asked them, Amy, to begin with, just to make sure they understand what they're getting into and to help you put them on the path that suits them best?

00:04:08 Amy Blackwell, Partner, Acorn Capital Advisors

Well, the first thing we need to find out is who within the family is going to participate in this journey? Because it is a remarkable way to bring generations of families together. It can be what I would call a sticky strategy because you can give soft landing spots across a family for various people under one umbrella of a strategy.

And I've worked with children as young as eight and 10 years old, so it is never too early to start talking about being engaged with the world around you and seeing wealth as a tool and not as your identity.

So typically, we find out who's going to be involved and we find out are there areas that they already know they're drawn to? And if there are then that sends us in a direction to explore who we might help and how we might help, and where we might do it?

If they really don't know, then there are strategies we can use to try and tighten the lens to figure out what the purpose of that money is going to be so that it's as effective as possible.

00:05:15 David Lee, Host

Thanks very much Amy. Kenneth, how important is it to have some idea where you go in to have a clear purpose in mind when starting out with some kind of philanthropic venture?

00:05:28 Kenneth Pinkerton, Partner, Brodies LLP

It certainly helps if you have an idea of how you want your wealth to make a difference and in what kind of areas, but it absolutely is not the be all and end all.

As Amy has said, we have strategies. We have other people that we know, people in the sector who can help shape that vision. It's important that there's an outline there, and that outline can be “I want to do good,” and then our job is to fill it in, put the colour in, as it were.

00:06:10 Amy Blackwell, Partner, Acorn Capital Advisors

I think one of the interesting things about that Kenneth, is the way that people who do what I do need to engage with people who do what you do, because it's like building a house.

If you don't understand what you need the house to do for your family, and you don't know how big the family is going to be in the house, and you don't know what the forces acting against the house might be, then you as a lawyer build a house that isn't actually fit for the purpose.

So, it's so helpful when you can liaise with another advisor and work with a family to say, “we really understand the types of avenues for impact that we want to use,” so that you can then say “this is the right kind of structure that will give you the power to do it, the way you want to do it.”

00:07:01 David Lee, Host

In terms of structures there, Kenneth, what kind of structures are available for people who want to go down this path?

00:07:10 Kenneth Pinkerton, Partner, Brodies LLP

For people going down this path, you have, your standalone charitable foundation, and that is, I would say a very, very common structure. It comes with full control for the trustees, for the founder, and the founder can build in additional controls for the direction.

What I would describe as one step down, you have what are called DAFS which are Donor Advised Funds, where you hand over your money to another foundation along with an outline of what your wishes are. But to go down to that level, and there's very good reasons sometimes for doing so, you are giving up a degree of control.

And then moving out of the structures, one step down, you can have agreements with particular charities to do specific things for specific projects.

So it might be you have a passion for research and you might approach a university and say, I have, “x hundred thousand or x million pounds that that I want to donate to research into a particular topic,” and as Amy has said, that might be the sort of thing that comes out of a crisis in the family.

00:08:38 David Lee, Host

If you do go down the route of your own charitable foundation, Kenneth, then what about selecting trustees?

Is it normal to have family members as trustees or is it more sensible, advisable, common to look further afield?

00:09:01 Kenneth Pinkerton, Partner, Brodies LLP

Well if I put my dull charity governance hat on, what the Scottish Charity Regulator and the Charity Commission for England and Wales would say is that you should have the right mix of skills on any charity board to deal with the operations of the charity.

If you have a grant giving charity then that would suggest that you have possibly somebody who is well versed in investment management, somebody who has experience of the wider sector. And on top of that, you would have the donors, the founders, the people who have put the money in.

Personally, and I'd be interested to hear from Amy, my experience generally is with family foundations, particularly first generation, that you will have the founder and very close family.

It isn’t until you perhaps get further down the line, when the founders perhaps realize they aren't going to be there forever, that they start to think about drawing wider experience, perhaps from close family, trusted advisors, and others in the circle, and also the generations below.

00:10:24 Amy Blackwell, Partner, Acorn Capital Advisors

I would agree. I think it's the recommendation that I make with the families when they're starting this is oftentimes to think of it as a way to onboard younger family members into understanding the importance and the identity of the wealth because they can't buy a Ferrari with it, you know?

The money is earmarked for good, and it gives them an opportunity to learn and so having the founder or the family members that have a lot more experience working with them and giving them an opportunity to, even if it's not to be joining as a trustee, but to have there be a grantmaking committee that family members can ascend to at the age of 16 and be a part of it. And then when they get to 18-20, there's the potential for them to join.

It's an important journey of learning. I agree with you, that it is important but, families also don't realise the reputational risk they take on with a family foundation, and I do advise them very early on to bring some skill sets into the mix. Even if they have to pay a trustee and report that as a skill set, there's a lot of governance that people just don't realise and there is a lot of risk.

00:11:44 Kenneth Pinkerton, Partner, Brodies LLP

On payment of trustees. That is often a point that is raised and certainly in Scotland it is possible to pay trustees, so long as it is not the majority of trustees who are getting paid.

00:12:03 David Lee, Host

And what's your experience, both of you, on a foundation that is primarily or entirely family?

Do you ever get situations where someone in the family wants to set up the foundation and other members of the family don't want to do that?

Do you have those problems right at the start of the process?

00:12:22 Amy Blackwell, Partner, Acorn Capital Advisors

I think sometimes you get misalignment across family members and it can often depend on the spending rate of various members of the family.

Some people feel why are we giving it away? What if we need it? And so you do have to build consensus, and I think the best way to do that is really to begin with the end in mind and start with conversations about purpose and legacy.

What does it mean to be in the family? And then you can build some consensus and start small.

Sometimes those first trial runs do sit within a Donor Advised Fund because it gives people a little bit more autonomy of mission rather than having their big something that everyone in the family has to buy into.

00:13:03 David Lee, Host

We talked a little bit before about when you build a house, you need a range of different skill sets.

What about that dynamic between the two areas that you represent - the legal side and the more expert philanthropy impact wealth side.

How do you see when that works at its best, Amy, how does that work well for the client?

00:13:31 Amy Blackwell, Partner, Acorn Capital Advisors

Well, I think the best situations are ones where, for example, Kenneth and I are sitting at a table with family having a conversation about,

“OK, have you ever wanted to invest in a startup company that is dealing with impact?”

“No, we would never do that. We would only do grantmaking”.

“OK, that's great.”

“Yes, we would really like to do that. How could we do that?”

“Well, that may be a different vehicle or that may need to have different language in the creation of the vehicle so that the trustees are comfortable investing in something that could potentially have a lower return.”

So it's about the communication of everyone at the table, because what someone might say to me might have a legal implication to the structuring. And so it's so important to have.

And people say, “Oh, but lawyers are charging in six-minute increments.”

And I promise you it will be cheaper to get it right, than to have to go back to Kenneth later and say, “well, we didn't know, but we needed it to do this and now it can't do that.”

00:14:32 Kenneth Pinkerton, Partner, Brodies LLP

I would absolutely agree with that.

Communication and collaboration is so important when it comes to a philanthropic journey, and Amy and I working together in a room would probably achieve much more, much quicker than where there to be a go-between passing information backwards and forwards.

Again, getting it right at the start is very important.

It's never disastrous. We can always unpick bits and pieces of work that have been done, but it does come at a price and the cost of doing so would be so much better spent on the cause and getting the money out there doing good.

One thing I always say to clients when they are setting up a charity or putting money in charitable causes, “Please remember, once it's marked as charity funds, it stays as charity funds.”

You cannot get it back, so if you really need it, or you think you might need it, pause and think again before you start on your philanthropic journey.

00:15:49 Amy Blackwell, Partner, Acorn Capital Advisors

Or engage in an impact journey and take the money and invest it in social enterprises and invest it in impact investments where you still own those assets.

They can be achieving impact while you're getting a financial return and you still have access to that principle. It can be a transitional part of the strategy if you're not quite ready to put a big lump sum, but it can be part of the general conversation about the purpose.

00:16:15 David Lee, Host

And if you sit around that table with the family, with the trustees, if it's set up already - what if they disagree with the advice you're given to them, Kenneth?

Is that healthy or do you follow the root of Brian Clough, the football manager, who said, “I tell them what I think, they tell me what they think and then we agree that I was right?”

00:16:36 Kenneth Pinkerton, Partner, Brodies LLP

I think that anybody would always say that conflict is healthy.

It's better to have that conflict before and that discussion before the decision is made rather than after the decision is made so that you have aired everybody’s views. It's important to listen to everybody and and again what I would generally say would be if the charity is set up, think about what your duties are in law.

Are you discharging them properly by taking this path? Are there reputational issues?

Those are the sorts of questions that you would discuss and you would hope that through the discussion you would ultimately get consensus.

00:17:24 David Lee, Host

Amy, what about you? How do you feel about that?

00:17:26 Amy Blackwell, Partner, Acorn Capital Advisors

Well, I think that lots of times people come in and they think they have a plan because they don't know what they don't know.

And so my view is the value that we as advisers bring to the table isn't that we're always right, it's that we have the ability to look around corners that they don't know about. So it doesn't mean that in the end you have to take every bit of advice that I've given, but what I do is plant seeds of these are the potential unintended consequences of that decision.

If you go into it with your eyes wide open and that's the direction of travel, then I'm here to support you, provided that it's all legal and ethical. But I do think that in families, the most dominant personality tends to run through and I think that when you do your job well, you give a safe place for everyone to share their thinking, and I really believe that's an important role because people are on much better behavior in a family when an outsider is there.

So you need to take advantage of your role of giving communication pathways for people who might not otherwise get a voice in the conversation.

00:18:44 David Lee, Host

You talked Kenneth earlier on about that evolution, tending to start out with close family members, but then looking for those additional skill sets over time.

I'm guessing each foundation you deal with is different, but is there an ideal or a typical structure that charitable foundations settle on in terms of that balance between family members and external trustees?

00:19:08 Kenneth Pinkerton, Partner, Brodies LLP

I would say that generally there is a majority of family members just about all of the time.

I think that comes from comfort in knowing that if ultimately there is disagreement whilst they want the comfort of the additional security of advisors. For example an investment advisor who is a trustee, who can query what the investment management plan is coming through, what the investment plan is.

Or whether it is just a close family friend who, if the mum or dad where the founder if they have passed away, somebody who can say, well your dad would really have wanted this to happen or that to happen.
Particularly as, if we've spoken out about there's not a plan, for example, on a wind up if the charity is coming to the end of its life. Then what was the mum or dad particularly interested in if there's a substantial amount of funds there?

So is there a typical balance between family and non-family members? Unless it's written down somewhere, no, but I would generally say it's in favour of family members.

Amy, you probably have a little bit more to say on that.

00:20:43 Amy Blackwell, Partner, Acorn Capital Advisors

I agree with you, that typically is the split that you see.

One of the most important things when you have several members of the family at multiple generations serving as trustees, is that while everyone likes each other in a moment of warmth and admiration, putting together governance is really important.

One of those is a really good set of communication protocols and one is a really important set of decision making protocols. So if there is a grantmaking direction that doesn't have full support of the family, how is it decided?

It needs to be done when you're not in the middle of a conversation about something, that there isn't buy in and having those conversations empowers people to voice dissent.

The more people have skin in the game, the more they feel as if their voices are heard, the more they care because they feel as if they're actually an integral part of the foundation or the donor advised fund, as opposed to I'm here because I had to be here, but no one listens to me anyway.

00:21:51 David Lee, Host

Kenneth, Amy touched on that point of, this is what Dad would have wanted or that things change.

What about if the project that money has been put into changes? And what if the focus of that project changes?

How can philanthropists ensure that where they're placing their money is broadly in line with their original intentions and and and their hopes?

00:22:20 Amy Blackwell, Partner, Acorn Capital Advisors

Well, this is actually one of my very favorite questions.

First of all, I think it is critically important to use video where possible. Video people in the family asking them about what this foundation has meant to them. Have a video diary for younger people to make them understand and ask questions about what is the biggest mistake you ever made and what did you learn? Ask them, what was the most impactful thing you did? How did it feel? What would you never do again? What you wish you could do again.

So I think that's a really important thing because you hear it from people. You don't just get someone going, “Dad would want you to do that.”

As far as the other question that you had about understanding whether something has worked and whether you need to pivot, I think failure is a fabulous.

I don't think people realize it. And people who have been very successful, ultra-high net worth, they don't like to talk about failures. It's as if they've floated through life and never had any and it's an opportunity of learning and when you go on a journey with philanthropy, you will not get it right all the time.

Because if you could get it right all the time, the problems would already be solved. There wouldn't be this huge market of people needing to help.

So it's not easy, it's incredibly rewarding, but it's hard and the best thing you can do in a foundation is build trust with the organisations you're funding so that they can be honest with you.

Because if you set up a grant making program where the money is released in tranches that they have to do certain things to earn, then they are led to tell you they've gotten there. So you encourage dishonesty even from great organisations because they want the rest of the funding.

Whereas if you have a relationship with them that is very honest and you go from the very beginning saying, “I understand these are the outcomes and the impact you think you can achieve but we want to be the first to hear if these assumptions are wrong, we want a conversation to come.” That trust building will lead to far better outsized impact than if you try to tightly manage these organizations all the time.

00:24:35 Kenneth Pinkerton, Partner, Brodies LLP

Making sure that the grant is spent on the purpose that it was given for is one of the areas where the legal advisers can step in to make sure that that grant agreement, if it's significant sums of money, is worded properly.

I had an occasion recently where our philanthropic client called up and said, “I've given several million pounds to an organisation, and now I've found out that it's being spent on something that I don't think it was meant for.”

So he sent me up the agreement, and lo and behold, at the end of the agreement there was a clause that says, “if we decide that we want to use the money for something else, we will consult with you in the first instance, but nothing else.”

So there was no consent and as Amy has said, if there is a relationship of trust in the first place before that had been entered into then, one, there would probably be a better chance of changing what the money was for into something that the client wanted.

Ultimately it was really sad, because when I said there is no recourse in terms of what the charity has done, his response was, well, I'll just not be funding that charity again. And that is what nobody wants. That is a lose lose from a situation which should have been a win win.

00:26:16 David Lee, Host

And what about when that family line comes to an end?

If a charitable foundation has been in the hands of a couple of generations but then there's no further children or there is no interest.

Is it common for a charitable foundation to carry on without any family members?

00:26:36 Amy Blackwell, Partner, Acorn Capital Advisors

They can come sometimes. Within the constitution or the organizational documentations of the foundation there will be a plan whether it's that it gets wound down and there's a specific set of organisations or it says, with advice from a philanthropy advisor, please distribute the remaining assets.

But sometimes the foundations are set up at their inception to be in perpetuity with an investment statement that says, we're going to grant this much money and we're never going to touch the principle and it is meant to go on.

So again though, it is about sitting around the table and deciding what kind of a house are you building? Because I always say to people, imagine the worst possible scenario of something happening to all of you. What happens and nobody wants to think about it?

The thing is, if you've given this money anyway, it's sitting in the public domain now, so this is your chance to say if something happens to all family trustees, this is what has to happen.

And this is where getting really good legal advice is important.

00:27:48 David Lee, Host

And you talked before Kenneth about a lose lose situation and hopefully it should be a win win.

How do you judge if a philanthropic venture has been a success?

What kind of frameworks exist to judge whether it has been successful for those family members who established it?

00:28:06 Kenneth Pinkerton, Partner, Brodies LLP

How success looks is obviously different for everybody, but generally at the outset you will have some idea of what impact you want to make. Whether that is you're giving to fund free school meals and you're saying so many children receiving free school meals per summer holiday will look like success to me.

As charity trustees what you want back is a report on what your money has done and you will generally judge success based on what the money was for in the first instance and what the charity had said they will do with that money.

00:28:56 Amy Blackwell, Partner, Acorn Capital Advisors

I think it's really important to remember as well that if philanthropic capital has to be patient capital. Impact doesn't happen the day after you give the money to the charity.

So what I try to explain to families is that there's a phase. Your input is your grant. Then there's an output, and the output is what did the charity do? The charity fed this many students during a holiday for their lunch.

So then the next phase is an outcome. So the outcome is what happened to those children as a result of having a meal during a term break? And that may have to do with their capability for learning; it may have to do with mental well-being; it may have to be with health and nutrition; it may be against childhood obesity. There's lots of outcomes.

But then impact is the answer to the big question. So what? Who cares that you fed children over a term break? Well, the impact is what happened after those outcomes, so they were better able to go to school. They were healthier. So then what happened?

And that's the part where people have to have an attention span for this and you have to manage expectations.

And so I'm always telling charities when they give those reports back, use the right language, explain to someone that they're on a journey to impact, show them where they are in the journey. Show them what assumptions you're making about, “We've done this, this was our output, we're expecting these outcomes in this time frame. And from this, we're going to measure this information to see if we've hit these impact objectives.” It takes time.

That is the most important thing, to remind families that you know this wasn't built in a day.

00:30:48 Kenneth Pinkerton, Partner, Brodies LLP

That is where it is good to have the families building relationships with charities and long relationships.

I remember a situation where a Family Foundation once a year when they were meeting to give their grants, they said, “do you know what, £5000, we’re just going to pick any charity from the list and we'll just see how we get on.”

And sometimes they almost hit the jackpot, in that they've given money in year one, the report comes back and it's, this is fabulous! And before you know it they're granting multiyear funding and have fantastic relationships, and they are actually in the charity for long enough to see the maximum benefit made from their money, and that is when it is fabulous.

00:31:44 Amy Blackwell, Partner, Acorn Capital Advisors

I've seen something very similar in families where we start to engage young children, you know, eight, nine, ten years old and you start to talk to them about what upsets them.

I had one family where they were convinced that the entire strategy was going to be in be education in Africa. And they were getting very involved in this thing and we talked to the grandchildren who were eight, nine and ten years old and all of a sudden, what they were concerned about was the discrepancy of wealth in their community and how some of the children in their schools were hungry. All of a sudden the entire family strategy ended up pivoting to what these children were seeing in their community and saying, how are we giving our money halfway around the world when there are people we can help at home and we can see it.

So we were able to get age-appropriate things for the children to do, so that way you're plugging in peoples networks and skills and connections and wealth and and you're involving it at multiple levels.

It just feels more intense a connection to the family strategy.

So I do think that these are remarkable opportunities to bring people together and to give voice to younger people in the family who are deciding who they're going to be and what they care about.

00:32:58 Kenneth Pinkerton, Partner, Brodies LLP

It is the younger generations just now who are saying to the older generations about climate change and about environmental issues, because it's the younger generations who are going to have to live with those issues more than the than the older generations.

00:33:15 David Lee, Host

And overall, Kenneth, just to come towards a conclusion here, what would you say your client experience has been like of philanthropy?

Has it been positive?

And again, what are those key points that you advise them that you think can help make it a positive experience?

00:33:33 Kenneth Pinkerton, Partner, Brodies LLP

I would say without doubt, philanthropic clients have excellent experiences seeing the good that their wealth can do.

On particular points where they should take advice. I would say get legal and wealth management advice early. Speak to other people, other philanthropists, if you can find out about their experiences.

Get your structure advice, and then ongoing just make sure there are certain pressure points, or certain points if there are significant contracts, significant grants that you're going to make that might have reputational challenges.

If there are potential for conflicts of interest for trustees, those are the particular points that you would want specific legal advice, but it's very important along the way to have your wealth manager or to have your legal advisor on hand, just as a check to make sure that you're getting everything right.

00:34:46 David Lee, Host

And finally from you, Amy.

What are those main points to give clients the best possible opportunity of that philanthropic venture succeeding and having the impact that they want?

00:35:00 Amy Blackwell, Partner, Acorn Capital Advisors

I would say they need to be brave and they need to realize that they won't get it right all the time.

I think that for successful people who have run businesses, sold businesses, you know, run landed estates, they're used to knowing the answer. And oftentimes you have a bit of an identity crisis when you start down this philanthropic impact route because you don't know all the answers and the point is nobody does. I've been doing this type of work since the early 90s and I learn every single time I get involved with a family. So, you know, accept that you don't know the answers.

Accept that it makes no sense to do it just because your neighbor does it. Do it because it resonates with you and with your family.

Take the time to be a learner and gather as much information as you can and be confident enough to share the mistakes you make with others, because there is so much opportunity to learn from other philanthropists and be better at it.

And I think the other thing is just to have fun, because the whole point is you are making a difference. You can change people's lives, but this should be something that you are doing as a family, that is fun, that is meaningful, and that helps you hold your head high and say this is what it means to be in this family. We are net givers and we leave it better than we found it.

00:36:32 David Lee, Host

Thanks very much indeed. That's a great point to end.

So thank you, Amy, and thank you to Kenneth for your tremendous insights today. You've been listening to Podcasts by Brodies where some of the country's leading lawyers and special guests share their Enlightened Thinking about big issues and developments having an impact on the legal sector and what that means for organisations, businesses and individuals across the economy and society of the UK.

If you'd like to hear more, you can subscribe to Podcasts by Brodies on all your favorite podcast platforms and for more information and insights, please visit www.brodies.com