Altruism and philanthropy.

One of the many privileges of my job is to work with some wealthy people who are committed to giving away some of the wealth they have communicated. I have been involved in the setting up of several charitable trusts with clients over the years and we are battling with the paperwork for the Altor Foundation at the moment.

The effort of being altruistic with capital is barbell shaped, in my experience. There is a lot of work involved initially, not so much in the paperwork but in the decisions around what your charitable objects should be, how much to commit and who the trustees should be. There is then the easy bit of deciding what assets to gift (always the CGT locked ones to gain CGT relief and income tax relief) and investment of the charitable trust fund. 

The hardest part of all then comes when it gets to the time to distribute. Some trusts are set up with a very singular purposes and often to drip feed maintenance to another single cause charity but very often there is a general object to do good and broad charitable objects (aims). Finding the right causes to support is very hard as it is often difficult to decide which charities would do the most with the pound given to them. The charity commission makes is very easy to read the accounts of any registered charity but as Gina Miller found out recently, reading a set of charity accounts and understanding what they are saying are two different things.

There are some good principles to follow though (mostly stolen from Effective Altruism):

Expected Value – This is the cost of a charity’s activities multiplied by the likelihood of a successful outcome. It is useful to judge whether a charity knows its goal, chances of achieving the goal and success so far.

Marginal Cost – This is the small extra cost that can sometimes achieve great results when the base/core costs are already paid for. Some charities that look inefficient past on past accounting returns may have spent all they need to get up and running and therefore every additional pound from this day forward gives them the ability to do a lot.

Diminishing Returns – This is the cost of achieving an improvement in an outcome when some progress has already been made. Obviously the more successful a cause has been the more expensive (wasteful?) it becomes to push for the last little bit of gain. If a donkey sanctuary’s goal is rescuing donkeys and there is only one left to rescue, will it be the most expensive donkey anyone has ever bought? 

Evidence – Sadly there is very often little rigour employed when decided what charities to support by individuals compared with the care they apply to their financial decisions. Giving money to charity should have as much if not more rigorous analysis applied to it than selecting investments for an individual. After all the invested capital will still be there (unless the investment analysis really is awful) but the charitable donation once given is gone.

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