Bridging the Wealth Gap: What are the best strategies for responsible wealth distribution?

By London & Capital | 21 Jun, 2023

One of the satisfying aspects of acquiring wealth is that it presents the opportunity to give something back to society. Wealthy individuals will often reach a point in their lives when they would like to use their money to fund deserving causes. For many wealthy people, this charitable instinct will involve attempting to bridge the wealth gap and help to reduce income inequality, assisting others in their attempts to build a successful and rewarding life for themselves.

The effort involved in achieving charitable aims can easily be underestimated. Once the decision has been made, the benefactor will face the task of deciding on the best pathway to achieving their goals. Of course, there are multiple strategies that can be employed, but when dealing with large sums, it is always best to assess those options fully and be aware of the pluses and minuses of each approach.

One of the first issues to address is how involved you would like to be in the charitable process. Some people may want to roll up their sleeves and oversee their benevolent activities on a day-to-day basis. Others may be more comfortable simply providing the funding and allowing someone else to manage the implementation. A person’s preference on this front will determine the most suitable path.

A strong foundation

The establishment of a foundation is an ideal charitable route for those that want to pursue a high level of commitment to their charitable activities. A foundation is a non-governmental organisation run on a non-profit basis, with assets provided by donors or from the wealth accrued by an individual or family. Those assets are managed by foundation officials directed by a manifesto, with assets used for the benefit of the outlined purposes. The impact of a foundation can be truly life-changing for beneficiaries and can lead to lasting positive change. For the individual or family, a foundation can provide a true sense of accomplishment and satisfaction.

Starting a foundation or charitable organisation is much like starting a business. It requires specialist skills, expertise and guidance. Beyond developing a name, purpose and guidelines, ensuring that the body is legally and operationally sound is imperative. Your investment strategy is also important. A strategy that can generate cash regularly to support annual grants or donations will have an impact for many years into the future.

A method of charitable giving that can be a simpler and less time-consuming option is setting up a Donor Advised Fund (DAF). DAFs provide charitably minded high-net-worth individuals with a useful middle ground. The funds are established under an umbrella charity that administers them on behalf of the donor. The main advantages of this type of fund are that they are tax-efficient, flexible and less costly than running a foundation. There are a wide variety of ways you can fund a DAF. The assets that can be contributed to a fund include cash, shares, non-cash assets and third-party entities. Gifts to the DAF are irrevocable, but the giver will maintain control over how the funds are invested or distributed.

Meaningful impact

Foundations and DAFs provide a more formal and organised route to engage in charitable giving, but there are a number of other options available to high-net-worth individuals. Impact investing is a trend that has risen in popularity in recent years and it is relatively simple to achieve. Impact investing involves investing your wealth with the aim of achieving some kind of measurable social or environmental benefit alongside a financial return. This could mean instructing your wealth manager to design your investment portfolio to include companies that pursue green technologies or help lift people out of poverty. It may also mean avoiding stocks and bonds that are linked to companies that profit from fossil fuels or are engaged in the manufacture of weapons.

One of the most direct and personal ways that a wealthy individual can help bridge the wealth gap is through mentoring. Sharing the valuable experience that has been built up through growing a business or rising in a profession can be extremely rewarding and give vital guidance to people looking to emulate those paths. This could potentially come in the form of one-to-one coaching or possibly by funding community initiatives that look to achieve the same aim for a group of people.

At London & Capital, we understand that wealthy individuals often come to a point in their lives when they would like to share their fortune and pass on their experience. Discussing charitable activities with an adviser means you can find the method that best suits you and ensure your impact is as wide as possible.


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