February 4, 2010 / 3:41 PM / 9 years ago

Private banks use lure of charity to attract rich

* UK private banks stepping up philanthropy teams

* Charities responding to greater role of banks

By Chris Vellacott

LONDON, Feb 4 (Reuters) - Philanthropy has become a new battleground for Britain’s private banks as they line up to offer rich clients the slickest methods to mimic the charitable giving of the likes of Bill Gates and George Soros.

Industry experts say the initiative by the UK’s largest wealth managers reflects part of a push to attract clients with niche services beyond traditional areas such as investment advice in an increasingly competitive market.

“Private banks are competing in a very tight market place. A lot of them offer services they don’t charge for ... and philanthropy is part of that,” said Chris Groves, a partner at law firm Withers.

Coutts, the private banking arm of Royal Bank of Scotland (RBS.L), has the longest established philanthropy team in the UK dating back to 2005 while Barclays’ (BARC.L) wealth division recently hired Emma Turner to head client philanthropy.

Barclays now plans a rollout of its philanthropy services, currently concentrated in the UK, to its operations across Europe and India and intends to take it to other regions thereafter.

“The business angle is we get closer to clients, keep clients longer and we may gather more assets eventually,” Turner said.

Similarly, JP Morgan (JPM.N) also recently hired a head of philanthropy for the UK.

Bankers would not discuss how much money clients are committing but the sums are high enough for at least one major charity to open a specialist department to deal with wealth managers and the donations offered by their clients.

“It’s actually business common sense. Banks are saying if we want to grow (our) business then something like philanthropy gives us an extra dynamic ... We are trying to respond to that,” said Sujit Peris, new philanthropy manager at Christian Aid.

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Charitable giving and philanthropic activity is well established among the world’s financial elite, some of whom, like Microsoft founder Gates or hedge fund supremo Soros, are becoming as well known for their generosity as for their business acumen. Gates’ foundation alone has made total grant commitments since inception of $21.1 billion.

UK donors wishing to emulate these examples can benefit from more than a sense of pride in their own altruism.

Though tax benefits on donations mainly accrue to the recipient charity, there are also considerable financial incentives to the giver.

If a rich benefactor makes a donation, they can take out a life insurance policy to cover the cost of the gift written in trust for their children so that when they die, the gift will not have eroded the value of their estate to their offspring.

Furthermore, because the policy is in trust, it is not included in the value of the donor’s estate so it is exempt from the UK’s 40 percent rate of inheritance tax.

“As far as the private banks are concerned they’re quite happy to help their customers out by lending money against assets to enable them to make that donation,” said Ronnie Ludwig, a partner in the private client team at accountants Saffery Champness.

"The client will be paying an arrangement fee to the (private) bank, they'll be paying interest but look at the tax relief they get ... and they haven't disinherited their children," he said. (Editing by Joel Dimmock and Jon Loades-Carter) (For the Hedge Hub blog: blogs.reuters.com/hedgehub) (For Global Investing: here)

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