A new service aims to support planners who have clients with strong philanthropic leanings. Simon Hoyle reports.

There were an estimated 175,000 high-net-worth individuals (HNWIs) in Australia at the beginning of 2010. The 2010 Merrill Lynch/Capgemini World Wealth Report (WWR), which tracks the fortunes of the world’s richest investors, says that the combined wealth of Australia’s HNWIs increased by almost 37 per cent during the year, from US$379.8 billion ($433.6 billion) to US$519.4 billion. The average wealth per HNWI reached $US2.99 million, or just more than $3.4 million, during 2009.

And yet, Private Ancillary Funds (PAFs) number fewer than 800. PAFs are a vehicle that came into existence in 2009, to make the task of structured giving far simpler to set up and maintain.

The lack of take-up of PAFs among wealthy individuals is something of a mystery; but one reason put forward is a general lack of understanding of the funds and how they work among the principal advisers to HNWIs – including financial planners and private bankers.

Social Ventures Australia (SVA), a non-profit organisation established with the aim of developing philanthropy in Australia, has set up a PAF advisory service to support financial planners who have clients interested in setting up a formal structure around their philanthropic activities.

Planners who are already familiar with self-managed superannuation funds will find many of the concepts associated with PAFs familiar. They’re structured as trusts; they must have trustees; they must be efficiently administered (and audited); and there must be formal investment and giving strategies in place.

Rachael McLennan, manager of SVA’s PAF service, says the recommended minimum amount needed to set up a PAF is about $500,000. The average size of the roughly 800 PAFs in Australia is about $3 million, and the largest single PAF is $300 million.

The SVA PAF service is designed to be provided either directly to the client, or to the client via a financial planner.

“It provides a bit of a one-stop shop, and you can add or subtract elements as you feel comfortable,” McLennan says.

“You’d sign up to one of our workshops. That’s half a day, and we’d go through every element relating to a PAF, explain it all to you and then offer you the bits – if you have clients that want establishment and ongoing administration; if you have clients who want an audit done; if you have clients that want a grant-making strategy written and evaluated; and each of those can be sectioned out and charged for accordingly.”

McLennan says SVA is “currently working on structuring packages for financial planners, so two or three financial planners could come in at once, or 10 or 15 financial planners could come in at once, the cost is X and they get telephone and e-mail access to us for 12 months”.

SVA advises planners to focus on the “inspirational” aspects of PAFs, and then encourage clients to focus on the real and quantifiable differences a properly-structured program of giving can make to the recipients. Part of the service allows a planner’s clients to spend an hour on PAFs with two experts.

“It’s an hour and it’s a really detailed presentation that focuses on ‘inspiration’, and that’s with [SVA directors] Chris Cuffe and David Ward – David wrote the handbook on these things for Philanthropy Australia. We’ve cherry-picked the PAF gurus.

“This hour is a free chat around PAFs, but it focuses really heavily on the inspiration, and that’s a cognitive decision made, because we felt that if you were in a position to be doing something philanthropic, and you’d heard about PAFs but weren’t sure where to start, and you went to your financial planner, they might provide information that was quite heavily based around compliance and taxation, which might frighten the pants off you and you might run a mile.

“So the complimentary one-hour chat is all about inspiration. It just talks about benefits and family involvement and simplicity and how we can take the workload burden from you.

“Some people may come to that meeting with their husband or wife, or with their kids who might become trustees, or even with their financial planner – if the financial planner hasn’t come directly to us.”

McLennan says it’s “in our best interests” to respect the relationship that a financial planner has with a client, and to “perhaps provide support to the financial planner around their investment strategy”.

“There are three parts to establishing and running a PAF, and the first part is all around the administration,” she says.

“If the financial planner didn’t feel they had the expertise to carry out the administrative tasks, SVA could do that, and it would cost the client $5000 a year. I’d then assume the second part – the investment part – would be left to the financial planner.

“But the third part is the grant-making strategy. That might then come back to us. The adviser could be party to the conversations, so everyone learned about grant-making as we go along.”

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