Krystine Lumanta reports on how planners are turning to Private Ancillary Funds (PAFs) to help clients meet their philanthropic goals.
The profile of philanthropy is increasing in Australia, with approximately 800 private ancillary funds (PAFs) and their forerunners collectively distributing $447 million since 2000, according to research conducted by The Australian Centre for Philanthropy and Nonprofit Studies (CPNS).
However, the resources needed to enable financial planners to establish PAFs are lacking, says Greg Rundle, director and strategic adviser at 360Private in Adelaide.
Rundle is establishing a PAF for a client and will be utilising the services of independent, not-for-profit organisation Social Ventures Australia (SVA) to assist with its final stages.
“There’s quite a bit to it,” he says.
“[PAFs] are essentially regulated by the Australian Tax Office, so they have all the information available but in a very disjointed way.
“What SVA seem to have done is that they’ve spent so long getting all that information and now they can roll that out to people like us.
“So I’d say the resources are not readily available and there is certainly a niche market here for SVA in terms of what they’re providing, because we’re not aware of a lot of providers like them in this area.”
The opportunity to offer philanthropic advice came to Rundle when a client approached him with a personal interest.
“Clients don’t really know what it is they’re asking for, but they do know they would like to help the community and I’m aware that there is a facility to enable them to do that,” he says.
“What I see them doing is the administration for the PAF, while we or someone else does the administration for the money within the PAF.”
SVA’s experienced in-house team provides administration service consisting of keeping paperwork, arranging amendments to the trust deed to comply with the law, distributing the eligible grants with correspondence and responding to all trustee and director enquiries.
SVA charges nothing to establish a foundation if a client then signs up to the administration service for two years, at a cost of $5000 a year plus GST.
“This is the real value for me – the administration and its implementation,” Rundle says.
“SVA do also offer the service [of lining up charitable causes] but my client had developed specific thoughts of what they wanted to do with the money, which was to effectively set up a charitable institution for overseas aid.”
Rundle believes advisers shouldn’t force the idea of PAFs onto clients and should instead allow an interest in philanthropy to naturally develop, which may then emerge during conversation.
“I don’t recommend that philanthropy be one of their thoughts,” he says.
“If they bring it up as something they’ve thought of doing, I then say it’s possible to implement it by doing x, y and z.”
Rachael McLennan, manager of SVA’s PAF service, says their service has started to make waves amongst financial planners.
“We’ve been pleasantly surprised at how the advisory community has responded,” she says.
“Philanthropy, globally, is on the agenda. Warren Buffett and Bill Gates have brought it to the front and centre. Also, it’s firmly on the Government’s agenda now.”
For McLennan and the SVA team, their focus this year will be to inspire more Australians to contribute to the philanthropic sector.
“We now manage 18 foundations, or private ancillary funds,” she says.
“If SVA could help establish 50 new private ancillary funds a year, we would be making a significant difference to philanthropy in Australia.”
Rundle says PAFs are generating more interest, as “people like to control their money”.
“It’s no different from a self-managed super fund – if they can control the charitable organisation themselves, it gives them a feel for where their money’s going,” he says.
There is, however, a key difference between PAFs and similar investing vehicles – “once the capital goes into the PAF for whatever purpose, it can’t come out”.
“So that money now has been allocated to something other than your client’s affairs,” says Rundle.
“Clients need to be very aware of that.”
Following this experience with his client, Rundle believes financial planners will benefit in the PAF space – and not just from the extra investment capital.
“I think it’s an area where referrals will happen. Absolutely,” he says.
In addition, communicating with clients about philanthropic issues becomes “an extra touch” and “something different to talk about, which makes clients feel good”.
The opportunity in providing more accessible resources is another area that Rundle believes needs to be developed.
“There’s work to be done in the administration side of the PAF,” he says. “So advisers could get involved in that role.”
