Financial planners can help clients structure their charitable giving so it continues long after the clients have gone. Simon Hoyle explains.
The philanthropic sector’s pin-up foundations, the Ramaciotti Foundations, this year celebrated 40 years of giving to biomedical research.
Vera Ramaciotti set up two foundations in 1970, following the death of her brother, Clive. They were seeded with an initial sum of $6.7 million, split equally between the foundations, realised from the sale of the Theatre Royal and some adjacent properties, in Sydney.
Today, the Clive and Vera Ramaciotti Foundations, administered by Perpetual, have assets of more than $52 million, and over 40 years have made grants of more than $48 million.
Andrew Thomas, general manager of philanthropy at Perpetual, says the Ramaciotti Foundations are a clear example of how a client’s urge to act philanthropically can have benefits that last well beyond the client themselves. Foundations are theoretically set up in perpetuity.
An important contributor to the Ramaciotti Foundations’ ability to continue to give has been the investment strategy they have adopted. Although the foundations are by nature conservative, they are able to take a long-term view and still hold a reasonable exposure to growth assets.
Thomas says that had the foundations invested in term deposits only, “there would have been no growth in the corpus of the money, and they would have distributed $400,000”.
“The trusts now average $2 million a year that they distribute,” he says.
“It’s important to have a long-term investment strategy.
“Because you have that ‘infinite’ time horizon, you still need to have a low-risk portfolio, but you can have exposure to growth assets.”
The term “foundation” is a catch-all term that includes trusts and both public and private ancillary funds (the Ramaciotti Foundations are trusts). Thomas says that today, private ancillary funds (PAFs) are the vehicle of choice.
There is considerable help available to financial planners who want to advise clients on how to set up and administer a PAF. Perpetual offers help, for example, and about two months ago Social Ventures Australia (SVA) launched a service aimed specifically at financial planners.
The SVA service is “modular” in its structure, meaning planners can use as much or as little of SVA’s expertise as they want or need, and only pay for what they use.
Thomas says there are “some financial planers who are very good at thinking about philanthropy for their clients”.
“But a great many financial planners don’t think about it enough, and don’t give their clients enough time to consider it.
“It’s not a decision that a client makes quickly, to irrevocably give away a significant part of their wealth. It’s a decision that takes considerable time to come about.
“Advisers need to be aware of that, and they need to take their clients on a ‘journey’, to explain what that might mean, not just to them [the client] directly, but to their family members and to the community generally.”
In some respects, philanthropy is a difficult issue to raise with clients. First of all, it’s seen as a “soft” issue. Second, as Thomas points out, it might be anathema to a financial planner, who has assiduously helped clients accumulate wealth, to suddenly turn around and tell them how to give it away.
But as Alan Shields explains on page 112 of this edition of Professional Planner, there are some good long-term business reasons for treating philanthropy seriously.
There are certain “tells” – to borrow a term from poker – that planners can be on the lookout for.
Thomas says it could be “that they already know about their clients’ giving, from their tax returns”.
“It could be that they know about their family situation,” he says.
“It could be the client has had an issue…so there are certain topics that come up just in knowing and understanding your client that you could hook into philanthropy.
“The easiest way to raise it, when you have the opportunity, is to give examples of what other people are doing.”
The Ramaciotti Foundations are an obvious example, but there are others, too. And a key selling point, Thomas says, is the opportunity for the client to put their name to something.
“Many people who are interested in giving something back will give back at a much greater rate if the family name is attached,” he says.
“It’s not simply about writing a cheque; it’s about understanding what that cheque is going to achieve.”
