Improving client relationships with philanthropy - From IMAP Independent Thought

By Jayson Forrest

Caitriona Fay - Managing Partner, Community & Social Investment explains Perpetual Private’s approach to improving client relations with philanthropy and explains the 3 primary philanthropic structures that can be used in Australia

Australia has an impressive history of philanthropy that is only set to increase, with an ambitious Government-backed target designed to double philanthropic giving by 2030. And the key in growing the rates of social giving in this country will be trusted advisers.

Speaking at the IMAP Independent Thought Conference in Melbourne, Caitriona Fay - Managing Partner, Community, Social Investment and ESG at Perpetual Private -  believes that as more Australian investors and families seek to connect their wealth and investments with their personal values and purpose in life, it will become increasingly important for advisers to be able to engage more closely on philanthropy with them.

However, she says the first step advisers need to overcome when engaging clients on philanthropy is addressing the misconception that social giving is the exclusive domain of the ultra wealthy.

“One of the biggest concerns we hear is that clients don’t think they have enough money to be a philanthropist,” says Caitriona. “Usually, when it comes to philanthropy, we only tend to hear about the billionaire end of town. But by using stories, like we do with two Australian writers - Miles Franklin (the Miles Franklin Literary Award) and Patrick White (the Patrick White Literary Award) - you can demonstrate that great philanthropy is accessible to anybody who wants to participate in it.

“Great philanthropy is about being considered and thoughtful about what you want to achieve with your giving, which is where the adviser becomes such a critical component in the process of philanthropic giving.”

According to Caitriona, there are a number of opportunities for advisers to raise the topic of philanthropy as part of conversations with clients. This includes the following trigger events where philanthropy might be front-of-mind for clients: sale of business or windfall events (like an inheritance), major tax events, estate planning, end-of-year tax planning, and retirement planning.

“About 4 per cent of all Australians leave a charitable bequest in their will, and this increases to 11 per cent for high-net-wealth individuals. Advisers simply need to ask clients whether they have a charitable intent as part of the overall estate planning conversation. By doing so, this generally triples the amount of money left for social giving by Australians,” she says.

“Philanthropy appeals to a wide cross section of people, at various stages in their life, and no one philanthropist is the same. But what links all philanthropists is their desire to leave a legacy of social good that benefits the broader community.”

Caitriona believes one of the most important aspects of financial planning that a trusted adviser can do with their clients is to have conversations around their charitable intent. By doing so, she says it opens up different types of conversations, where clients start talking about the things that really matter most to them from a community and social perspective, which may be difficult to raise in a typical fact-find conversation.

In Australia, there are three primary philanthropic structures that people will typically use: Public Ancillary Fund (PuAF), Private Ancillary Fund (PAF), and Private Charitable Trust.

1. Public Ancillary Fund

This might be a community foundation or a charitable trust fund run by a not-for-profit, trustee company or wealth adviser. A PuAF must be controlled by a committee, the majority of who are ‘responsible persons’ (people with a degree of responsibility in the community) under the Public Ancillary Fund Guidelines 2011.  

Grants or donations from the PuAF can only be made to charitable organisations that are endorsed as Deductible Gift Recipients (DGR) Item 1 by the ATO. Sub-fund donors can have an individually named account to which their tax-deductible donations are credited and they may make recommendations on the organisations to receive distributions of grants from that account. There is usually an annual minimum distribution requirement of 4 per cent of the net value of the fund at 30 June the previous year. 

Perpetual Private uses $20,000 as the minimum start-up required for a PuAF, which is a similar amount required by other reputable PuAF trustees. “This structure is very accessible for clients wanting to get started in philanthropy, particularly if they want to use it as part of an estate plan,” says Caitriona. 

2. Private Ancillary Fund

A PAF is a trust fund for businesses, families and individuals, and is set up under the Private Ancillary Fund Guidelines 2009. The trust fund is controlled by a company, usually with family members as directors, and at least one independent ‘responsible person’ director (someone with a degree of responsibility in the community). 

Family members can make tax-deductible donations but PAFs cannot solicit funds from the public. Grants or donations from the PAF can only be made to charitable organisations that are endorsed as DGR Item 1 by the ATO. There is usually an annual distribution requirement of $11,000 or 5 per cent of net assets (whichever is greater).

“I would suggest $500,000 is the minimum amount to start a PAF, but you’d probably want to get to $1 million relatively quickly for this structure to be worthwhile for a client, given the costs associated with running this structure,” says Caitriona.

3. Private Charitable Trust

These trusts are established by a donor through a deed with a charitable purpose. They can attain income tax exempt status as a tax concession charity from the Australian Charities and Not-for-profits Commission, but donations to them are not tax-deductible. They must fund the charitable purposes specified in the deed

For advisers seeking more information on philanthropic giving, Perpetual has teamed up with Stanford University’s Centre on Philanthropy and Civil Society to create an adviser toolkit - the Perpetual Philanthropy Toolkit - to specifically help advisers work through conversations with their clients around their philanthropic journey.

The toolkit includes conversation guides and checklists across a number of areas, including:

• a guided worksheet to help advisers clarify the values that should drive a client’s philanthropy;
• interactive worksheets to decide on a client’s total philanthropy budget, and how they allocate money between reactive and proactive giving, and the different causes they’re interested in; and
• a due diligence worksheet that can be used to assess the quality of the organisations a client is considering supporting.

“This toolkit is an opportunity for advisers to engage with clients in social giving, and in a way that is thoughtful,” says Caitriona. 

Caitriona Fay is Managing Partner, Community, Social Investment and ESG at Perpetual Private.

She spoke on ‘How to improve client relationships with philanthropy’ at the IMAP Independent Thought Conference - Melbourne.