Strategic
Source Online
June 2005
Announcing the New Location of the San Francisco Office
The San Francisco office of IFF Advisors, Inc. (formerly The Hiles Group, LLC) has moved. Our new mailing and physical address is:
IFF Advisors, Inc.
417 Montgomery St Ste 405 [Map]
San Francisco, CA 94104-1111
Phone: (415) 764-4916 (same as previous)
Fax: (415) 399-9330 (new)
Email: Heather Hiles or Jill Minkus
New Statistics on Foundations and Donor Advised Funds
According to a statement by Emmett D. Carson, chairman of the Council on Foundations and CEO of the Minneapolis Foundation, there are now 71,541 foundations approved by the IRS, of which 70% (50,335) were less than $1.0 million in value. These small foundations represent approximately 5% of all foundation assets. The small size of the foundations should not be surprising, however. A separate study by the Council indicates that the average time period over which a foundation receives its full funding is 18 years. Since nearly two-thirds of all foundations have been formed in the last 25 years, many of these organizations are receiving gradual funding during the lifetime of the founder, and likely to receive substantially more funding upon the founder’s death. Small fact to remember – David Packard started his foundation with $25,000. At his death, he added a bit more… $6 billion.
On a separate front, the Chronicle of Philanthropy reported the findings of its survey of donor advised funds. According to the survey, assets at 88 organizations grew by a median of nearly 15% between 2003 and 2004 (i.e. half increased more and half deceased). Organizations in the survey held $13 billion in assets, and distributed $2.6 billion to charities. Within the responding group, there were 17 commercial gift funds, of which Fidelity Gift Fund was the largest at $2.7 billion, followed by Vanguard at $685 million. Fidelity reported almost 33,000 separate accounts.
 The Chronicle of Philanthropy:  [SUBSCRIBERS ONLY] Donor-Advised Funds: Assets, Awards, and Accounts at a Sampling of Big Providers
Legislative Update: The Era of Type III Supporting Organizations May Be Over
At a hearing in April of the Senate Finance Committee, the second such hearing in 10 months, senators took aim at a number of concerns that affect philanthropy, foundations, and taxes. Sen. Chuck Grassley, chairman of the Committee, made it clear that Congress would take steps to curb perceived abuses, especially with Type III supporting organization.
At the hearing, Jane Grayelle, a researcher at the Congressional Research Service, reported to the Committee that there were more than 45,000 supporting organizations with cumulative assets of nearly $76 billion. The lawmakers expressed concern over such perceived abuses as loans made to the founders and other improper benefits received by such individuals, as well as inadequate distributions to charities.
One example presented to the Committee was an SO with over $300 million in assets but which distributed less than $1 million to the supported organization, a significant portion of which was to the donor advised fund controlled by the donor. This represented a payout of about 3 percent.
A story in the Rocky Mountain News, in Denver, Colorado, described the supporting organization set up by Roger Reisher, founder of FirstBank, the state’s largest locally owned banking organization. By holding the stock of the bank in the Foundation, Mr. Reisher hopes to avoid an unfriendly takeover. Some have argued that this motivation is inconsistent with the philanthropic purpose of the foundation. The Foundation makes distributions to the Denver Foundation donor-advised fund, which then provided more than $686,000 in scholarships last year to more than 163 students.
A Type III supporting organization is a public charity that is organized and operated exclusively for the benefit of one or more other public charities. The biggest distinction in a Type III from other types of supporting organizations is that the supported organization does not have legal control over it. Substantial contributors and their family are prohibited from controlling the supporting organization, but there is such a close connection with the supported organization that there is deemed sufficient public oversight.
Unfortunately, in some Type III SOs, the donors have kept indirect control over the organization and have used such control to benefit themselves or abuse the system.
The Panel on the Nonprofit Sector, formed by the Independent Sector, has raised objections to the proposed elimination of Type III SOs, as has the American Institute of Certified Public Accountants. Both acknowledge the need for tightened regulations and greater scrutiny over these entities, but maintain that this format has proven very helpful to educational institutions, hospitals, and foreign public charities, among others. The answer may be as simple as eliminating the ability to use donor-advised funds as a permitted recipient and imposing greater penalties for personal benefits derived by the donor.
Panel on the Nonprofit Sector: Interim Report of the Panel
Planning Note: Due Diligence on Grant Seekers
Giving a grant to a qualified public charity is relatively easy. Giving a good grant, i.e. one which will accomplish what you had hoped and which will make a difference to the organization, its mission, or the people or causes it serves, is much more difficult. In a future issue of Strategic Source Online, we’ll explore how to assess impact. But, for now, the question is how much information do you know about the proposed grantee?
One step in the process is to understand the background of the proposed grantee. In addition to your normal grant application questions and site visit, you may want to inquire about the following:
- Is the organization a member of the Better Business Bureau?
- Are there any complaints on file with the BBB?
- Has the organization been rated by an independent agency? You may want to review BBB Wise Giving Alliance. This group provides reports on whether charities meet standards for fund raising, governance, financial management, and public information. It identifies those standards that are not being met.
- Are there any complaints, investigations, or disciplinary actions taken by the state’s Attorney General’s office?
 Chairty Navigator: Your Guide to Intelligent Giving
BBB Wise Giving Alliance: Give.org
Register Today! Financial & Life Skills Summer Retreat
Are your children ready for the responsibilities of wealth?
Will they be ready to actively manage your foundation or donor advised fund?
One of the great challenges before family foundations is whether the second or third generation will be ready, willing, and able to assume leadership and to steward the financial assets that have been left to the foundation.
National studies have confirmed that one of the most critical fears of financially successful families is the lack of financial skills of their children. But our children have expressed similar concerns. In a recent poll conducted for the Charles Schwab Foundation and the Boys and Girls Clubs of America, reported in USA Today (May 2005), 80% of teenagers believe that money management should be a requirement in high school. In another survey reported in USA Today (October 30, 2002), 70% of the parents reported that good money habits are essential, but only 28% say they have taught those skills to their children. Another study revealed that, in 2002, 75% of the graduating seniors didn’t understand basic investment principles and only 10% of the schools in U.S. teach financial management.
It’s hard to imagine prudent financial management of a foundation by individuals who have limited personal financial skills.
Encourage your children or grandchildren to attend a summer retreat focusing on financial and life skills, offered by the Paul Merage Graduate School of Business at the University of California, Irvine.
IFF Advisors:  Financial & Life Skills Summer Retreat
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