Fidelity Offering Private Foundations
Despite several years of dismal market conditions, the amount of
money flowing into philanthropic organizations continues to
rise—a fact apparently not lost on Fidelity Investments.
This week the fund giant unveiled a new service allowing registered
investment advisors to create and manage private foundations for
affluent clients. Fidelity’s private foundation service handles
back office duties that have typically deterred advisors from offering
them, including record keeping, annual reports, grant disbursements,
compliance services and preparation of tax forms.
"It helps advisors expand their business offerings, simplifies
administration and allows the client to focus on why they created a
foundation in the first place," says Andrew Tappe, head of
Fidelity’s private foundation services.
"Fifteen percent of high-net-worth households use structured giving
vehicles already," says Gary Gallagher, senior vice president with
Fidelity’s RIA group. "And in more and more cases, RIAs are being
asked to play the quarterback role for their clients."
Lending more support to the move is the fact that despite poor economic
conditions donations to charities have continued to grow. On June 23,
the American Association of Fundraising Counsel Trust (AAFRC) announced
that charitable giving reached $241 billion in 2002, compared to $238.5
billion and $228.2 billion in 2001 and 2000 respectively.
Private foundations also have experienced tremendous growth in recent
years. According to a Celent Communications report released in March
2003, the number of established private foundations neared 57,000 in
2001, up from just 33,000 a decade earlier. Contributions made by
foundations totaled $26.9 billion in 2002 according to the Foundation
Center.
Doug Mellinger, CEO of Foundation Source, a company that offers
foundation management and administration services, has also witnessed
the continued interest in private foundations. According to Mellinger,
Foundation Source brought in $30 million in assets last year and in the
first six months of this year has already brought in an additional $100
million. "The growth has been tremendous," says Mellinger. "It’s
defying logic and gravity."
Companies like Fidelity and Foundation Source are vying to capitalize
on an enormous transfer of wealth anticipated to occur over the next 50
years. According to a study from the Boston College Social Welfare
Research Institute, a minimum of $41 trillion in wealth will transfer
between 1998 and 2052. (The high-end estimate is closer to $136
trillion.) It is estimated that a minimum of $6 trillion of that will
find its way into the charitable arena.
Given this, Fidelity is confident that private foundations will
continue to gain popularity as a wealth transfer vehicle. Tappe expects
future growth rates for private foundations to be in the 7 percent to 8
percent range.
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