When American billionaires bill Gates and Warren Buffett introduced the Giving Pledge campaign last year, they shone the spotlight on philanthropy. The campaign, which encourages the wealthiest Americans to commit to donating most of their wealth to charity, has enlisted dozens of signatories, including New York mayor Michael Bloomberg and Facebook founder Mark Zuckerberg.

The trend toward charitable giving is also strong in Canada, and it is by no means limited to the megarich. According to the World Giving Index, created by Britain-based Charities Aid Foundation, Canadians rank third in the world in generosity.

Two-thirds of high net-worth Canadians plan to give away between 1% and 3% of their wealth this year, according to a recent survey by BMO Harris Private Banking, Bank of Montreal’s wealth-management arm, and three-quarters of wealthy Canadians believe giving back to the community is important.

Although Canadians are enthusiastic about helping charitable causes, they are not discussing charitable giving with their financial advisors — primarily because the advisors are not bringing up the subject. There are several reasons why advi-sors avoid the “giving” conversation, says Brad Offman, vice president of strategic philanthropy with Mackenzie Financial Corp. in Toronto.

Many advisors lack the education or training required to offer advice on charitable issues. They may also regard charitable giving as a drain on assets, which is contrary to their goal of building assets. Or advisors simply see a client’s interest in philanthropic causes as too personal an issue to discuss.

“When [advisors] do bring it up,” Offman says, “they see it as a road they have no business going down.”

According to a survey by Mackenzie of 18,000 advisors who sell the firm’s funds, fewer than 10% of advisors initiated a conversation about charitable giving with their clients. The most common reason cited for avoiding that conversation was a lack of technical expertise.

If charitable giving was brought up with clients, the conversation had more to do with tax and estate planning than the act of philanthropy itself, the survey found.

“Advisors are more comfortable talking about taxation issues,” Offman says, “than they are about personal issues.”

Although it’s understandable that advi-sors are more concerned with saving their clients money than helping clients give it away, their clients are generally interested in giving for purely humanitarian reasons, according to Cheryl Hudson, founder and managing partner with Dove Management Inc. , an Oakville, Ont.-based firm that specializes in philanthropic policies and plans for clients.

According to a 2007 Statistics Canada survey called Caring Canadians, most donors gave to charity because they felt compassionate toward people in need (90%); because they wanted to help a cause they personally believed in (80%); and because they were personally affected by the cause (62%). Only 23% of survey respondents cited a tax credit or tax savings as a primary motivation.

“Clients give because of an experience or reason deeply personal to them,” Hudson says. “Any tax savings is a bonus.”

So, when you begin discussing philanthropy with your clients, the conversation should be about the causes each client would like to support.



> Opening The Door

How do you broach the subject of charitable giving with clients? How do you shift the focus from building wealth to sharing it?

“What clients really want these days,” says Jo-Ann Ryan, vice president of philanthropic advisory services with TD Waterhouse Canada Inc. in Toronto, “is an advisor who practices a holistic advisory service, which includes philanthropy.”

Because the charitable-giving conversation is one that many clients want to have, bringing up the subject is not as difficult as you might think. Just be direct, says Ryan: “It can be as easy as starting a meeting off by asking whether the client has thought about charitable giving.”

Another method is to bring up the concept of “social capital,” Offman suggests. Social capital refers to the fact that all clients, as taxpayers, are already allocating a portion of their wealth to the “betterment of society” through the taxes they pay.

“We can either do nothing and let the government use our tax money to support its own causes, or we can give some of our wealth to charities, get the tax breaks and support our own causes,” says Offman. “Charitable gift planning is a way to empower clients to take charge of their social capital.”

A good time to bring up social capital is during a client’s yearend tax-planning discussion, Offman says: “It’s a logical way to fit the charitable-giving piece of a portfolio into the mix.”

How you phrase the question about charitable giving is important, Ryan says. For example, he advises against asking whether the client wants to give money to charity. Instead, he says, ask: “How would you like to give back to your community?”

Other good questions are: “How would you want to be remembered?” and “What type of legacy do you want to leave behind?”

But however you choose to initiate the subject, the goal is to move the conversation from financial issues into what Hudson calls a “value space” dialogue. “This is your opportunity to ask clients about the events that have most affected their lives and to figure out what’s important to them,” she says. “The experiences in our lives are the basis of what inspires us to give in the future.”

For example, a client may have been deeply affected when a family member fell victim to a serious disease. That client may want to give to a foundation committed to finding a cure for that disease. “[He or she] wants to give to that cause,” Ryan says, “but doesn’t know how.”

You can add significant value by helping your clients through the process of choosing an organization to support and deciding upon the form the donation will take, Ryan says: “Clients usually have a general notion of the cause they would like to give to, but what they want is an advisor to help them with the specifics.”



> Options For Giving

When helping your clients choose a cause, find a charity that supports that cause and determine the best way to make donations, the range of possibilities may seem overwhelming. The key, says Hudson, is to start with an overall mission statement — a “philanthropic policy statement.”

Similar to the way in which an investment policy statement guides decisions regarding investments, the philanthropic policy statement helps ensure each client’s charitable-giving strategy is in line with his or her charitable goals.

Says Hudson: “Having a philanthropic policy statement gives the client a foundation for choosing which vehicles will be used for philanthropy later on.”

Once your client has chosen a cause, the next step is to decide on a charitable organization that supports that cause. For example, if your client is interested in supporting a well-known cause such as AIDS research, seven or eight organizations within your locale might support that objective.

This might be the point at which you seek help, either from your firm or from an outside consultant or other resource. The Canadian Association of Gift Planners offers a number of workshops and conferences on gift planning across Canada, which are listed on its website: www.cagp-acpdp.org.

If you work for a large firm, you may have access to an in-house charitable-giving team (such as those represented by Offman and Ryan) that will work with you and your client to develop a charitable-giving strategy. Says Ryan: “Typically, one of us from philanthropic services will join in at a meeting and help the client from there.”@page_break@If you are an independent advisor or work for a small firm, you might consider engaging a firm such as Dove to help you and your client create a plan. “It’s our job to research the cause,” Hudson says, “and educate the client about what the best options are.”

If Hudson is unable to find a charity that has exactly the type of project your client wants to support, Hudson may approach a charitable organization related to your client’s area of interest to explore the options available. Hudson will find out how far the organization would be willing to go, given the level of your client’s proposed financial support, to accommodate the client’s wishes. That may mean implementing a new program or modifying an existing one.

For example, if your client wants to support a music program for children of low-income parents in a specific area, Hudson would contact an organization that supports youth music programs to determine whether that organization has a program — or would create a program — that fits your client’s charitable goals.

“My role is to become a broker between the client and the charity, and manage their expectations,” says Hudson. That means educating your client about the scope of the charity’s projects and making sure he or she understands what effects their donation will have.

Clients are no longer satisfied to simply write a cheque to a charity, Hudson says: “People want to be deliberate about the vehicle of philanthropy they choose. They aren’t just throwing money at causes.”



> Methods Of Support

The method of financial support for a charity can take many forms.

If your client is comfortable with the management of his or her charitable organization of choice and the projects it undertakes, making a direct grant to the charity makes the most sense, says Joshua Thorne, manager of philanthropic advisory services with Toronto-based Scotia Private Client Group, Bank of Nova Scotia’s wealth-management division. “If the donor has one charitable interest and has faith in one charitable organization,” he says, “it is best to make donations to that charity directly.”

Part of Thorne’s role is to assess the financial viability of charities. He generally assesses them by comparing administration costs with funds dedicated to actual charitable activities. Typically, no more than 20% of funding should be going to administration costs. “If we see that an organization is spending between 25% and 35% on administration costs, a yellow flag goes up,” says Thorne. “If it’s more than 50%, then it’s a red flag.”



> Donor-Advised Funds

For clients who expect to donate $5,000 to $250,000 a year and want some degree of control and flexibility in their giving, a donor-advised fund, such as the Mackenzie Charitable Giving Fund, sponsored by Mackenzie, might be appropriate. A DAF is a component of a larger charitable foundation and it is usually operated by a financial services institution. Clients donate to the DAF, with full control over the contributions they make and how those monies are subsequently granted to charities.

DAFs enable your clients to contribute assets in various forms, such as stocks, annuities or bonds, to the DAF, which in turn donates cash to the charities selected by your clients. Clients can support any number of charities through a DAF and make changes to their selection of charities with relative ease. DAFs are tax-efficient because one donation to a DAF that supports several charities can yield a single tax receipt.

Also, if your client wants to make a large monetary contribution to a small charity, the DAF can be set up to distribute that gift in smaller increments.

“Donating to a [DAF] is a straightforward, cost-effective option,” Thorne says, because the DAF’s overriding foundation absorbs the administrative costs.



> Foundations

For wealthy clients who prefer to take a more active approach to their charitable giving, a foundation might be a more appropriate option, Ryan says: “With a foundation, they will have more control over the administration of the finances and how the money is used.”

A foundation is a not-for-profit corporation dedicated to supporting a charitable cause. Foundations are subject to tax rules, although they get different tax treatment than for-profit businesses.

Because a foundation usually requires active management, it can offer a way for a retiring business owner to give back to his or her community while developing a second career. “Since foundations are more hands-on,” Ryan says, “they can be an opportunity for a client to make use of use his or her entrepreneurial skills.”

A charitable foundation also presents the opportunity for your client’s children to gain experience in working for a non-profit organization. It’s important to remind your clients that a foundation is still a business, Thorne adds, entailing considerable administration work and expenses.

Depending on the level of charitable activity that your client intends to run through that non-profit business, Thorne says, a foundation would need assets of $2 million in order to be cost-effective.



> Managing And Measuring The Plan

When managing your clients’ charitable giving plans, it’s important to ensure that you are balancing the clients’ current financial needs against their long-term charitable-giving plans. “You want to make sure that they are meeting their goals of giving without spreading themselves too thin,” says Ryan. “You want to be sure your clients are looked after first.”

It’s also important to evaluate the success of your clients’ plans. One way of measuring the value of charitable work is to determine the “social return on investment” or “return on giving” your clients are receiving, says Hudson: “As with their financial investments, clients are looking for favourable returns on their philanthropic efforts.”

But rather than earnings and income, clients are looking for real and lasting social change. For example, if a client supports a program that helps provide young people with skills training and employment, ask the charitable organization such questions as:

> How many young people participated in the skills-training program?

> What is the annual success rate of participants finding a job from that training?

> How has the new employment affected the lives of participants?

The terms for measuring a project’s outcomes should be determined at the outset, says Hudson: “There’s a saying in business: ‘You can’t manage it if you can’t measure it.’ It’s the same with philanthropy.” IE