Fidelity Offering Private Foundations

Despite several years of dismal market conditions, the amount of money flowing into philanthropic organizations continues to rise.

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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