It is no surprise that charities suffer during market downturns. In the recent recession, most charities saw a sharp drop in major donations. Meanwhile, donor-advised funds flattened and endowments funds shrunk.
“Community Foundations Canada recently announced that donations across the system were down 37% year over year,” says Malcolm Burrows, head of philanthropic advisory services, Scotia Private Client Group.
Despite the decline in charitable giving, Burrows added it should not be interpreted as a decline in Canadians’ philanthropic spirit. In some cases, the form of giving has just changed. Rather than giving an immediate lump sum, many donors have elected to delay giving through bequests or through a gradual process, such as an annual or monthly plan.
“In order to position ourselves well for the future, it is important for charities to develop a more entrepreneurial mindset by embracing change, said Janet Austin, CEO of YMCA Vancouver. “This requires the ability to be flexible so we can move quickly and decisively to take advantage of new opportunities.”
At the Scotiabank Philanthropic Advisory Forum held last week in Vancouver, expert panelists told charities they needed to change and improve their strategies to endure challenging economic times.
Some of the new opportunities that increase in significance during severe economic downturns are bequests and planned giving. Studies that go back to the 1930’s show that bequests tend to grow in importance during severe economic times.
In the U.S. last year, eight out of 11 of the largest charitable gifts came through bequests. Meanwhile in Canada, despite the onset of a recession, the University of Manitoba exceeded its fundraising goal in 2008 because it had significant bequests in the pipeline.
“The smart charities are the ones that encourage bequests and planned gifts today,” said Burrows, who also sat on the panel at the forum.
Charity endowment funds were also vulnerable to the market volatility. Last year some charitable endowments lost up to 30% in asset vale due to the market crash. The average was about 17%. That had a significant impact on the communities that rely on charities because the loss caused many foundations to cease endowment payments this year, in order to preserve capital.
Burrows highlighted the importance of using a disciplined strategy and long-term thinking. A well-balanced portfolio will minimize the losses while sticking to a long-term plan will help recover losses over time. He recommended that trustees follow the adage that he learned from the years he spent growing up in the charity world. “The only quarter a foundation trustee should be paying attention to is a quarter of a century.”
During recession and depression, the charities that will typically experience the lowest volatility are the broad-based national ones, such as the Salvation Army, World Vision and Doctors without Borders.
Burrows pointed out that these charities have excelled in building donor-loyalty. Their program of instituting ongoing support through monthly payments allow for consistency.
Brad Offman, vice-president, strategic philanthropy at Mackenzie Financial, says that with the sharp fall in stock value, there has been a significant decrease in new donations to the Mackenzie Charitable Giving Fund. “A significant part of donation to our program has been in the form of securities so our donations on a calendar year basis are down over 50% from last year. And that is not limited to our program at all.”
As for when charitable giving will return to its pre-recession level, Offman says this will probably lag behind the recovery.
Thomas Kingissepp, investment advisor at TD Waterhouse, said the bear market has not stopped his clients from opening new accounts with the donor-advised fund from TD’s Private Giving Foundation. Since December 2008, several of his clients have opened accounts for this fund. Kingissepp says estate planning is one of the key drivers behind donations into the program.
“Making donations to their donor-advised fund on an annual basis, rather than leaving all those assets to go to charity at the death of second spouse, would most likely leave wasted tax receipts,” he says. “By creating a program of annual donation, you will allow for maximum use of tax credits over a period of years.”
In the interim, Burrows encouraged that charities use this time to improve their strategy.
“The greatest priority for charities at this moment is their mission. Tell the story of how your charity is meeting its mission,” said Burrows. “Charities don’t have needs; they meet needs. For example, if you’re a social service agency, put the face of the homeless forward that’s what you want to go out to the public on. Don’t talk about your own needs, don’t talk about your own challenges address those community challenges and donors will respond.”
“Since 1995 certain charities have become increasingly reliant upon major donations and so we’ve seen giving in Canada increase by 140% from 1995 to 2007,” said Burrows.
(07/29/09)