The awareness of philanthropy has changed over the past couple of years. There is a much greater general awareness and a higher level of sophistication now in the wealth environment with the available resources and the understanding that people have about being philanthropic. Philanthropic advisor Malcolm Burrows from Scotia Wealth Management says more and more people are showing up and saying, “I want to do that.” Malcolm is also the Founder of Aqueduct Foundation In today’s show, he takes a deep dive into donor-advised funds and the changes in philanthropy. He also talks about the fundamental shifts in the way people could support charities, and sheds light on the conversations that people on the charity side are wanting to have with donors over their lifetime.
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Malcolm Burrows on Donor Advised Funds And Changes In Philanthropy
Our guest is Malcolm Burrows. He’s the Head of Philanthropic Advisory Services at Scotia Wealth Management and Founder of Aqueduct Foundation. He’s been a leading advocate for change in the tax treatment of charitable giving and is a frequent contributor to the discussion of the role of the social profit sector in Canada. Welcome, Malcolm.
Thank you, Doug. It’s great to be here.
It’s great to have you. You’ve been Head of Philanthropic Advisory Services at Scotia Wealth Management since 2004. Tell us more about how you interact with donors in the sector in that role.
It’s very much a continuation. I’ve been in the sector overall for many years now. I grew up working with charities as a fundraiser, as a gift planner and that perspective were very important for me. I see my role as a philanthropic advisor as focusing on these significant donations, typically part of a wealth plan or an estate plan. Helping our clients and donors walk through the process where they’re looking at how to give, why to give, and where to give. It’s structuring, it’s support. It’s pulling together all of these pieces that help them with these more significant asset gifts.
How different are the conversations that you’re having with donors in your role at Scotia compared to what they were when you were working with other organizations?
In some ways, they’re very similar. There’s a couple of major differences at Scotia Wealth Management and it’s because I don’t have a single cause anymore. When I worked at the SickKids Foundation in Toronto, we had cause and we have priorities. We talked a lot about that as well as the planning piece of it. In my universe, it’s all about the individual client’s or donor’s priorities in the community through charities. It’s quite a different process in terms of listening and discovering what they’d like to do, how they’d like to do and put together a plan around it. The second piece is, and my old self would be deeply jealous of my current self, is that when your charity side, you’re often looking through a keyhole in terms of a donor’s wealth and planning roles and goals. One of the things that I have here is frequently I’ll know the net worth of a client before I’ll know their goals because we ended up having that privileged information working within a wealth organization.
It’s no need for prospect research to guess. How has an awareness of philanthropy changed since you joined Scotia Wealth Management in 2004 to conversations you might be having now or later?
There is a much greater general awareness. It’s something that I look back over my career and watching the confidence and understanding people that would have never thought about being philanthropic in a previous generation. There are many more social examples. There are many more resources around it and there’s generally a much higher level of sophistication than there was even when I started several years ago in the wealth environment. I have more people coming, showing up and saying, “I want to do that.”There's a responsibility on the part of the foundations to ensure that funds aren't languishing. Click To Tweet
Do they know what they’re looking for before they come to you?
Directionally, yes. There are many more people that say, “I want to be a more serious philanthropist. This is the right time for us to be doing it. I’m very interested in approaching things in this way.” That’s where the discussion frequently starts.
Have you seen donors change over the course of working with you? That they come philanthropy, may or may not be new to them or new to their families and as they gain the confidence, they’re asking different questions.
Very much so, it’s one of the most gratifying things about the work. I’ve been at it long enough that I often have a sense of, “I think I know where you’re going to go and what you‘re going to do overtime. You don’t know it because I’ve been through it many times before and you haven’t.” For example, a business owner who spent their whole life deeply immersed in their business and head down and they built something successful and they’re selling it. That becomes this tremendous moment for philanthropy but it’s also the beginning of a new journey and they don’t know where they’re going on that new journey, but they know that they want to embark on it.
That’s powerful. Those are the stories that people on the charity side and those are the conversations they want to have with donors over their lifetime. You’re getting to do that through the conversation at Scotia Wealth Management. How have charities in Canada adapted at greater sophistication that donors are bringing to their philanthropic decision–making?
I see colleagues working at charities across the country through professional organizations like the Canadian Association of Gift Planners or the Association of Fundraising Professionals. The level of professionalism is much higher than it was when I first started. We barely even thought of ourselves as professionals. We were aspirational in that space. I think it’s across the board where you have this higher level of knowledge, this experience and frankly vision and expectation. It’s a significantly different environment and that allows people to dream bigger and at times ask for greater accountability and issues like that as well.
I was speaking to someone who told me that she had wanted to be in fundraising since she was in high school. I must say that made me feel very old. That was not what I thought when I was in high school. I think that speaks well to the increasing awareness that this is a profession. You mentioned CAGP and Association of Fundraising Professionals. You have been a real partner, a leader in conversations with those organizations as they relate to the federal government and the tax treatment of charitable giving. How did you get involved in those discussions in the first place?
It was through CAGP back in the ‘90s. We all of a sudden saw this change in the Income Tax Act and public policy around the support of philanthropy and it happened in the mid-‘90s and it was quite accidental. It was partly because there is a shift of massive government cutbacks. Most people don’t remember those things at this point, but there were massive government cutbacks. At the same time, that government of the time started changing the incentives for charitable giving. For example, the initial reduction of capital gains on public securities, the contribution limits as well, which were essentially covering how much people can give and claim in any given year. All those things started to change in the mid-‘90s. It created this cascade of new thinking and new incentives. Fast forward many years, we now have the most generous tax system in the world for charitable giving, much more so than the US interestingly enough. They’ve seen clawbacks as a space and we’ve seen expansion.
What was it like in those days in the ‘90s when those changes were happening? Those were fundamental shifts in the way Canadians could support charities.
A lot happened all at once and then there was a lot of subsequent negotiation. What you had was a series of governments. It wasn’t a single party, but a series of governments that were all the sudden open and began to see the role of philanthropy as another way of contributing to civil society, the well–being of communities, knowing that government couldn’t be the sole funder. You needed to tap into this private altruistic impulse. There was a tremendous amount of goodwill but there’s also a lot of negotiation and sharing. One of the things that I’ve always been very proud of is the number of people in the charitable sector.
It certainly has worked. I remember when working at a university when the capital gains on appreciated securities change came in. The number of people calling and the number of organizations that were sending that information out to donors was through the roof. Probably a few years later, almost every donor knew it. There was a real earnest that this was a way that people could give more and have a greater impact.
It’s very encouraging and that ripples across society.
You mentioned that the federal government and different parties and different prime ministers, there was the special senate committee on the charitable sector that interviewed many people in the sector and was looking at the role of the charitable sector in Canada. The report came out earlier. What were your initial reactions to that report?
Overall, I was tremendously pleased that the Senate decided to turn a spotlight and spend some time looking at the charitable sector in a multidimensional way, not looking at the tax piece of it. It’s the first time in many years that there’s been this federal level. That means that there was one particular item in it that I have to admit raised my hackles. There are up to 42 recommendations. One of them focused in on foundations with donor-advised funds. There’s this perception that donor-advised funds are gathering assets but not necessarily granting them back out into the community. This is something that we need to be very conscious of is foundations exist for charitable purposes. They exist to ensure that money does benefit the community and does benefit operating charities. This is an emerging area independent of community foundations. We’ve started to see a number of foundations with donor-advised funds and it’s been a high growth area. It’s something I know very well because I run a foundation with donor-advised funds called Aqueduct Foundation that’s supported by my team here at Scotia Wealth Management. Our philosophy has always been facilitating philanthropy about getting money out there.
We’ve raised $800 million or so that we’ve received over the last several years now. Half of it has gone back out into the community. We’ve granted almost a 50% grade. To me, that’s important. We’re a facilitator and the idea of Aqueduct is to be a bridge, to bridge gaps and to help people to commit money in a tax–effective way into the charitable community and then spend time to be thoughtful philanthropists. There is one clause in this report that said that funds were languishing in foundations with donor-advised funds and even for those entities, not at a 50% disbursement rate, this is not quite true. I think that there’s a danger in having this provocative language. At the same time, there’s the responsibility on the part of the foundations to ensure that funds aren’t languishing. This isn’t about investment. This is about social investment, community investment.We shouldn't be discouraging money getting out into the community and doing good things. Click To Tweet
I’m glad you talked about languishing because if you didn’t bring it up, I was going to mention it. There are two things there. One is there’s the perception of large-scale philanthropy in the United States and a long history of investigating whether funds languish there or they’re damned up as often used in the US. Whether we’re in inheriting that initial skepticism of foundations or donor-advised funds or not, I don’t know. The other one is that I think there is a fundamental or at least an important, there’s a difference, in how charities work with foundations with donor-advised funds and they do directly with donors. There’s a lot of learning that the sector can do and the charities themselves can do to understand what the most effective ways to work with donors who are using donor-advised funds because it is different than someone giving out of their personal wealth that isn’t in one of those funds.
I think that’s true. Our philosophy through Aqueduct Foundation with individual donors is not to get in the way of a good donor and their charities to encourage that direct connection. Aqueduct doesn’t accept any recognition or we’re not on walls. We actively discourage solicitations through us. What we try to do is get out of the way and connect the donor and the charity. It’s not always easy to do and not every donor wants us in a sense to get out of the way because it could be a personal preference issue. It could be a learning curve question about how they interact with charities. Often, individual charities will see a lot of funds coming from a single foundation and the assumption is that they should be able to solicit the foundation or should be able to call up directly. In a sense, there can be an element of call screening. Our long–term mandate is quite the opposite. What we want to do is facilitate these connections because we’re a facilitator, we’re an intermediary, we’re important for these very large gifts but from the distribution and community connection point. We fundamentally want to get out of the way.
That’s the donor preference point that you underlined a few times in that answer. It’s important that anonymity or lack of attention if not full anonymity is one of the appeals often of a donor-advised fund that donors can be involved without having to put their name in the newspaper or on the list of donors for other charities to find them.
It’s one of the interesting things over my career and particularly in the last several years is as the data has become more available, one of the great anxieties on the part of a lot of would–be philanthropists that I deal with. When they’re starting out as privacy, they want to give. They want to be engaged but they’re worried about their names and large sums of money being connected together out in the community. They’re very worried about from a sector perspective. We might call it transparency and the need for increased transparency. From a donor perspective, they’re a little bit nervous that they become a Google search. They become many lines in a big data universe. It’s part of that negotiation and providing them with a place that they feel supported so that they can engage in this wonderful semi-irrational act of giving away large sums of money.
Do you see donors as they get that comfort, as they scale that learning curve that you reference? Are they more willing to put their names out there or is that something I assume some people do?
It’s a minority of donors that I deal with that are completely anonymous or completely shy, although I dealt with a very significant donor who passed away prematurely. He was always adamant even as he was giving away millions of dollars. He didn’t deal with the charities. He knew the charities very well and he said, “I don’t need my name out there.” Even now that he’s gone, he frequently would say, “I want to give this gift in honor of,” and he would be giving it in honor of other people who are significant in the community and in his life. He constantly wanted he was fundamentally self-effacing and modest, which I think is also important is to have that space.
That is certainly one of the values that foundations with donor-advised funds offer. I’m interested in your perspective in how foundations like Aqueduct and other corporate foundations with donor-advised funds work or compared to community foundations who have half–a–generation ago or more often played that role with donors in their families.
Still do, it’s not a question of replacing the other or anything like that and it goes back to this issue of first and foremost still view myself as a charity guy. I grew up in this sector. I’m a participant in the sector in many different ways. When I moved to a large financial institution, I wanted to make sure that what we were doing wasn’t directly competitive. It had a different vision that we had our own philosophy and our own approach. It was different than what the community foundations are doing. I ended up boiling it down to three points. One, that unlike a community foundation, first and foremost ours was a personal model of philanthropy. We work with whether it’s an individual client with a separate private foundation or a donor-advised fund. Everything we were doing was focusing on the individuals, their wishes, values and community. It was very much that personally–defined vision of how to help the community.
The second thing we focused on because underneath we’re a wealth organization and I have tremendous resources and expertise on my larger team around planning. We can integrate wealth planning, things like the sale of a business, a very complex estate plan. Real estate is all different things. Assets that people hold in addition to the cash and public securities, which are a little bit more routine and integrated into the philanthropic planning process and with the foundation. That’s something we saw as the distinctive.
The third piece was for us, and this is something that I value that I hold very strongly is this notion of philanthropic flexibility. With Aqueduct, we’d always say you could grant to any charity at any time in any amount. We weren’t limited to 3.5% or 4% per annum. It wasn’t an endowment model. It was about if you wanted to give 50% or 100% of your fund to a charity that you believe is doing great work. We had no restrictions and we were first major charity in the country to do that. There have been changes since then. I think that we’ve seen a lot of loosening up and moving away from a strict endowment model, which was part of the community foundation vision for many years. This was something that was for us was very important.
We would help people give so that they could engage in grant in the community in a completely flexible way. That’s how we’ve grown and developed. It’s not to say those community foundations, perhaps except for the first point, don’t do some of these other things and don’t have this strength but that’s how we’ve tried to differentiate. Community foundations are so important. That depth of knowledge and the support and the important civic institutions and they have a mission and they have a cause. At the same time, they’re also very flexible and supportive around philanthropy.
I would imagine that philanthropic flexibility as you described it, that ability to give any amount and move away from the endowment model was somewhat revolutionary to the donors who would be hearing that message for the first time.
To many of my colleagues in this sector as well.Personal touch and connection isn't always easy, but it's something that we have to consistently focus on in terms of engagement. Click To Tweet
Thinking of the sector more generally now, you talked a lot about the professionalization that you’ve seen happening in the sector. Is there anything that the sector needs to let go up or something that we need to stop doing as a collective?
I would probably approach it in terms of I think we all get stuck in our ways in terms of certain habits and programs and things like that. The environment has been changing so quickly. Good thing we’re getting more professional because fundraising is getting tougher partly because it’s harder to acquire new donors so often. There are many fundraising channels at this point and I often see charities wanting to do it all. They’re too thinly spread focusing on things that frankly should be put to bed to allow room for new investments, new ways of doing things. It’s not one or two things necessarily, but it’s making strategic choices in an increasingly complex and rapidly–changing environment.
One of the things that we hear a lot from our clients at The Discovery Group is it’s not infrequently CEOs wondering, “My board is asking why we’re not doing more to attract Millennial donors. The average age of our donors is 71 years old.” We’re not going to raise more money if we focus on Millennials, but it is that it’s looking for that diversification of revenue rather than that specialization of what particular organizations can do to raise money.
Doing that analysis and having the discussion because there’s often this lots of great ideas that come up in this environment. Inevitably, we should be doing this event or that event, which I cringe at. It raises the bar in terms of strategic thinking, implementation and having a very clear sense of where the dollars come from, who your target market is and how to engage with them in the best possible way.
I had a conversation with a board that their most successful event where they’re raising most of their money was a gala and I have a fair bit of a high soapbox on needing to focus other than diversify. The board chair smiled at me when I finished talking and he said, “What you’re saying is we should do a second gala.” I go, “No.” I need to use more qualification language in my soapbox speech but I think that it’s true. Because you have been associated with so much of the positive change in the sector, is there something that you think we need to be doing or you’d like to see us doing more of?
I often see back to our conversation around actual engagement, but it means so much to individual donors. I know it’s sometimes hard to get beyond our desks and the busy work of being at our own organizations but ensuring there’s that proactive, meaningful engagement with donors is so valuable. It ends up paying in a way that it’s hard to quantify because we have seen the number of donors statistically it’s been shrinking in the Canadian system, at least those skipping through charities and claiming it on their tax return. The size of donations have been going up and with the aging population, we see more significant gifts in wills and estates. We see greater number of major gifts and even major or larger gifts in regular programs. That personal touch, that connection, which isn’t always easy but it’s something that I think that we have to focus on consistently. It does make a difference in terms of engagement as a donor and frankly longer term the size of the gifts.
On the charity side, we’re often looking through the keyhole, the wealth of donors. I would imagine that in your role, you hear how donors perceive those proactive engagements so the engagements or lack thereof. The charities are using to try and get them to support them. How does that change in perspective, change the way you think about the work?
I do hear from individual donors and sometimes they’re busy. Sometimes they’re bewildered, sometimes they consider some of the approaches is clumsy. Most of them respond to individuals around the cause and that connection, the reporting in the engagement on gifts. That level of professionalism that a good fundraiser brings to the table and making the connection between donors and the charity. That’s what many donors I know every day are looking for.
Being able to see how donors are reacting and these conversations you’re having with them, if there were one piece of advice you could give to CEOs of not-for-profits, social sector organizations, what would it be?
This goes back to this notion of having relationships with donors, particularly those donors that I deal with. Often, we tend to bureaucratize our work. We’re worried about big tools like annual reports or if this was a major gift, I have to provide a report but keeping a key donor. The brilliant charities are the ones that end up having light touches. We’re in the world of social media where we have a ton of friends out there that we keep in connection with through light touches and that’s something that charities often forget. It’s counterintuitive. It’s not about asking all the time, but it’s keeping informed, keeping people in the loop and it’s even a one–line email or text or something like that. That makes all the difference in terms of it’s a formalized relationship with a donor and an engaged intimate one.
That’s great advice and there are many wonderful tools that people can use that are sincere and meaningful that engage donors. We can leave our conversation there because on that piece of advice, I think everyone should stop reading and go write a handwritten note from the donor. I do want to thank you for being on the show and for all that you’ve done as a leader in the sector. If people want to learn more about Aqueduct and your work at Scotia Wealth Management, how can they get in touch with you?
I’m always happy to hear from people. I’m Malcolm.Burrows@ScotiaWealth.com and Aqueduct Foundation. It has a website. There’s all the information there. I’m always happy to hear from people in the community. I jokingly say I have one of the largest pro bono consulting practices in the sector because I’m constantly learning from my peers, colleagues and friends in this space. I think it’s an important part of being a sector participant.
Thank you. I look forward to seeing you in–person sometime soon.
Thanks so much, Doug. I much appreciate it.