Canada wealth managers see growth in philanthropic advice

TORONTO Thu Feb 7, 2013 1:29pm EST

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TORONTO (Reuters) - Gina McDonnell's ancestors ran the family's diverse charitable foundation for two generations before a retiring uncle turned to the Bank of Nova Scotia for help.

For the past 20 years, the bank's Scotia Trust and Scotia Asset Management units have done everything from managing the assets and sorting through grants to ensuring compliance and providing independent auditors. They even host the meetings - and order the sandwiches - when the family gathers four times a year to discuss its charity.

"We needed more service than any one of us would want to provide. My uncle took on a lot of responsibility and I'm sure he was good at it, but I think the bank can probably do a better job than we ever could," McDonnell said of managing the C$6 million, 55-year old Charles H. Ivey Foundation.

A demographic shift is driving Canada's big banks to offer better and deeper philanthropic advisory services to wealthy clients who want to plan a charitable legacy and bring hefty assets, income and fees along with them.

Global banking offers several models to emulate, from boutique trust companies to divisions of big banks, and Canadian banks have so far avoided consensus. While some wealth managers are scrambling to build internal foundations and expertise to keep monetary gifts under their own roof and others are outsourcing to expert teams, Toronto-based Scotiabank is swallowing market share by being ahead of the pack.

"We're very fortunate because our history, our philanthropic services, give us a unique mix among the large banks. We have attracted a lot of clients who come to us because of referrals from friends, peers -- and sometimes just pure exasperation," said Malcolm Burrows, head of philanthropic advisory services at Scotia Private Client Group, a unit of Scotiabank.

"There is no question that has helped us build our wealth business."

Unique among Canada's big six national banks, Scotia has a separate division dedicated to offering a complete kit of services for wealthy clients who want to be charitable. It creates foundations, offers tax and legal advice, writes and accepts grants and grant applications and works directly with charities to disburse assets.

While the division doesn't actually manage the funds' investments, some 80 percent of clients, unsurprisingly, agree to let Scotia's asset management arm take care of that part of the equation.

"Our bet is that if we structure our business to support the philanthropy and the community benefit, we'll get more clients, we'll get more referrals. And with that volume we get paid for our expertise, and it is a model in harmony with the client's wishes," Burrows said.

Scotiabank got a head start because its trust company has been doing the same kind of fiduciary work since 1927. But it is not the only way to manage what has become a revenue-generating fee-based business for wealth managers.

Canada's biggest bank, Royal Bank of Canada, has responded to demand for philanthropic advisory services by enlisting help of a full-service partner in Gift Funds Canada. It offers charitable advice and legal aid without taking the donor's funds off the bank's balance sheets.

RBC said demand for the service is growing as the population gets older and wealthier, and clients have fewer family members to inherit their fortunes.

"When we have high net worth clients, nine out of 10 times those clients at some point ask about charitable giving," said Tony Maiorino, head of RBC Wealth Management Services.

"It is one of those things that if you are dealing with high net worth clients, if the people you have in the field don't have an understanding of this, you are at a disadvantage."

Gift Funds Canada was founded nine years ago by veterans of both the financial and charity world to help banks and independent wealth managers with a fundamental problem: How to support clients who want to create a charitable legacy without losing control of those assets.

"Financial advisers get compensated based on the assets they manage. If they work with their client to help them give away their capital to charities, the financial adviser suffers a loss - their book of business goes down, their assets go down," said Ron Kelly, chief financial officer at Gift Funds.

His organization overcomes that disadvantage by setting up foundations, dealing with individual charities, managing tax, compliance and back-office details, while allowing the referring bank or adviser to manage the assets and collect the revenue for doing so.

It's a symbiotic relationship, with Gift Funds and the banks paying each other nothing, and each covering expenses with fees drawn from the income generated by the invested capital.

While one-time donations and immediate disbursements are not unusual, the typical model sees a donor bequeath a large sum of money in a foundation, and periodically disbursing the annual income generated by the investment. The wealth managers make money for ensuring the principal is safe and growing.

Scotia's Burrows sees only growth ahead as wealthy clients with an eye on their legacies shift priorities from asset management to charitable giving.

"There is no question it is higher profile business and closer to the hearts and minds of select clients than many of the other (wealth management) ones," said Burrows. "Our future pipeline in a sense is very very significant indeed."

(Reporting By Andrea Hopkins; Editing by Kenneth Barry)

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