WISE Insight - Donor Advised Funds in philanthropy by WISE philanthropy advisors

SPRING 2015 NUMBER 2

WISEInsight

A WISE publication on your philanthropy

Celebrating 10 years of achievements ensuring your philanthropy goes further. WISE - philanthropy advisors

WISE Insight – SPRING 2015 – NUMBER 2

CONTENT

5. EDITORIAL

By Etienne Eichenberger and Maurice Machenbaum

6. LET’S FOCUS

Philanthropy today: the Donor Advised Fund Alternative

10. INSIGHT

An insight on Donor Advised Funds by Sabrina Zucchello

12. THEIR STORY Next Gen in Philanthropy

14. A DIALOGUE

WISEInsight A WISE publication on your philanthropy EDITORIAL: Etienne Eichenberger and Sabrina Zucchello CONCEPTION&COORDINATION: 360Crossmedia COVER PHOTO: ©Melissa Tamisier Luchetti PRINT RUN: 500 copies

WISE Insight – SPRING 2015 – NUMBER 2

Creating a Donor Advised Fund: a Dialogue between Céline Denizot and Didier Cherpitel

18. TREND

Cross-Border Philanthropy: a Growing Reality 3

381

“Number of charitable foundations created in 2013 in Switzerland” Source : Report on Foundations in Switzerland 2014

159

“Number of charitable foundations liquidated in 2013 in Switzerland” Source : Report on Foundations in Switzerland 2014

110’000

Number of foundations in Europe Source : European Foundation Center and CEPS

13’000

Number of foundations in Switzerland Source : European Foundation Center and CEPS

WISE Insight – SPRING 2015 – NUMBER 2

EDITORIAL

Dear Readers, dear Friends,

For more than a decade, we have been fortunate enough to accompany individual donors, entrepreneurs or their foundations and help them make a sustainable impact through their passionate engagement. As we listened to and advised them, we learned that they share similar motivations of giving, but that the methods employed have evolved significantly. This mirrors the fact that philanthropy is in motion. The figures on the left page show the high density of foundations of public interest based in Switzerland, since it comprises 10% of European foundations. These numbers also remind us that philanthropy is generally a world of too many solicitations and not enough listening. While many foundations are well thought, others are created without a clear purpose. In Switzerland alone, one new public foundation is created every day! It is a good thing, but we should not neglect other aspects: the definition of objectives and strategy processes, identifying and selecting the organizations to be supported—all these steps require preparation. In this second edition of « WISE Insight », we found it relevant to discuss donor advised funds, which have become an appealing alternative to independent public foundations, according to the type of philanthropy and the donor’s resources. As founders of WISE, in 2006 we have co-founded and then supported the development of the Swiss Philanthropy Foundation, where some of our clients have sheltered their philanthropy. We found it natural to present to you this tested solution that is part of the multi-faceted landscape of donor advised funds in Switzerland: their legitimacy is growing, as you’ll read in the following pages Etienne Eichenberger & Maurice Machenbaum Founders of WISE – philanthropy advisors

WISE Insight – SPRING 2015 – NUMBER 2

LET’S FOCUS Philanthropy Today:

the Donor Advised Funds Alternative

M’Lop Tapang offers schooling and social reinsertion to hundreds of street children in Cambodia

WISE Insight – SPRING 2015 – NUMBER 2

“New opportunities arise for those who wish to give.” What makes a man or a woman to decide one day to become a philanthropist? For Alexandre*, 48, it was an article by Nicholas Kristof published in May 2003 in the New York Times, titled “Alone and Ashamed.” This 750-word piece, which hit all the right notes, praised an Australian gynecologist who treated 25,000 Ethiopian women in Addis Ababa suffering from obstetric fistula—most of them married too young and shunned by their communities after a difficult delivery that often resulted in the death of their babies and serious lesions to the mothers. Alexandre was distressed when he learned about this pathology, and turned to his family. He manages an upscale family business, in which the older generations still have a say. The family is not stingy and each year donates substantial amounts to causes and charities that interest them. However, laments Alexandre, “we give without strategy,” without follow-up, and in a reactive fashion. He is convinced that a family foundation, which would collect donations from each member for clearly identified projects, would have more impact. He worked relentlessly on this project and presented it during a family weekend at the end of 2005. The response was tepid. His idea of helping the poorest women in Africa is considered “commercially dangerous.” Moreover, a more structured philanthropy is of no interest to the elders. “This made me deeply sad,” he confesses today. “But I couldn’t hold any grudges against them; they are old school and they don’t want to be told how to be generous.” In order to overcome the failure of a family foundation that WISE Insight – SPRING 2015 – NUMBER 2

will probably never get off the ground, Alexandre decided to open a philanthropic fund as part of an umbrella foundation, the Swiss Philanthropy Foundation, in which he systematically deposits part of his revenues. This option, constrained by family circumstances, remains a lesser-known philanthropic tool in Switzerland, but it is increasingly common and similar to other practices in Europe, e.g. the Fondation de France and the King Baudoin Foundation in Belgium. Much like financial services, philanthropy is a dynamic sector. Almost every year, new opportunities arise for those who wish to give. Increasingly, these tools integrate devices to measure the impact, to engage the donor and to rigorously follow-up with projects. “In Switzerland, there is an automatic gesture of establishing independent foundations. There are 13,000 in Switzerland, but only 420 in France,” explains Etienne Eichenberger, the president of the Swiss Philanthropy Foundation. This automatism is encouraged by the relative simplicity of the Swiss legal system: creating a foundation and obtaining a taxexempt status only takes a few months, while taking two to three years in France or Belgium. “The cost and time needed to establish one’s own foundation is not the only advantage of our donor advised fund,” believes Luc de Tayard, director of the King Baudoin Foundation in Belgium, which shelters about 400 funds, or 300 million Euros. The main argument seems to be longevity: “Generations come and go, advisory boards get older,” says Luc de Tayard. In other words, the founder of an independent foundation has no guarantee that, 20 years after his/her death, the money will still be used according to his/ her will and efficiently.

LET’S FOCUS

Efficiency is another keyword: “Imagine a donor who wants to work on social justice in their city, as well as on a project in Africa, and an initiative on heritage,” says de Tayard. “If this donor has to gain expertise on these three areas, it’s going to be very challenging. As for us, we have built knowhow, our own projects, and a network of experts over the course of thirty years. We can also bring funds together and create more impact. Needless to say, we also offer administrative support, which means significant sliding savings.” The same factors beg the question regarding independent foundations in Switzerland. Many of them do not have much longevity. In 2013, 381 foundations were established in Switzerland, but 159 were liquidated. Established nine years ago, the Swiss Philanthropy foundation sheltered 23 funds since its creation, or nearly 100 million Swiss Francs. “It has also to do with a new generation of donors,” believes Etienne Eichenberger. “They want to give while they are alive. They apply the same entrepreneurial logic to their project as the one that made their business successful, and consider alternatives to structure their philanthropy.” From the beneficiaries’ perspective, donor advised funds also bring satisfaction. The association M’Lop Tapang in Cambodia, for example, which offers schooling and social reinsertion to hundreds of street children, has an annual budget of USD 1.4 million. We have received donations from the United Nations, UNICEF, and embassies, explains Maggie Eno, its head. “In 2010, we had the visit of a representative from the Swiss Philanthropy Foundation, who spent a full day with us. A few months later, he told us

Gilles and Marie Concordel in a field visit in Burundi.

that a family was willing to commit for three years. This family came to visit us, including their children. They found the right distance, which is very important to us: they were interested in our work, but didn’t impose their views, and let the Foundation professionals guide them. Donors are sometimes tempted to get involved in our methods; they develop relationships with some children, and when they withdraw their support, the children feel abandoned for the second time.” According to Etienne Eichenberger, “public charities reflect the very liberal character of the Swiss economic culture; however, they run a risk of scattering their values and their visibility. This is especially true since these foundations are led by people who look at accounting and compliance, but do not expect specific results or impact.” WISE Insight – SPRING 2015 – NUMBER 2

Quality is not an issue for the Tutator foundation, run by the Concordel family, which Swiss Philanthropy Foundation knows well and supports in its goals of restorative justice and assistance to deprived youth, particularly in Latin America. Swiss Philanthropy Foundation and donor advised funds did not exist when the Concordel family decided to venture into philanthropy after a six-year world tour following years as expats in the Silicon Valley. “During that trip, we visited about 80 humanitarian and development projects,” explains Gilles Concordel. “This humbled us to believe that you can’t act alone; it also gave us a clearer sense of the areas in which we wanted to invest.” The former entrepreneur thinks that an independent foundation can be justified in his case, because it hires consultants and runs its operations. “But the administrative load is significant: we need a foundation WISE Insight – SPRING 2015 – NUMBER 2

board, auditors, and there is also the question of passing the baton that will arise one day. If I were to do it again, I would think twice.” Alexandre has not given up convincing his older relatives to rethink their philanthropy, but until then, he has found “a model that makes [him] happy.” His fund supports an organization that assists women who suffer from fistula in East Africa. “I read quarterly reports and I follow the developments in the region. I have full confidence in the structure that I support and in the structure that shelters my funds. I haven’t taken a fieldtrip there yet, but I’m already having a powerful experience.” Serge Michel * Name changed

INSIGHT

An insight on Donor Advised Funds,

by Sabrina Zucchello Sabrina Zucchello, as philanthropy advisor at WISE, advises key clients on their philanthropy. She shares her experience on the role of donor advised funds (DAF).

WHY DO DONOR ADVISED FUNDS MATTER TODAY?

WHAT DO DONORS EXPECT TODAY?

Philanthropy is in motion: when we look at the philanthropy landscape in Switzerland today, we see that the number of foundations has been increasing during the last 20 years. This is a good indicator of the sector expansion. In 2014, there were 13,000 foundations. In this landscape, DAF represent an option that is gaining interest as well. We roughly estimate that there might be between 200 and 250 DAF in about 10 umbrella foundations today, which are by no means replacing independent foundations, but that are becoming a significant alternative.

Donors often want to be personally involved, and want to make a greater impact. A DAF allows donors to focus on their project and its impact, rather than being burdened by administrative and technical questions. Donors are also seeking flexibility and professional advice. They want to define their ambitions and aspirations clearly. A DAF can be a helpful step in their philanthropic journey.

WHEN DO YOU RECOMMEND DONOR ADVISED FUNDS?

Yes, definitely and this publication of “WISE Insight” is an expression of this growing interest. For instance, donors who are looking for innovative collaborative solutions with other donors find that DAF can be an attractive option. We have seen a remarkable example of collaboration between high net worth individuals based in different countries that would not have been possible outside the structure of a DAF. Switzerland has a solid legitimacy in hosting foundations and offers a large palette of philanthropic solutions, of which DAF use is on the rise.

DAF are a means to reach an end. We find the best solutions to our clients’ goals: DAF can be a perfect fit for some donors—e.g. those who begin a philanthropic activity— but can be irrelevant to others. An article on page 12 gives the example of parents who looked for a suitable structure to involve their four children. They wanted to transmit the family legacy, and help their children become responsible in selecting projects, assessing results and following up in the field. A DAF worked very well in that case: it was easy for the parents to establish, and easy for the children to run.

DO YOU THINK THAT THE USE OF DONOR ADVISED FUNDS WILL GROW?

Interview: Brigitte Sion WISE Insight – SPRING 2015 – NUMBER 2

WISE Insight – SPRING 2015 – NUMBER 2

“DAF are a means to reach an end.” 11

THEIR STORY

Next Gen in

Philanthropy Belonging to the Next Generation, Lana, Lia, Sara and Sultan share a strong and passionate commitment. In order to structure their engagement, they have created a donor advised fund.

WISE Insight – SPRING 2015 – NUMBER 2

“Our learning journeys helped us understand the real impact of our philanthropy.”

WHY DID YOU OPEN A FUND CALLED “NEW CHANCE” WITHIN THE SWISS PHILANTHROPY FOUNDATION (SPF)?

YOU HAVE INVESTED A LOT, INCLUDING THROUGH FIELD TRIPS. WHAT WERE THE BEST LESSONS YOU LEARNED?

It was important for us to begin our philanthropic exploration by learning from our parents and maintain their effort. Today, we have created a Family Fund on behalf of our family – a commitment specific to the four of us – and that enables us to meet our philanthropic goals. This approach allow us some flexibility and diversity in the projects that we are supporting.

Grassroots engagement has always been a priority and continues to be at the core of our philanthropic thinking and interests. Our “learning journeys” enriched us personally and helped us understand the real impact of our philanthropy. Our memories from these field trips remain vivid and cherished.

WHAT ARE THE ADVANTAGES OF THIS FUND FOR YOUR FAMILY? When we began philanthropy six years ago, we decided as a family to be discreet, a decision that Swiss Philanthropy Foundation (SPF) made easier to implement. A donor advised fund also allowed us to choose diverse projects that related to our individual and common interests. This fund helped us especially in building our experience and passion for philanthropy among siblings.

WISE Insight – SPRING 2015 – NUMBER 2

FOR DONORS TODAY, IT IS INCREASINGLY IMPORTANT TO KNOW THE IMPACT OF A PROJECT. HOW DID SPF HELP YOU IN THAT SENSE? When we began our philanthropic journey as teenagers, we absolutely needed some support and guidance. We learned a lot from the team at WISE – and their constant support has enabled us to expand our interests and experience. They helped us select projects and have accompanied us on every step of the way, not only to support us, but also to provide advice and comfort. Thanks to SPF and our ongoing relationship with the WISE team, we were able to pursue a targeted, concrete, and efficient philanthropic plan of action, both as individuals and as a family.

A DIALOGUE Creating a Donor Advised Fund:

a Dialogue between Céline Denizot and Didier Cherpitel

Céline Denizot and Didier Cherpitel

Didier Cherpitel is the secretary of the Swiss Philanthropy Foundation (SPF) and serves on the boards of the Fondation Mérieux (France) and Porticus (The Netherlands). Céline Denizot is the director of the Swiss Philanthropy Foundation. Together, they discuss the role of foundation boards, the development of donor advised funds (DAF) and the way DAF can stimulate philanthropic giving today.

WISE Insight – SPRING 2015 – NUMBER 2

WHAT SHOULD A DONOR CONSIDER WHEN ESTABLISHING A PHILANTHROPIC VEHICULE? D.C.: When setting up a foundation it is crucial to know what is at stake: Vision, Mission, Objectives and Priorities. How large are the programs and how are they funded? How many partners are contributing? For how long? Their talents and governance are also key questions. I have served on a number of foundation boards and my experience tells me that an independent foundation is not always the best solution. At a time of greater WISE Insight – SPRING 2015 – NUMBER 2

“An independent foundation is not always the best solution.”

professionalization of philanthropic activities, donors have more options, and should really get advice on making the choices that suit their resources and mission best.

HOW CRUCIAL IS THE BOARD OF DIRECTORS’ ROLE? D.C.: The board’s responsibilities include the selection and follow up of projects or programs, sometimes with the assistance of external advisors. The Mérieux Foundation, a third-generation foundation with a

A DIALOGUE

The Swiss Philanthropy Foundation has been founded in 2006 to provide donors with a light structure to simplify and promote giving.

significant endowment, supports a network of over 25 laboratories that diagnose all kind of tropical diseases, including Ebola or H1N1. There are professional teams on the ground, a scientific advisory board that makes recommendations to the foundation board, which strategizes and also shares knowledge within the network and some institutional partners, such as the Pasteur Institute. The endowment is externally managed. Porticus presents a different model, with steering committees/boards focusing on themes and regions. Porticus strives to help change philanthropic models by advocating for a coherent, systemic approach leading to sustainability and autonomy. My role within the Swiss Philanthropy Foundation is quite similar in terms of overall responsibilities. However, the specific tasks differ as donor advised funds (DAF) have legroom to make recommendations on their grant making.

WHAT IS THE DIFFERENCE BETWEEN A FOUNDATION AND A DAF? D.C. A DAF requires a lighter structure than a foundation and the founder can maintain their previous relationship with bankers or consultants. It is a very useful vehicle for philanthropists, not only for first-time philanthropists who can use SPF as an incubator, but also for experienced philanthropists who want to concentrate on the impact of their giving while having administrative aspects taken care of. It is always possible to change the size of the funding and the projects supported. It remains a very flexible vehicle. C.D. AFs have initially flourished in the Anglo-Saxon world and they are often preferred to independent foundations. Donors don’t always have the time or the WISE Insight – SPRING 2015 – NUMBER 2

skills to run a foundation; they focus on strategy and grant making. Philanthropy has become much more professional, involving legal, administrative and technical competences, as well as efficient governance, and DAFs allow donors to rely on professionals for the legal and operational aspects of philanthropy. Swiss Philanthropy Foundation shelters DAFs in Switzerland, for Swiss and non-Swiss philanthropists. As a Swissbased foundation, we have a reputation of discretion and flexibility. We offer high-level professional know-how and experience in the service of philanthropy.

PROFILE: CÉLINE DENIZOT Céline Denizot is the director of the Swiss Philanthropy Foundation. She worked as a lawyer in an international firm, specializing in finance, tax law, and audits. Later, she was the CEO of a family business with 200 employees. Together with the board of SPF, Céline Denizot looks forward to professionalizing further the field, by developing philanthropic tools in Switzerland. For more on Swiss Philanthropy Foundation, please visit www.swissphilanthropy.ch

WHAT ARE THE ADVANTAGES OF CREATING A DAF WITHIN SPF? C.D. A DAF can be set up quickly, with immediate tax exemption, and is cheaper to operate than a foundation. It can offer confidentiality vis-à-vis the public, since the donors’ names are not made public, if so requested. It also tends to be more perennial, because the transition is smoother if the founder dies or withdraws. As a first example, DAF works well for one-shot donations, such as an executed will. SPF will meet with the donor(s), and upon request conduct research in the specific field of interest, find consultants to manage the various aspects of the project, and implement the donor’s strategic goals. Another example would be a business owner who is about to retire, and would like to make a difference in by engaging in philanthropy. This person could create a fund within SPF and remain actively involved in piloting and implementing the supported projects. As a third example, we also welcome philanthropists whose have supported a very specific and personal cause, e.g. a handicapped child, and who would like to expand their support and involvement, e.g. with training and workshops for handicapped adults. A DAF is perfect for this approach.

“A DAF can be set up quickly and is cheaper to operate than a foundation.”

Interview: Brigitte Sion WISE Insight – SPRING 2015 – NUMBER 2

TREND Cross-border Philanthropy:

A Growing Reality People are increasingly supporting organizations abroad. In Europe, the network “Transnational Giving Europe” enables donors from 17 countries to make tax-exempt donations. Swiss philanthropists and beneficiaries have been able to participate in this network for a few years. “European philanthropy is a growing reality,” explains Ludwig Forrest, Brussels-based coordinator of the network “Transnational Giving Europe” (TGE). “When people want to make donations, they don’t want to be limited by borders. They wish to support an organization of their choosing, whether in their own country or in another European country.” Established in 1997, TGE meets the needs of beneficiaries that have donors abroad, and of individuals who would like to give elsewhere in Europe while taking advantage of fiscal deductions in their own country of residence. Originally active in four countries, the network has now expanded to 17 countries, and funneled 8.7 million Euros in 2013, up from 4.1 million Euros in 2010. According to Ludwig Forrest’s analysis, TGE attracts new beneficiaries, inspires new donors and encourages existing donors to increase the amount of donations that weren’t tax-exempt in the past.

“Additionally, fees are set at 5 percent in following a sliding scale, which offers donors a practical and simple solution to avoid administrative procedures that vary widely from country to country,” explains Bernard Vischer, a lawyer at Schellenberg Wittmer. Donors need only to ensure that the recipients are accepted in the network by TGE’s partner in their fiscal residence, such as the Swiss Philanthropy Foundation in Switzerland. The rest of the due diligence process is conducted rigorously by foundation professionals.

THE SITUATION IN SWITZERLAND Institutions of higher education, universities, museums, as well as social, cultural or scientific organizations in Switzerland have benefited from the TGE network. They received more than 900,000 Euros in 2013 from Swiss citizens abroad or foreign residents with a strong connection to Switzerland, as noted by Philippe Pulfer, a Geneva lawyer at Froriep who manages the portfolio of clients in the United Kingdom and welcomes the existence of this network in Europe. Switzerland is also a donating country with over 1.7 million Euros donated via the TGE network. Switzerland is one of the most generous countries in the network. Besides the wellestablished tradition of philanthropy, residents of Switzerland who want to take advantage of fiscal benefits have no other option at the European level but to use this network. Ludwig Forrest concludes: “We act only for the common good.” By Sophie Balbo WISE Insight – SPRING 2015 – NUMBER 2

Your Philanthropy – SPRING 2015 – NUMBER 2

WISEInsight WISE is the expert in high impact philanthropy. We enable you to transform your unique ambitions into lasting results, where it really matters. From setting up foundations and advising on causes, to delivering projects in the field, everything we do is structured to ensure the best possible impact from your philanthropy. Because with WISE- philanthropy advisors, what really matters is the difference you make.