Seven Blind Spots your Private Foundation May Have
Our family office provides management & administrative services to private foundations. Over the years, we’ve realized many private foundations take certain responsibilities for granted. So, when an “unexpected” event occurs (like a CRA audit, death of a board member, change of tax rules) these private foundations scramble to adjust. The result is stress to the family and potentially financial losses for their charitable foundation.
In this post, we describe seven “blind spots” your family foundation might have, and how our family office will address them.
- Record Keeping, Documentation & Governance
- Investment Policies
- Financial Reporting
- Manager Evaluation
- Formal Reviews
- Disbursement Quota
- Impact Measurement
Record Keeping, Documentation & Governance
If the CRA audited your family foundation, how would you feel? What about when a key family member dies or becomes incapable of fulfilling their fiduciary responsibilities? Does your family foundation have a documented succession plan? What are the legal risks that your foundation may face without proper documentation? What documentation is your charitable foundation legally required to keep?
Our family office ties up all these loose ends by consistently doing the administrative work that keeps your foundation’s records in a clear, compliant, and accessible format. This includes documenting monthly banking & brokerage statements, bookkeeping, and annual resolutions.
Investment Policy
Many private foundations rely on their family’s investment advisors to manage the portfolio of their charitable foundation as well. Unfortunately, many investment advisors do not provide their clients with formal investment policy documents. But, as a registered charity your family foundation has legal requirements that make this necessary. The investment portfolio of your charitable foundation must align with its goals, risks, and charitable mission.
Without documentation, it becomes impossible to evaluate the success of your foundation’s portfolio. Conveniently, this gives cover to your investment advisor, making them less accountable (since you can’t evaluate success without documented objectives).
To align the investment portfolio of your family foundation with its mission, our family office will draft an investment policy for your foundation that your advisors can use to make recommendations. This way, you can better evaluate your advisor’s success, or make changes that will better align with your charitable mission.
Financial Reporting
When your charitable foundation does not provide you with regular reports, it becomes difficult to evaluate success or failure. So, each period (monthly or quarterly) our family office will generate income statements, balance sheets, and other customized reports of your giving and investment performance.
These statements will show you your income and expenses in a way you prefer (detailed or simplified, for individual entities and/or consolidated). We will also provide you with regular reports (monthly or quarterly) showing you the performance of individual investments and consolidated reports comparing all your investments. These reports will be customized to suit your preferences and be delivered in a format you desire.
Manager Evaluation
Too many family foundations hold investment portfolios that are not aligned with their charitable mission. This problem is compounded by the fact that the largest source of expenses for foundations is also investment management fees.
To help your family foundation, we will search for investment managers that reflect your charitable objectives. We will also review current managers and provide you with an independent evaluation of their performance. We will implement a measurement system to evaluate the progress of your investments. Then, we will use statements and reports provided by your investment managers to evaluate their performance. We will also incorporate data about your other holdings (real estate, private equity, etc) to create consolidated reports of your total investment portfolio at your preference.
Regular Reviews?
How often are your advisors providing you with a review of your finances? If you’re like most people, you let this requirement slide. You won’t often receive proactive contact from your accountant, lawyer, or investment advisor. They’re just too busy! That’s where our family office can help. We will come to you on a quarterly basis and provide you with reports tailored to your preference that highlight the factors you consider most important to your financial success. We will also make recommendations for improvements along the way.
Our family office will schedule a regular meeting (monthly or quarterly) to systematically review your investment portfolio performance and evaluate the impact your charitable gifts are making.
Disbursement Quota
The CRA now requires many foundations to disburse 5% of assets to qualified donees each year. This is a change from the previous requirement for 3.5%. Not only does this mean your private foundation needs to make larger/more gifts, but it also means the investment portfolio of your foundation needs to adjust too.
Our family office will update your investment policies to conform with the 5% disbursement quota. We will also ensure that gifts made by your foundation satisfy the updated giving requirement.
Impact Measurement
So, your family foundation has been making charitable gifts for many years and it seems like the impact has been positive. This is great! But, have you truly measured the impact you’re making?
One of the challenges of next generation wealth inheritors is finding purpose in life. Luckily, a family foundation can become a great place to invest time & effort and see the positive impacts of decisions. But, this becomes much harder when results are not measured. Measuring results makes them tangible and increases a sense of purpose.
Our family office will develop impact measurement systems for your private foundation so that you can measure the positive impact you’re making.
Markdale Financial Management
Our family office has deep experience working with wealthy families. We understand the “nitty gritty” duties that need to be done for successful financial management. Please get in touch with us if you would like to learn more about how we can help your family.