Many high-net-worth (hnw) clients have stepped up their charitable giving this year, directing more money toward social issues such as health care, housing and food security to meet increased need during the Covid-19 pandemic.
Nevertheless, the Canadian charitable sector overall has been hit hard by the pandemic, with many organizations losing stable revenue from event-driven fundraising and other sources.
That means there’s greater need for wealthy donors and their financial advisors to carefully examine the charities to which they’re considering donating significant amounts.
“In the worst-case scenario, you’re making a donation, but the donation is being used to keep the lights on,” says Corina Weigl, partner with Fasken Martineau DuMoulin LLP in Toronto and co-leader of the firm’s private client service group. She anticipates that some charities won’t be able to survive the current economic conditions, “so there is some due diligence that donors should be doing for smaller organizations.”
Loren Francis, vice-president and principal with HighView Financial Group in Oakville, Ont., says donors may wonder if their donations will be used appropriately, and whether the charity is sustainable over the longer term. “There will be smaller charities, just as we’re seeing with small businesses, that aren’t going to be able to withstand a continued period of Covid-19,” Francis says.
While examining the governance, operations and fiscal health of charities is essential, HNW donors “know we’re in a period of huge crisis because of the pandemic,” says Malcolm Burrows, head of philanthropic advisory services with Scotia Wealth Management in Toronto. “I’m not seeing a ton of people saying, ‘I’m not going to support this charity because I think it might go belly up.’”
Janine Davies, vice-president and executive director of the Raymond James Canada Foundation in Vancouver, agrees: “The way you evaluate a charitable endeavour is very different than how you evaluate a public company.” For example, effective charities run mainly by volunteers may lack fiscal or governance rigour, while others may need more funding to fulfil grander missions. “I have an absolute bias for smaller charities,” she says.
Carol Bezaire, vice-president of tax, estate and strategic philanthropy with Mackenzie Investments in Toronto, anticipates many smaller or newer charities facing challenges during the pandemic will merge with larger charities that have similar mandates.
Bezaire also agrees there’s increasing need for due diligence. HNW donors prefer to see their donations “hit the road,” she says. “[If I’m a HNW donor], I don’t want, say, 70% of the dollars that I give to go to administration and operating costs. I want it to help the end-client, because that’s my social capital being utilized.”
Bruce MacDonald, president and CEO of Toronto-based Imagine Canada, a charitable sector association, says he wholeheartedly advocates for due diligence and accountability in the sector, but some donors can be overly stringent.
For example, some charities are struggling because they didn’t have the resources to develop technology that will allow them to deliver their services virtually, MacDonald says: “We’re witnessing decades of short-sighted thinking by funders who say, ‘We won’t allow you anything, or very little, for administration.’”
Bezaire says charitable foundations have been proactively reaching out to charities they support to ask about urgent funding needs.
Burrows says foundations have increased granting levels this year, citing “a huge increase” in donations from the Aqueduct Foundation, which he founded, in particular: “We’re seeing quite an increase in both the volume and the dollars going out of the door.”
However, Burrows anticipates new gifts to the foundation from HNW donors will be down by half this year relative to 2019. “[There’s] a general sense of nervousness because of the [economic] environment,” he says, adding that the foundation has come off some recent “extraordinary” years of new donations.
Marvi Ricker, vice-president and managing director of philanthropic advisory services with BMO Private Wealth, says she hasn’t noticed a change in the amount of new money flowing into foundations this year, but adds that much depends on donors’ circumstances.
HNW donors are trying to direct money toward both Covid-19 issues and causes they have always supported, Ricker says: “They realize that some of their [favourite charitable] organizations, such as the arts, are really suffering, and just plain need help to make it through this period.”
Says MacDonald: “Arts and culture [charities], and sports and recreation, have really been getting hammered” in terms of lost revenue from cancelled events. “These are organizations that are more reliant on earned income as a revenue stream, because they sell tickets or memberships.”
Bezaire says HNW clients have been “narrowing” their giving to fewer charities during the pandemic, but increasing amounts. These donors are directing donations toward organizations such as food banks and those that help families in need, she says.
HNW donors also are being more deliberate, overall, in their thinking about how their charitable giving fits with both their financial goals and personal values, Bezaire says. “They’re planning it out,” she says. “They’re [asking], ‘How best do I donate so that I get the biggest impact from my donation for tax-planning purposes, but I [still] help the charities that I believe in?’”
Charitable foundations have been asking donors to consider removing or adjusting restrictions on grants. Some restrictions place limits on where money can be drawn from — for example, from the income generated by an original donation, but not the capital — or on which projects can be funded with the donation.
“There are going to be so many needs, both during the Covid-19 pandemic and following it, [so] it’s probably not the best time to be thinking of restrictions on usage of the funds,” says Weigl, particularly for new donations. She suggests advisors talk with clients about removing or adjusting restrictions on existing grants.
Says Burrows: “If an organization is struggling for existence, having one well-funded project and the rest of the organization unfunded doesn’t make sense.”
Ricker, however, says she’s seeing the opposite trend: placing restrictions on donations to ensure they’re being devoted to Covid-19 issues. There has also been a trend toward giving to local causes, “because, of course, we’re feeling all of this locally,” she says.
Weigl says advisors can help their HNW clients who want to donate more during the Covid-19 pandemic, but aren’t sure to which causes, by dividing charities into those addressing immediate needs during the pandemic and those addressing longer-term issues in its aftermath.
“You can work with [your clients] to come up with two spectrums first, then narrow down [the charities] within those two spectrums or across both,” Weigl says.
MacDonald believes 2021 will be even tougher than this year for charities “in part because a lot of charities entered this [pandemic] without reserves or deep reserves.”
Francis says she foresees charities continuing to shift away from event-based fundraising next year to try to build deeper relationships with HNW donors. “Charities should be working with advisors — not just the donors — to help tell their story,” she says.
Charitable-giving experts say they foresee HNW clients directing donations more toward mental health and health research as we gradually emerge from the pandemic as well as toward areas where donors believe they can make an impact.
“The way I see it, it’s not going to be the big, fluffier charitable-giving [initiatives], where you get your name on a wall [that will receive donations],” Bezaire says. “It won’t be museums and the schools. It’s the programs.”