May 1, 2002 Todd Cohen
Two big financial-services firms have begun marketing a new product that lets wealthy clients set up and run their own foundations. Created by Foundation Source, a philanthropic-services firm in Norwalk, Conn., the product is being offered to clients both by Chicago-based Bank One and by professional advisers served by TD Waterhouse Institutional Services, a division of online Wall Street brokerage TD Waterhouse Group that provides back-office services for independent financial advisers.
Foundation Source features both a Web-based “application service provider,” or ASP, that offers a full range of accounting, processing and compliance functions a foundation board and staff would need, as well as back-office administration and philanthropic consulting, said Doug Mellinger, chairman and CEO of Foundation Source.
“High-net-worth people get an efficient platform for new foundations, and focus their efforts on philanthropy, not administration,” said Mellinger, an entrepreneur and venture capitalist who has launched a number of technology and financial-services firms. “And the financial institutions are able to give a very highly value-added product to high-net-worth customers that is a total turn-key solution, and to manage their assets,” he said.
Bank One, for example, is offering the new product, which it brands as its “private client foundation,” through private bankers, trust officers and investment specialists in its private client services unit, said Bill Brownson, managing director of philanthropic services in Columbus, Ohio, for Bank One.
“Until now, private foundations have been for the limited few who had both substantial means to create them and means to take care of them going forward,” he said.
The new product, he said, will help “democratize the private foundations, and we can make it available to a much broader audience than had had access to it until now, not just on the basis of means, but also on the basis of efficiencies that people expect in their financial solutions today.” Bank One introduced the product internally in the first quarter of 2002, and already has used it to help two new clients create private foundations.
The bank, which is targeting households with a net worth of $1 million or more for the new product, administers $20 billion in charitable assets, including $3 billion it also manages through its private client services division for 1,000 charitable trusts, 700 private foundations and relationships with more than 50 community foundations, Brownson said.
While Bank One offers Foundation Source directly to its wealthy clients, TD Waterhouse makes the product available to its network of 2,000 independent investment advisers who have $16 billion in client assets under custody at the brokerage, said Tom Bradley, the firm’s president.
A client opting to create a foundation could use Foundation Source to run it and would open a brokerage account with TD Waterhouse, with the adviser managing the assets using TD Waterhouse’s internal back-office system, Bradley said.
“From the advisers’ and clients’ standpoints, the real key here is they maintain control of how the assets are invested,” he said.
Foundation Source spent two years developing the product, mainly the back-office technology to handle functions such as assigning grantmaking authority to board members, making grants, writing checks, processing regulatory compliance forms, reconciling all financial transactions, preparing tax forms and paying excise taxes.
“All transactions inbound and outbound happen electronically,” said Mellinger, who added that lawyers, accountants and others on his staff conduct “quality-control” reviews of all documents a foundation generates using the software system.
Foundation Source, which expects to have 10 major firms as clients by September, has raised $3 million, Mellinger said, and was completing another $3 million to $4 million in financing when The NonProfit Times went to press.
Software code-writers in the former Soviet republic of Uzbekistan, working for roughly one-fifteenth the pay of code-writers in the United States, have done the equivalent of $5 million to $6 million of work for Foundation Source, which has used its technology office in New York to design and manage the development of its software, Mellinger said.
The firm also is developing philanthropic content for its clients and a network of philanthropic experts to advise them. The underlying idea, said Mellinger, is to provide the back-office tools and staff to run the foundation, as well as the research, resources and experts to help people learn about and practice philanthropy.
Workers give online
Two big Silicon Valley tech firms have turned to the Web to boost charitable activity by employees. Using The Giving Station, a Web-based system produced by CreateHope in Bethesda, Md., Hewlett-Packard and Cisco Systems are offering workers the ability to make donations online.
The September 11 attacks changed the way both companies handle online employee giving. In the month after the attacks, 7,000 Hewlett-Packard employees gave $1 million to support relief efforts, while several thousand Cisco employees gave $500,000, 85 percent of it online.
Hewlett-Packard, based in Palo Alto, Calif., contributed $2 million, and matched its employees’ gifts with another $1 million. Cisco, based in nearby San Jose, matched its employees’ gifts dollar for dollar, and contributed another $6 million.
In the wake of the attacks, CreateHope sped up installation of its system for Hewlett-Packard, which had been processing contributions manually and already was planning to use The Giving Station.
“We had no system to support disaster-relief of this magnitude” said Mark Anderson, HP’s philanthropy services manager. “They put it together in 72 hours.”
The company plans to use The Giving Station for its annual campaign and to post volunteer opportunities and track volunteer activity for its 45,000 U.S. employees. Facing growing demand from its 37,000 employees for online giving options through payroll deduction, Cisco also had turned to CreateHope, which was scheduled to install its product last November in time for the company’s annual hunger-relief drive.
To handle September 11 contributions, however, Cisco used its previous system — and found it needed a stronger and more flexible system for online giving by employees.
The company also plans to use the new system to post volunteer opportunities and handle its hunger-relief drive, which last year raised $2.2 million from employees, the company and its foundation and chairman.
Employees contributed $750,000, most of it online.
An in-depth look at foundation funding to support nonprofit technology needs is the focus of a study funded by the W.K. Kellogg Foundation in Battle Creek, Mich.
The study, expected to be released this month, will track technology grants, map the way in which foundations channel dollars for tech support and examine lessons foundations have learned about their tech grantmaking, said Rob Stuart, a Philadelphia consultant working on the survey for Summit Consulting Collaborative in Amherst, Mass.
The study will be based on an online survey and interviews with funders, Stuart said.