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Merrill launching donor fund

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By Todd Cohen

Merrill Lynch is launching a donor-advised-fund program that its financial advisors will market to the firm’s clients on behalf of community foundations throughout the U.S.

Donors will be able to use the fund to make gifts of at least $25,000 to local community foundations, and the dollars will be aggregated and managed by investment firms selected by an investment committee representing community foundations participating in the new Merrill Lynch Community Charitable Funds.

The committee will set policies and targets for allocating assets among equity, fixed-income and other investments, and will select investment managers based on recommendations by Merrill Lynch.

“Community foundations have a limited ability to be able to market themselves to donors,” says Alicia Philipp, president of the Community Foundation for Greater Atlanta. “Here we have working with us a huge organization that has the ability to reach out to potential donors, and a quality organization that can help us with investment management.”

H. King McGlaughon, first vice president of Merrill Lynch & Co. and director of Merrill’s Center for Philanthropy and Nonprofit Management, says the firm wants to offer its clients a “uniform” charitable product “by leveraging the existing strengths of community foundations rather than creating our own proprietary gift fund type of offering.”

The joint venture, developed during eight months of talks between Merrill Lynch and 20 community foundations, represents a big new player in the increasingly competitive charitable-funds market and builds on a six-year-old joint marketing initiative Merrill has developed with individual community foundations.

Starting in 1996, Merrill encouraged its financial advisors to introduce their clients to their local community foundations, which agreed in return to offer Merrill Lynch to donors as an option for managing assets in donor-advised funds they created as a result of referrals by Merrill Lynch advisors.

That effort led to partnerships that Merrill Lynch developed with about 170 community foundations, McGlaughon says.

In those current partnerships, he says, individual community foundations create their own forms, terms and policies for their donor-advised funds – posing challenges for some donors and particularly for financial advisors who must master separate rules for community foundations in different locales.

In addition, he says, donor-advised funds created through the existing marketing program are invested only in Merrill Lynch’s proprietary asset-management products.

The new partnership aims to build on the current program, McGlaughon says, through consistent pricing, policies, service standards and investment strategies.

A big challenge in creating the new venture, Philipp says, has been creating uniform agreements spelling out how the fund will work and how assets will be handled, invested and accounted for.

The participating community foundations will create an organization that will support the new program and hire a national agent to provide administrative support for investment, technology, accounting, reporting, marketing, communications and tax issues.

Merrill Lynch and participating community foundations will hire NPO Solutions in Concord, N.H., to develop, manage and maintain a Web-based technology platform to function as a central service bureau for the new fund.

The fund will be accessible to donors, advisors and community foundations through a password-protected Web site, with multiple levels of access and security, depending on the needs of the user.

Revenue from donor fees, which have not been set but will be based on the size of the gift, will be split among Merrill Lynch, NPO Solutions and the investment managers and community foundations.

Using the Web-based platform, McGlaughon says, a financial advisor meeting with a client in a Merrill Lynch office will be able to download and print out documents creating a donor-advised fund.

Once those documents are signed and forwarded to the community foundation designated by the donor, the advisor will be able to use the platform to move assets from the client’s individual account to an account owned by the community foundation.

The donor then can go online at any time to recommend to the community foundation that it make distributions from the fund, and the community foundation’s staff can go online to screen the proposed recipient, communicate its approval to Merrill Lynch and distribute the funds.

Each community foundation will be able to use the site to review all of its funds created through Merrill Lynch, while donors and financial advisors can use the site to review their own funds.

The new fund will be offered to Merrill Lynch clients throughout the U.S., and almost all community foundations may participate, McGlaughon says.

Participating community foundations must meet national standards created through the Community Foundation Leadership Team of the Council on Foundations in Washington, D.C., which is marketing the new fund to it members.

In 2001, the market value of assets at 658 community foundations in the United States totaled $31.4 billion, including $3.5 billion in new gifts to the foundations, according to the annual survey of community foundations prepared by The Columbus Foundation in Ohio and the council’s Community Foundation Leadership Team.

Those gifts include funds that are part of the largest transfer ever of wealth between generations. With at least $6 trillion of that wealth expected to go to charity over the next 50 years, according to estimates by Boston College researchers, competition for those funds is growing increasingly fierce among community foundations, financial-services firms, mutual funds and charities.

Merrill Lynch already manages more than $30 billion in charitable assets, McGlaughon says, including $4.5 billion for 6,000 individual charitable trusts and gift vehicles, $4 billion for 4,500 private family foundations and $22 billion for 35,500 endowment funds of public charities.

The new venture aims to compete with commercial gift funds such as the Fidelity Charitable Gift Fund by plugging local donors into their communities, says Carla Dearing, CEO of Community Foundations of America, a membership group in Louisville, Ky., that community foundations formed to develop new products and services.

“Fidelity is an inherently national fund,” she says. “This, because it’s a joint venture, is an enhancement over Fidelity because it ties donors in local markets to community foundations in local markets.”

By aggregating funds and centralizing administrative oversight, she says, “a deal like this gives donors access to more professional management at attractive costs.”

Philipp of Atlanta’s community foundation says community foundations are “extremely enthusiastic” about the new fund, with 50 already indicating they will participate and many more expected to sign up.

Foundations that expect to participate represent nearly every major metropolitan area in the United States, including most of the 15 largest community foundations, McGlaughon says.

“This is the greatest thing I’ve worked on in my whole career,” Philipp says. “Community foundations are about engaging more people in philanthropy, and this provides us with an ideal way to really involve more people in philanthropy.”

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