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Thinking of setting up a private foundation, but don’t want to be bogged down with ongoing administrative hassles? Several companies take care of the day-to-day management of a foundation while freeing donors to focus on what matters most: phil­anthropy.

“Private foundations are not the cumbersome, paperwork heavy entities they once were,” says Sean
Stannard-Stockton, director of tactical philanthropy at Ensemble Capital Management. “While many advisers unfamiliar with philanthropy often assume that foundations are only appropriate for people who can put $3m-$5m or more into the foundation, the rise of the internet has reduced the cost and administration needed to operate a found­ation.”

Outsourcing back-office operations can be appealing as some private foundations require administrative staff to ensure grants are properly distributed, keep track of annual distribution requirements and so on.

But, Stannard-Stockton says: “Even after outsourcing administration, found­ations still require some paperwork by the donor.”

Dan Schley, chairman and chief executive of Found­ation Source, a provider of support services for private foundations, says operating costs have fallen as a result of automation, the internet and a more efficient outsource services model.

“The perception was that [private foundations] were expensive to set up and operate and that was the prevailing view until the internet revolution,” he says. “Companies such as Foundation Source and Fidelity are moving private foundations from the era of green shades and pencils and paper into the 21st century.”

Foundation Source, which uses a web-based platform, serves as a foundation’s “virtual staff” by providing services that include set-up, administration, tax preparation, compliance and grant-making. It also creates for each of its foundations a private website that acts as its “command centre”.

In the seven years since Foundation Source was founded, assets under administration have risen to $2.1bn. It provides services to 550 foundations.

Schley notes that Foundation Source can set up a foundation in three days for less than $5,000 and that $250,000 in assets is sufficient to start a viable foundation. “We found a better mousetrap,” he says.

Today there are just over 70,000 private foundations in the US, nearly two-thirds of which have less than $1m in assets, according to Found­ation Center.

Another company that offers administration outsourcing is Grants Management Associates, established in 1982 to serve as shared staff for foundations.

Mary Phillips, president, says GMA is an ideal solution for foundations that do not want the overheads of their own office. “Private foundation trustees can purchase different pieces of services,” she says. “For example, a part-time book keeper or a two-day-a-week grant-making programme staff member, or a two-day-a-week administration person. So for one fee to GMA, you can tap into different levels of expertise and skills without the overhead of office, payroll, a personnel director and benefit costs.”

GMA can also help donors develop their initial mission statement and advise on due diligence and implementing a grant-making programme.

Rockefeller Philanthropy Advisors, a non-profit group that counsels foundations, is another option. Melissa Berman, president and chief executive, says when RPA is approached regarding outsourcing a foundation’s administration, she suggests three alternatives, depending on the person’s needs.

If a donor is simply looking for an online service provider, she refers them to Foundation Source and Fidelity Charitable Services (which offers Fidelity Private Foundation Services).

For donors or families who need only back-office help, Berman suggests the client’s accounting firm, law firm or family office, or their private bank or trust company.

If a donor wants support on wider aspects of foundation development – such as identifying potential grantees, developing the focus of the foundation, or putting together the board book – as well as the administrative aspects, RPA is a good fit.

“It’s helpful to have one place where everything can be handled,” Berman says. “We rarely do pure administration because the strength we bring [to the relationship] is the programme capacity. We have programme officers who have served on foundations.”

While some private foundations choose to outsource administration, many opt to do it on their own.

The choice of whom to call for help – and when – can depend on the complexity of the foundation.

“If you are going to run a desk-drawer foundation where you are simply cutting a few checks every year there is not a tremendous administrative burden,” says Karen Green, director of governing board programmes for the Council on Foundations, which represents more than 2,000 grant-making foundations and other charities.

A recent survey by the Association of Small Foundations, an organisation of foundations with few or no staff, found that 49 per cent of ASF member foundations had no paid staff.

“The vast majority of donors and families figure it out on their own, often supplemented by attending seminars and conferences where they can exchange ideas with peers,” says Tim Walter, ASF’s chief executive. “Their annual record-keeping can be contained in a couple of manila folders; many find that dropping off files at the certified public accountant at the end of the year is adequate. It’s not until the foundations really start working their boards, creating succession plans and getting active in their grant-making that the question of staffing and outsourcing become relevant.”

Copyright The Financial Times Limited 2017. All rights reserved.

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