FRED: Welcome to the Scotiabank Podcast. I’m Fred Ketchen, Director of Stock Trading for ScotiaMcLeod. These regular podcasts call on some of Scotiabank’s most knowledgeable experts to help you make the most of what you have. Here we’ll discuss strategies designed to put you in the financial driver’s seat.

Joining us today is Malcolm Burrows, the head of Philanthropic Advisory Services Scotia Private Client Group. Malcolm is going to discuss the effects of today’s economy on charitable giving and charities as a whole. Now Malcolm, we’ve heard a lot about the stock market and the challenges facing certain key industries in the recession but not much about charities. Have Canadian charities been affected?

MALCOLM: Yes Fred, charities have really been hit by the recession across the board. They’ve seen declines in donations, government revenue, even earned income; and, at the same time, the demand for the services are going up and up and a gap is really stretching the charities. There has even been predictions, there’s one group in Toronto, the Wellesley Institute that predicts that between ten and twelve thousand not-for-profits across Canada may go out of business.

FRED: Is this recession different for charitable giving than previous recessions?

MALCOLM: I think in many ways its going to be more challenging. In previous recessions, charitable giving has been flat and this is a fact that’s provided a lot of comfort to charities going into this one. There’s a lot of discussion last year about this. However, since 1995 certain charities have become increasingly reliant upon major donations; and, so, we’ve seen giving in Canada increase by 140% from 1995 to 2007 but the number of donors has actually been declining. It’s the large charities like the universities, the hospital foundations, community foundations that really benefited from these major donations. For example; public securities and other assets over the last decade and, ironically, those charities that have grown the most may be the most likely to see their fundraising revenues drop right now.

FRED: You speak from the inside, Malcolm, because you worked as a fundraiser with charities for fourteen years before joining Scotia Private Client Group. From your perspective, which charities are least affected by the economy?

MALCOLM: I think it’s going to be the charities with broad deep bases of support that will generally not see a decline in revenue. For example; large national charities like the Salvation Army, or World Vision, or Doctors without Borders are probably going to be largely undiminished. These charities have done a really good job at fostering donor loyalty in consistent support; and many of the charities are now encouraging donors to sign up for preauthorized withdrawals which is wise, it’s all about that loyalty. And the cost is far more effective than single donations and it builds much stronger relationships with supporters. But, generally, right now it’s very, very tough to get new supporters to acquire those new donors. Direct mail is a mature fundraising technique and online techniques they just haven’t lived up to their full potential yet. It’s not surprising that the good weather across Canada has brought out a lot of solicitors trying to sign up new donors on street corners and door-to-door.

FRED: Well, I’ve noticed that special events such as golf tournaments and galas are having a tough time, so what are you hearing from charities about that subject?

MALCOLM: Well, special events, the most sensitive ones are going to be the large exclusive events; the galas, the golf tournaments as you mentioned. Some of the corporate marketing and donation budgets have been cut with the recession and charities have to move away from some of these more glitzy events. But the charities, the feedback that I’m getting, are that charities that rely upon community base special events, there the ones that are fairing better. For example; I just talk to a community hospital that held a senior’s walk at a local mall, raised $75,000 for the orthopedic unit… and another one, Small Children’s Cancer Organization just told me they completed a record fund raising year due to community based events.

FRED: Well, what about large capital campaigns and major gifts, are they a thing of the past?

MALCOLM: Oh, they’re going to be important as ever and committed donors are still giving often with donations and excess of a million dollars. However, those campaigns we’re seeing them delayed. In 2008 many charities saw gifts of public securities off by 80% due to the stock market crash. Community Foundations Canada recently announced that donations across their system were down 37% year over year. What we’re going to see is fewer and smaller headline grabbing major gifts over the next couple of years like the ones we’ve seen over the past decade. But, we’re really seeing that donor confidence return, I think, and so charities just have to get out there talk to their communities and listen to their supporters.

FRED: Before we sat down today, you mentioned that 8 of the 11 largest gifts last year in the United States were bequests in wills. Do bequests increase during a recession?

MALCOLM: It’s an interesting question. Studies back as far as 1930s show that bequests actually grow in importance during a recession or a depression; and that’s because there are fewer large lifetime gifts. So, the actual timing of the bequests, of course, can’t be planned, the donor has to die first. But smart charities are the ones that encourage bequests and other types of planned gifts today. For example; last year one of my colleagues was telling me the University of Manitoba exceeded its fundraising goal due to significant bequests that were in the pipeline. A recession is paradoxically a great time to promote charitable bequests. At Scotia Private Client Group for example; one of the things that we’ve really experienced is a much higher average number of clients revisiting their financial and estate plans. They’ve had a major shock and now their plans need to be reviewed and reset.

FRED: Have you any thoughts on charity endowments and if these funds are anything like other investments, the losses must have been very significant.

MALCOLM: They have been. Last year, some of the losses in Canada for Canadian charities and foundations were up to 30%. The average was probably around the 17% level but that’s a significant drop. In a few well publicized situations there’s charities have decided to seize payouts in 2009 to preserve capital. These decisions are really difficult to make and their going to have significant implications for the charities and for the community. But as severe as the shocks been, it’s really important to remember that endowment funds are for the long-term. If they’re invested in a disciplined, well balanced portfolio, those losses can be minimized and recovered over time. One of the things when I was growing up in the charity world, this old saying was pounded into my head: “the only quarter of foundation trustee should pay attention to is a quarter of a century”. This long term thinking has been proved repeatedly.

FRED: I think that’s an excellent, excellent comment that we should all remember. And now in closing, do you have any words of encouragement or advice for charities?

MALCOLM: Well, probably first the advice and then the encouragement. I think probably the greatest priority for charities at the moment is their mission and this may seem kind of self-evident; but it’s very easy to get distracted by internal challenges and forget to tell the story of how your charity is meeting its mission. Charities don’t have needs, they meet needs. For example; if you are a social service agency put the face of the homeless or homecare for the elderly, that’s what you want to go out to the public on. Don’t talk about your own needs, don’t talk about your own challenges, address those community challenges and donors will respond. But here is the encouragement; its fascinating watching the state of and participating in the state of philanthropy over the last year. I’ve seen, despite these economic challenges, that there’s a growing philanthropic spirit among Canadians. We saw a lot of Canadians start giving significant amounts as part of their estate plans and from stock market gains things like that. Last year, some of them walked away from it. Their financial circumstances changed, they decided not to give. But one of the things that I found so encouraging right now is the number of, certainly the clients that I have been working with and also talk to my charity friends, of people who may have delayed their gift but they’ve come back. They’ve put it into their estate plan. They’ve said that charity is important to us and that’s going to be very, very important. We’ve gone from a nation that’s been entirely dependant upon government revenue to increasingly a nation of philanthropists, and, I think, we’re going to see that more and more going forward and that’s really in my mind cause, for celebration and increased hope.

FRED: Well, thank you Malcolm for sharing your insights with us today, and we hope that this episode has shed some light on the challenges facing charities during these tough economic times. Thank you for joining us. I’m Fred Ketchen. For more information on Scotia Private Client Group, please visit your local Scotiabank branch. We’ll help you make the most of what you have.