Bank One Corp. will roll out a technology-based private foundation product Dec. 1 in an effort to bring a tax shelter built for the ultrawealthy to the wealthy.
"We are going to be able to bring private foundations to a much broader audience now," said William Brownson, the Chicago banking company's managing director of philanthropic services. "We are talking about taking foundations from customers with more than seven figures [to invest] to customers with less."
Bank One plans to offer Foundation Source's "ready-to-fund" private foundation. The Norwalk, Conn., company offers automated technology and administrative services that make it possible to offer private foundations online to a wider audience and at less cost.
Foundation Source lets customers research charities, make grants, manage assets, and otherwise oversee operations at its own Web site.
"We are lowering the threshold for assets required to create a foundation," Brownson said.
He said Bank One manages more than $1 billion of foundation assets, and he asserted that the new product will "substantially" increase the total and enhance relationships with affluent customers. Data from Spectrem Group, a Chicago financial research firm, show $400 billion held by private foundations. Fifty thousand of these foundations have less than $25 million apiece.
"This is the market our product is best suited for," said Douglas Mellinger, CEO of Foundation Source.
Most financial institutions do not offer private foundations because of their high administrative costs, Mellinger said. He said the traditional foundation costs from $5,000 to $25,000 to start up and from $6,000 to $20,000 a year to maintain. He said a Foundation Source start-up costs $1,100 to $2,500 and the company charges an annual fee of up to 1% of the foundation's assets.
The product is administered by Foundation Source.
It "allows us to take a client relationship and make" it "more profitable," Mellinger said. "Banks will bring in assets that perhaps the customer might have taken to another institution. This is an opportunity to increase wallet share."
Foundation Source will be sold through banks, insurance companies, and registered investment advisers, Mellinger said. Within a few weeks Foundation Source will announce an alliance with an institutional brokerage firm, he said, and by early next year, he expects to announce a partnership with a "large" insurance company and a regional banking company.
By the end of 2002, he said, he hopes Foundation Source will have $900 million of assets under administration and 10 new relationships with financial institutions.
Geoffrey Bobroff, a financial analyst in Providence, R.I., said the foundation marketplace is "clearly not huge. It has pockets of wealth or wealthy positions, but the question remains how far down-market can you go before this stops being profitable."
Bobroff said that foundations are ideal for the ultrawealthy but that people with $250,000 to $1 million of net worth have other options for tax-advantaged giving. "Foundations are a great resource for people with large amounts to give," he said. "But they aren't necessarily for everyone."