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Mutual Fund News

When giving till it hurts is painfully slow

When a doctor at North York General Hospital in Toronto decided to donate some mutual fund units to the hospital's charitable foundation a few weeks ago, she thought it would be a straightforward transaction. Instead, the process became so cumbersome, the doctor gave up.

"There were so many potholes in getting the job done at all, and getting it done so that [the units] could be delivered in our brokerage account, that the doctor decided that she would make the gift in another way," said Sarah Rothwell, director of major gifts for the North York General Hospital Foundation.

"I bet we spent five or six hours just trying to navigate the mutual fund company's needs," she added. "I'm sure [mutual fund firms] could make it faster. They could make it more user-friendly, which would make it faster."

Changes to federal tax laws were supposed to make it easier for donors to give publicly traded securities to charities.

And indeed gifts of stock have soared as a result of the changes, providing hundreds of millions of dollars in extra money for non-profit groups.

But for many donors and charities, donations of mutual fund units have proven more difficult. While gifts of common shares can take a few hours to process, donating mutual fund units can take days, if not weeks.

"It does take longer for mutual fund units to be donated than it does traditional shares," said Brad Offman, vice-president of strategic philanthropy at Mackenzie Financial Corp., which runs a donor-advised fund, in which clients contribute money and have a say over who gets donations. When asked whether the process can take weeks, Mr. Offman laughed and replied: "Sometimes that might even be an understatement."

Some charities privately grumble that mutual fund companies are dragging their feet when it comes to facilitating these kinds of contributions. They add that while gifts of stock are more popular right now, donations of mutual fund units are growing.

"In the early days of stock donations, in the late 1990s, the process of transferring common stock to charities was fraught with delays and misunderstandings. These problems have been largely solved. Now the process for donating mutual funds needs to be addressed," said Malcolm Burrows, who runs philanthropic advisory services at Bank of Nova Scotia.

Mutual fund companies say transferring the ownership of units involves a multistep process that takes time. Donors have to contact the fund company and instruct it to change the beneficial owner of his or her units.

The fund company then has to open an account in the charity's name before that organization can redeem the units for cash. "It's a manual process to get the donation made," said Sally Fazal, vice-president of production services at Mackenzie. In contrast, most donations of stock can be done electronically by a broker.

Aysha Maweni, a spokeswoman for AIM Funds Management Inc., outlined a five-step process clients need to follow in order to donate units. "Once we receive the documentation in good order, we would typically process within 48 hours," she added.

Jo-Anne Ryan, head of philanthropic advisory services at Toronto-Dominion Bank, said she has seen gifts of mutual fund units take between three days and three weeks to process. "It really depends on the individual company," she said.

Ms. Ryan said the type of security being transferred can affect the timing. For example, gifts of flow-through shares or units in pooled funds can take longer.

As for the volume of these kinds of gifts, Ms. Ryan said it's rising. "We won't see gifts as large as gifts of securities. But we've handled $10,000 and $20,000."

Zak Bailey, associate director of leadership giving at the Princess Margaret Hospital Foundation in Toronto, said most charities are geared up to accept mutual fund units as gifts.

"I think that as more and more people see the benefit of giving a gift of stock or a gift of securities, the mutual fund companies are going to have to get on board to be able to make the transaction faster."

© 2007 The Globe and Mail. All rights reserved.

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