ELITE ADVISOR BEST PRACTICES
Personalized Philanthropy and the Four Donors - Part Three
Connecting your clients’ values to actions
By Steven Meyers
- Why focus on the most important core needs of the institutions your clients care about?
- How can you and your charitably intended clients overcome fundraising mechanics and connect your clients’ true visions to the world?
- Can just three killer apps of personalized gift design really change the way we do philanthropy?
- What is the vast power of spending rate, and why should we radically rethink endowment?
As we discussed in Part Two of this article series, the notion of personalized philanthropy is changing the way philanthropy is done. By knowing which type of donor your clients are—Wise, Wicked, Simple or Naïve—you can rethink your clients’ philanthropic goals so they don’t get lost in the fund-raising mix. Here we’ll explore how to connect your clients’ values to actions.
Connecting the social capital you’ve created as a donor to real societal change in the world
Perhaps ideas are already forming about where your client might fit as one, or a combination of, the Four Donors. Many donors self-identify as both Wise and Wicked! They understand that their motivation is complex. They want to make something good in the world, but not entirely at their own expense or at the expense of their family and loved ones. Others might not worry about changing the world, but they do what they can to follow a moral or spiritual teaching. For others, the only definition of wealth is money. Still others do not even have a way to form the question of what to do.
What philanthropists know is that while you must begin with yourself, tapping into your deepest philanthropic instincts will take you beyond yourself. Thus, it’s important to think deeply about what the most important needs are of the organizations your clients care about—the places that can implement and connect their visions of a better world IN the world.
As a financial advisor, you may have helped clients generate a lot of “social capital” through their income tax savings and estate tax savings. By this time, you may have realized that their wealth is multidimensional. It’s about more than just the money; it’s about clients’ personal values and also about reaching out even beyond their families to their communities and to the betterment of humanity. If so, now is the time for you and your clients to think about exactly how you are going to connect the social capital you’ve created to real societal change.
This might not be as easy as you think for either your clients—or the organizations they support—since the typical fundraising mechanics for annual, capital or endowment gifts do not often specify what these needs are (except the need in itself for your clients to make an annual gift, for example). Sometimes it is surprisingly hard to mesh the needs of donors with the needs of the charities they care about. But working this out is ultimately satisfying to all involved. These core needs are often described as “evergreen,” in the sense that they define the heart of the mission, both for today and tomorrow—they are forever valid.
Your clients’ gift officers, who know both your clients and the organizations your clients support, should be able to help you with this. You need more than the general case statement. Essentially, there have to be case statements for both your clients and the use of your clients’ funds. This meshing of your clients’ compelling interests and the organizations’ compelling needs—that’s your vision! Once you have a sense of what matters, that’s where my personal gift plans or “killer apps” come into play and are useful in crafting the right gift for the right purpose at the right time.
Game-changing personalized gift apps (the killer apps)
Before going to specific cases, let’s look at the tools that can help you and your clients make positive changes in the world. These are the three “classic” game-changing personalized gift strategies and how you might deploy them in real situations (e.g., for scholarships right in the trenches). I call them the killer apps of personalized philanthropy because, once understood, they will change the way you think about how philanthropy should be done.
The three personalized gift designs
- Virtual Endowment. Here a donor combines, and in effect chains together, a series of current gifts at a “spending rate” amount that will maintain a program with a future gift (a bequest or other balloon payment) to endow the program. Later, you will see how this approach means that even modest gifts can matter much more than you would ever have thought.
- Philanthropic Mortgage. Here, a donor’s annual gift commitment covers an amount greater than that needed for maintenance of the program. The “surplus” amount is used to gradually build “equity” in an endowment or a legacy fund until it is fully established and able to sustain the program for the future. Later, you’ll see how the donor won’t have to wait until these gifts are fully paid to enjoy being a benefactor.
- Step-up Gifts. Here, a donor establishes a gift at a starting level—with an outright gift or current spending rate annual gift—and then steps it up. Later, you’ll see how the donor’s impact can begin now, with assurance that the donor will achieve his or her greatest goals over time (e.g., growing support from a master’s scholarship to a doctoral scholarship to a professorial chair).
Did You Know?
Important Terms: Endowment and Spending Rate
Endowments, very broadly speaking, are gifts such as investment funds where the principal is expected to remain intact while investment income is used for charitable efforts. Donors can also express specific preferences for the use of funds, leaving ultimate discretion with the organization. Charities usually designate a spending rate as a certain percentage of the assets to be used each year. This may also include interest and principal, as necessary, to fulfill that purpose.
When you focus on core needs and the heart of the mission, what matters to most organizations is finding a source of funds that enables the mission to be carried forward—today or tomorrow or both.
Of course, your client can support the mission by making current contributions to be expended immediately; or your client can make a major outright gift when there is a special campaign; or your client can make a planned gift through his or her estate plan. But often, an organization’s most highly valued source of such future streams of support comes from endowments or endowment-like gifts.
So you might think about endowments as a mechanism for producing annual support. Endowments are often established through planned gifts, such as bequests or charitable trusts, but are also funded with outright or major gifts.
The link between current and future needs seems compelling, natural and organic. However, in the conventional fundraising and development office, that link is broken. Conventional fundraising and organizational advancement offices divide donors and fundraisers into separate departments or channels for annual, major and planned gifts. The connection between current dollars and future dollars is often severed or never even established.
Personalized philanthropy is a radical rethinking of endowment, as well as annual, major and planned giving. The strategies are all about repairing and restoring this connection by eliminating the channels and gaining a clear view of the donor’s big picture of lifetime giving. That allows us to devise new kinds of gifts that can actually bridge the gap between the current and future dollars and enables us to design gifts that can meet an organization’s most enduring and important needs.
The vastly underestimated power of spending rates
Each one of the game-changing strategies above, in one way or another, leverages the power of spending rates. That’s the percentage of the corpus of a gift that can be expended annually to support a targeted program.
As noted earlier, the entire point of an endowment and other approaches for building legacies is to create a stream of annual revenue to sustain a program. While it may not be possible to obtain the corpus initially, it may be much easier to provide that stream of annual gifts to maintain your program. In fact, you may already be giving the funds, though in a less decisive or intentional way.
With this simple approach—focusing first on the stream of annual gifts—many programs can be established that would otherwise never see the light of day. For example, a traditional endowment of $100,000 produces $5,000 of spending with a 5 percent spending rate. Many donors can give $5,000 per year rather than $100,000 as a lump sum. Thus, even modest annual gifts (in the context of lifetime and estate giving) can have all the impact and power of major gifts. Spending rate is magic!
If the annual spending commitment precedes the formal establishment of the endowment, who is to say that is not just as valuable as having the endowment itself?
In my next installment, we’ll explore “The Holy Grail of Fundraising”—the chaining together of your current and future gifts so your overall philanthropic program supports your client’s current needs and, at the same time, secures the future needs of the organizations he or she cares most about.