ELITE ADVISOR BEST PRACTICES
Personalized Philanthropy and the Four Donors - Part Four
The Grail of fundraising for the four donor types within your clients
By Steven Meyers
- What would be the best gift a client could make, even if their favorite cause didn’t ask for it?
- How might getting in touch with the four donor types within your clients lead you to a better gift?
- Can your client become comfortable with complex motivations?
- What if a client is wise, wicked, simple, and still doesn’t know how to ask?
In Part Three of this article series, we talked about bringing change to the world through personal philanthropy by connecting clients’ values to actions. Here we’ll discuss the Grail of Fundraising for the four donor types within your clients.
What is the best kind of gift that a client can make? A gift design that is personalized just for them can both shape and empower major gifts that otherwise wouldn’t have happened. They could have been deferred. Or denied.
Consider the ideal gift. Could there even be such a thing?
The Grail of Fundraising is exactly this notion of chaining together your clients’ current and future gifts and capacities for giving. It does so in a way that your overall philanthropic program supports both the current needs and at the same time secures the future needs of the organizations your clients care most about.
How do you execute a Grail gift?
Sounds simple. Yet most charities haven’t even thought to include the ideal gift as part of their “ask.” Hopefully you will soon discover that for “the one who does not know how to ask,” it may be up to you, as the advisor, to help your client understand and shape this grail. These personalized gift designs and killer apps give you the ability to suggest both the question and the answer. You can bring valuable insights to the table.
Below you will find just a few examples, in this case of scholarships, that have come about, or have been upgraded, by “meeting the donor where they are” with personalized philanthropy.
Turning endowment on its head: scholarship with virtual endowment
Wise — astute, aware, careful, clever, discerning, thoughtful
A wise donor indeed, Arthur is an astute and loyal annual donor. He generally makes a gift every year from his personal foundation, almost without being asked. And he designates his gifts for general funds. Starting there, with the annual gifts, Arthur eagerly responds to ideas about opportunities for increased impact. Wouldn’t you?
From his pattern of regular annual giving, it seems apparent that Arthur was not ready to make a large contribution any time soon. He had been making consistent gifts for so many years and was very comfortable with his habit of annual giving.
However, in an extended conversation, it turned out that once presented with the concept and opportunity to have a greater impact, with little or no change in his annual giving patterns, Arthur would happily make two new choices.
He decided for the first time that he wanted to restrict his gifts, and he determined he would designate them for a scholarship. He did this after realizing that his regular annual gifts would go much further as a continuing series than as individual gifts. In fact, with no change, his annual gift would perfectly support an annual scholarship.
For the years in which Arthur would continue to make annual gifts, he would have what I call a virtual endowment. His annual gift of $7,500, when viewed as part of a scholarship series, would have the power of a gift 20 times larger. Why? Because $7,500 equals a 5 percent spending rate from a $150,000 endowment.
Funding a long-running program with these multiyear annual gifts essentially turns endowment on its head. The focus and driver has become the repeated annual gifts, rather than the single gift of principal.
Along with Arthur’s enthusiasm for continuing the tried-and-true pattern of making annual gifts, he was also perfectly willing to designate that at a future point, on his death or possibly sooner, he would contribute through his foundation an outright gift or balloon payment that would fully fund and sustain his scholarship in future years. At that point, a virtual endowment becomes a true endowment. In the meantime, Arthur’s scholarship would start immediately and would be recognized now with a scholarship student named right away—an exciting win-win for everyone.
Arthur’s total gift plan included a multiyear commitment for annual gifts, along with a separate commitment for the balloon payment (bequest). The two aspects were each secured by a legally binding pledge, ensuring that the entire combined gift was counted on the charity’s books in the year the pledge was signed. And, later, if Arthur decides his foundation can make a larger gift than originally contemplated, his master’s scholarship could be upgraded to a doctoral scholarship or postdoctoral fellowship, or even a professorial chair.
From postdoc to philanthropist: a classic endowed scholarship (stepped up)
Wicked — Reserved, mischievous, competent, expert, able, questioning
Wicked or not? Better to think of this type of donor as reserved and questioning. The most effective donors are the ones who give with their heads and not just with their hearts. Donors who need to have a give and take certainly aren’t wicked. They may just need to establish a sense of security and smart financial planning that allows them to explore options for increasing their gifts to reach ambitious goals.
Thirty years before he became a philanthropist, Richard was a postdoc. (“Postdoc” is slang for an individual holding a doctoral degree who is engaged in a temporary period of mentored research and/or scholarly training for the purpose of acquiring the professional skills needed to pursue a chosen career path.)
While a student, Richard developed a new process for freezing protein crystals, thus reducing protein analysis to just a couple of hours from the six to 12 months it used to take. This process became standard practice in laboratories all over the world. But Richard left academia to pursue a career in business. As a result, he did not become aware of his impact on basic science until many years later. Richard and his wife wanted someone else to have the same opportunities they had. “When success came, we made a list of all the things we wanted to do for the rest of our lives, and giving back was right near the top,” Richard said. They decided to create a scholarship.
The scholarship started as an outright contribution to establish an endowment fund, based on the business success that Richard and his wife enjoyed. The fund would spin out an annual “spending rate” or distribution that created many scholars in their name over the years to come (e.g., if the endowment for the scholarship costs an outright contribution of $150,000 and the spending rate is 5 percent, then the scholarship would be expected to spin off or distribute $7,500 per year, over the years funding many students).
Several years after creating that classic scholarship at the master’s level, with an outright contribution, Richard and his wife decided they wanted to augment it. However, they were not able to make another large outright contribution to move from one academic level to another. As an alternative, they obtained a charitable gift annuity (CGA). The gift annuity immediately gave them the assurance that their fund would grow in future years, thus increasing the impact of their scholarship. At the same time, their gift annuity provided them an income tax charitable deduction in the year of the gift as well as a stream of lifetime payments. This gave Richard and his wife the security and assurance they needed to step up their gift without having to wait until a later date or without having to defer their gift until after their lifetimes. They get to see and enjoy their gifts in action.
After their deaths, the remaining proceeds will be added to their scholarship fund and will help it step up to the higher level, to a postdoctoral. It seems likely they will find other ways to add to the impact of their scholarship fund over a productive and philanthropic lifetime as conversations and ideas continue. It is possible that their master’s could move to a doctoral scholarship or a postdoctoral fellowship, or even a professorial chair. In our organization, donors frequently use charitable gift annuities, combining them with bequests and outright gifts to establish major philanthropic funds.
A fair number of donors have described themselves, in terms of the four donor types, as both wise and wicked. They want to help other people, but are also motivated by an internal metric that demands accountability and responsibility for themselves first. Ultimately, the wise donor is a donor who knows who they are and where they are. Arthur understood and embraced his true longing to help real people, not just an undefined cause. He found a way to link his current and his future giving. Richard and his wife understood that they wanted to help others as they had been helped, yet at that point in their financial life cycle, they saw how a lifetime income arrangement providing for their own needs could enable them to make an additional gift. This was the best gift for them at that point in their philanthropic journey. If you were their wise and trusted advisor, how might you have helped them shape their gifts?
In the next installment we’ll explore the power of spending rate to transform your clients’ philanthropic objectives.