The Three Most Important Questions Driving Philanthropy Today

by IdeaTransfer on June 27, 2011

Question 1.  Let’s say you are in a parked car facing west on a straight road.  After driving awhile you realize you are a mile east of where you started.  What’s going on?

Answer.  You must be going in reverse.

From our outsider perspective, that answer accounts for many of the pressures nonprofits are experiencing today.  Of course, the worst financial conditions in eight decades have made affluent individuals and corporate donors more careful.  The sour taste from the Madoff infamy lingers as well.  Even when economic recovery finally arrives, the philanthropy environment will and should have changed dramatically.

Fundraising is guaranteed to become more competitive as government grants evaporate.  Smaller, local charitable organizations used to public funding are already forced to seek private donors in their communities–with no resources or experience beyond goodwill.  Meanwhile, on the national level charitable institutions explore mergers in order to consolidate revenues and reduce expenses.  These moves are probably good, but they indicate a reverse-gear mindset.

There is a huge potential wave of philanthropic commitment ahead.  The only way to capture the opportunity is to get traction now–not wait for the right moment to continue what has worked before.  Here are the changes we think will make the difference.

Over the past three decades we have witnessed breakthrough positioning ideas from the core of financial advisors focused on philanthropic planning.  The first game-changing concept was the 80’s redefinition of a relic from the Progressive vocabulary of the 30’s—social capital.  The first time we heard that there are two kinds of capital—personal capital and social capital—everything clicked.   Our personal capital was ours to spend and invest with complete freedom.  Our social capital was what the government appropriated for the commonweal.  Exactly!  But, our social capital could also be what the government did not appropriate—as long as we correctly used it for the commonweal ourselves.  The phrase social capital made philanthropy strategic and tied it securely to wealth transfer planning.

As brilliant as that positioning message sounded, there was an implied element—a higher principle than tax strategy.  Eventually other innovators from the financial services field articulated it, and the idea of values-based philanthropy emerged.  The combination supplied the perfect message for the segment most engaged in philanthropy at that time—the WWII generation.

Having endured and triumphed against crushing financial calamity, the grim realities of world war, and the threat of global domination or annihilation, this generation learned that values were the only stable currency of life.  Courage, perseverance, comradeship, righteousness, sacrifice—these were values that made Americans worthy of success.  And what better way to pass success and values forward to future generations than embracing philanthropy?  However, we question if is the right positioning message for the future.  Will these concepts motivate the Baby Boomer generation as it becomes the torchbearer of philanthropy?  If not, then it will be moving in reverse.   There’s a better question to answer first.

Question 2.  Using only 9’s, can you see any way to write a number that equals 100?

Answer.  There is a way—9999/99

Baby Boomers–especially the early ones now at their sixth decade–have always refused to do things the way our parents did or the way authorities say things should be done.  We question everything even if it leads to something pretty silly like a different way to write 100.  Our mindset is so ingrained we deserve our own breakthrough idea.

Social capital and values are compelling—no argument.  But another generation’s language will always distract us.  That’s right, Baby Boomers are that self-centered and possibly delusional.  However, we are the generation that will drive philanthropy for the next two decades, and we have a sweet spot.

Ask early Boomers what we think of first when we hear the word charity—the March of Dimes.  Founded in the late 30’s to produce a vaccine against polio, the March of Dimes had a huge television presence that brought the fear of polio into everyone’s home.  What was unique was the fundraising strategy, asking every American to contribute one dime each year.  Even kids could donate dimes.  Seventeen years after the first campaign, two vaccines were discovered, and the disease was eradicated in America.  The March of Dimes had to change its mission.  We all cured polio—seventeen dimes each.

Hold that thought and fast forward to the Baby Boomer activism tempest in the late 60’s.  Somehow with no Internet we connected across the country and around the world to passionately champion a different cause every month and “put our bodies into the gears of the machine.”  It was a collective psychology—like the March of Dimes.  Expect Boomers to embrace philanthropy as our generation’s collective responsibility.

Our questioning nature provides one key to unlock this surge of generosity, because there is one question that keeps coming back to us.  What does it all mean? For all we might have accomplished as a generation and as individuals, we still need to know what mattered, what didn’t matter, and why.  Philanthropy could be our answer to our quest for meaning, because through all our activism and our searching it is easy to spot a consistent theme—love of humanity. We were tagged as the Love Generation, after all.  Break the word philanthropy into its Greek roots—philos (loving) and anthrōpos (humanity).  So, show us a path to meaning through love of humanity.

But there is a second key as well.  When jobs were scarce after WWII, young men and women started their own businesses, generating an entrepreneurial wave the country had never seen before.  When these parents gave the helm to their Boomer children, the businesses grew far beyond expectations.  Maybe too much to repeat the process for the next generation without undermining the self-reliance that drove the Boomers’ success.  How to resolve that fear?  Show Boomers a path to keeping their extended families together for generations to come through philanthropy.

The early Baby Boomers are now entering the perfect life stage for a commitment to philanthropy.  These two motivations–meaning and family– will leverage the sign-carrying commitment of our past into a check-signing commitment for our future.

That’s our why, but we also need our own how. Baby Boomers are also obsessed with individual freedom and suspicious or even cynical about institutional structures.  Charitable institutions are no exception.  If we feel we have no personal control over impact of our donations—well, bummer.  Conveniently there are appropriate vehicles already in place, but they have to be promoted.

Donor Advised Funds have been around since 1931 but the Pension Protection Act of 2006 upgraded them.  It is an easy structure to understand and use—contribute to the fund, let the fund grow your asset, and donate to the charity of your choice whenever you choose.  Freedom and control—except for the irrevocable gift part of the deal required for the tax deduction.

But there is a revocable alternative as well.  Institutional Life Insurance has long been used by corporations and banks to manage cash and is now available for personal ownership by affluent white-collar individuals.  With proper policy management donors use after-tax money—i.e., revocable gift—to pay premiums, then enjoy income tax-deferred accumulation and can access values for charities without paying taxes or surrender charges.  Ultimately the death benefit can go to charity or replace assets for heirs.

So, does this analysis get philanthropy into a higher forward gear?  We’ve shown how replacing the very successful positioning messages of the WWII Generation will give Baby Boomers a new motivation for philanthropy.  We feel assured that effective donor vehicles are in place.  There is just one more question to explore.

Question 3.  Don and Ron were born on the same day in the same year and have the same mother and father, but they are not twins—why?

Answer.  You didn’t see they have a brother named Vaughn, and that makes them triplets.

There is also something you haven’t seen that could collapse this whole discussion if it is not resolved.  The tremendous potential for donors, charitable organizations, and recipients will be lost.  The problem we have ignored so far is the wall between nonprofits and professional advisors.

Philanthropy has to be considered a continuous commitment, not an impulse.  Certainly people generously aid victims of disasters whenever and wherever they strike, but philanthropy is usually defined as a different form of giving.  It is based on the consistent and long-term intention to enhance the public good—a plan.  A plan that requires donors to…

  • Articulate their philosophy and goals.
  • Gain an education about the philanthropy planning environment.
  • Undertake an analysis of their current and projected financial, family, and business circumstances.
  • Develop and manage short-term and long-term strategies to achieve the intended results.

Who should take responsibility to guide donors through the list? Corporate and ultra-high net worth donors can hire expert resources, but individuals and families with philanthropic aspirations generally seek help from the nonprofit or from their own professional advisors.  Unfortunately, these two groups have never effectively collaborated and are now seriously out of sync.

Nonprofits may employ very competent people with knowledge of philanthropic issues and excellent relationship skills.  But it seems implausible that any but the largest nonprofits will find representatives that offer donors the diversity of tax, technical, and product knowledge this planning process requires.  Or inspire donor trust to divulge all the personal data and feelings that impact planning decisions.  Add to that nonprofit ethical standards, liabilities, and potential conflicts of interests that could arise from advising donors, and you have to wonder if taking on this role is prudent and responsible—except that avoiding it is imprudent and irresponsible.

On the side of for-profit professional advisors the knowledge required for planning is no doubt deeper, but it is segmented among the legal, accounting, trust, and financial services silos.  Reliable planning requires a collaborative team working on behalf of the client donor, and collaboration is not an advisor strong suit.  The main advantage advisors bring is access to donor data and open communication based on relationship history.  What about conflicts of interest due to advisor compensation?  We can’t see that as an issue, having worked with many hundreds of them in the top tier of their professions.  They have earned the right to say they sit on the client’s side of the table.

Since the two groups won’t trust each other enough to talk their differences over, let’s roleplay what we have heard.  The themes are consistent.

“As a nonprofit I have enough bad-apple experiences to make me wary—advisors who did a poor job or over-planned donors into decision paralysis.  I am also disappointed when advisors push every donor toward deferred gift strategies when we need current gifts as well.  But what really gets me is that advisors leave me out of the planning process completely.  Once they design plan and the secure the legal structure and products, it doesn’t matter to them where the money goes—not the win-win relationship that inspires us.”

“As an advisor I am keenly aware of how nonprofits stereotype me.  But I have a wealth of experience and resources as well as the highest reputation and integrity, so what do they have to be wary about?  And this concern about deferred gifts—clients get apples-to-apples comparisons to make their own decisions, and tax savings are strong motivators.  Finally, my planning process uncovers philanthropic commitment that was lying dormant or unfocused.  That is good for nonprofits, but my ethics tell me to be neutral about what charities get that money.”

These are not the world’s toughest problems. Advisors should invest more time to engage their clients’ charities in the planning process, and equalize the importance of charitable goals and tax goals as plan design components.  They should embrace all reasonable efforts to regulate their professions and achieve transparency to give confidence to nonprofits and donors.

Nonprofits should purge their biases about advisor ethics and seek out collaborative opportunities on behalf of their donors.  They should invest in a broader and deeper understanding of planning strategies and funding structures, as well as gaining more appreciation of nuances and complexities of multigenerational wealth management far outside the scope of philanthropy.

With these two communities working in concert–actually collaborating for the good of the donors and the beneficiaries of their philanthropy–all the components for traction are in place.  No more moving backward or sitting stalled out until the road clears.

Of course, the philanthropic world will continue to progress with or without a game change, because the commonweal is innate to Americans, and philanthropy is a fixture of our way of life.  Yet the opportunity cost of leaving walls standing between professionals boundaries is too high.  The loss of the multiplier effect of the generation now coming into its philanthropic prime is a much greater loss to America.

If the March of Dimes fulfilled its mission in seventeen years with only a fraction of the knowledge and resources available today, imagine how big the impact will be in every area of philanthropy if we capture that power.


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