Charitable Giving Among Donors of High Net Worth
A Post by James V. Toscano
A U.S. Trust study conducted with The Philanthropic Initiative of the “Philanthropic Conversation” between individuals of high net worth and their financial advisors is revealing: there are wide differences between these individuals and their advisors on a number of aspects of charitable giving.
The most interesting are reasons given by each group on why donors don’t give or give more.
The advisors, who understand their clients’ interest in philanthropy, cite their fears that they won’t have enough money to leave to heirs (41%), or they won’t have enough for themselves in old age (34%) or they don’t consider themselves wealthy enough to make significant donations (22%).
The donors themselves cite very different reasons for not giving or not giving more. They are principally concerned that their gift will not be used wisely by the nonprofit (30%). Interestingly, one-fourth cite their lack of knowledge about or connections to nonprofits. The last major reason is a defensive one: they fear increased donations requests.
An Interesting Challenge
These findings pose some interesting questions for nonprofits and a number of challenges to their overall development efforts.
What can be done with both groups to familiarize them more with the charitable sector and to build faith in the societal promise of the work of this sector? Given the different motives for not giving coming from each group, are two different approaches needed? How may nonprofits demonstrate good stewardship as well as significant impact?
It does make sense to approach each group separately. Financial advisors have different motives in their relationships with clients, acknowledging their clients desire to donate to charitable causes but often attempting to protect them and their corpus. Some, especially the fund managers, have an interest in not diminishing the amount of funds invested under their auspices. Many financial advisors are familiar with returns on investments, so they may be influenced by data, by metrics reported by nonprofits on outcomes.
Potential donors, on the other hand, may be interested in pursuing areas in which they have strong feelings and values. Emotion and anecdotal information join metrics in any appeal to individuals and their families. Intergenerational decision-making in families compounds the task for nonprofits, given differences in orientation to information, experience and outcome.
Potential Nonprofit Responses
While a general and blended strategy for both major and potential donors and their advisors is advisable at the conceptual level, segmentation is needed for each group, possibly dividing into two categories but probably four.
Overall, at the 60,000 foot level, the nonprofit industry needs to do a better job of demonstrating careful stewardship of both missions and funds. Ethical and operational expressions of this stewardship, such as the Principles and Practices for Nonprofit Excellence and approval seals from the Charities Review Council and Better Business Bureau need much better exposure in the media and general public. Reassurance by third parties is often key.
Confidence in the nonprofit sector, as measured by donor retention, is slipping. Currently retention, reported in a recent survey, is down to 39% of all donors, a new record low. Only one in four new donors repeats a second time. So it’s not just major prospects and donors, but all donors who need reassurance.
This includes the advisors, who also have many doubts about nonprofit organizations. All of this may be a bad rap, but it needs to be dealt with, and if not the case, the truth of what is happening needs to be better and widely communicated.
Prospective and Current Donors
Given it’s their donations at stake, let’s first look at the individuals of high net worth who are both donors and prospective donors. How do we get our message to them in a world where no one seems to have any time?
Clearly, if they are our existing donors, we have their contact information, and hopefully know some things about them. From other studies, we know that many donors rarely do research on the groups to which they give, but rely on such factors as knowing or thinking that they can trust the leadership or the board or someone they know who is associated with the group. This is such a thin reed of relationship that can snap with departure of any individual or change in the group.
So with existing donors, and with prospective donors, messaging, experiencing, talking, interacting, all of the many interpersonal vehicles available need to come into play. When donors report that they don’t feel needed, or that they never hear from the nonprofit, there are obvious solutions. Let them know how important and needed they are, and do it as often as needed or wanted.
When donors feel or think they know that funds are not being used wisely, it takes much more effort. Can we get them to visit, or through sociometry, can we get some of their peers to invite them to learn more about the mission of the nonprofit as well as its results? Learn to tell powerful stories. Produce visuals (a picture is worth…) Get the confirming approval of media stories.
Most important, demonstrate the efficiency and effectiveness of the nonprofit’s operations. How are funds used? With what result? With what return on investment? These metrics must be on hand and updated. If possible, a scorecard of vital signs, very visual, helps and convinces. Multichannel information, stories, data, scorecards are all part of the mix needed to earn the two things required: societal benefit and effectiveness.
Younger generations of high net worth families offer opportunity to have hands-on experience in some vital activity of the nonprofit. One-on-one volunteer activity, participation in “junior” boards, different opportunities for investments than given to their parents, all might result in adherence to the mission, thus to the nonprofit. Gen X is indeed different and needs to be understood in terms of needs, values and orientations.
Their Advisors
Let’s segment the advisors into those who are responsible for investing the donor’s funds and those who advise on legal and charitable aspects of giving. Both groups, which include family offices, wealth management firms, law and accounting firms, philanthropic advisors and others, understand the donors’ interests in charitable giving and know that covering this area with their clients will please them.
What can nonprofits offer these groups? Years ago, nonprofits held seminars on planned giving for attorneys and other advisors who were largely unfamiliar with Unitrusts, Annuities, Annuity Trusts, Lead Trusts and other such instruments . While partially still the case, nonprofits have to go well beyond such activities to attract large audiences now.
Perhaps foundations, especially community foundations, and nonprofits can jointly sponsor some jazzy seminars for legal and financial advisors on measurements of outcomes, on comparative statistics, and on the variety of societal needs being met and not met by the current array of agencies involved in some special area. Boring, no; not if the substance of the outcomes, the examples of what indeed resulted are told graphically and well.
Wouldn’t a seminar headed by Michael Weinstein, the MIT-trained PhD economist who is chief program officer at the Robin Hood Foundation in New York City attract a crowd of truth-seekers? Under his leadership, he has been able to monetize the potential charitable investments of his Foundation and demonstrate comparative return on investment.
Nonprofits should also think about converting their appeal into the language of those handling investments. A case statement easily transforms into a prospectus. (Beware, however. Once, year ago, I did an appeal entitled, Invest in the Arts, with graphics that resembled a stock offering and received a cease and desist order from the Attorney General about soliciting for an unregistered security!)
All nonprofits should think about putting forward the type information contained in a prospectus, which is heavier on financials and other numbers than anecdotes and stories, but which still must embody the sense of, the heart of Mission.
We need to develop these skills, learn from what works and doesn’t work and continue to educate on what we actually do and what we actually achieve.
Where will the resources come from, given all of the other things this new era requires? First we need to band together, in our trade associations and in ad hoc groups. If we want to attract new major donors and increase gifts from existing major donors, we need to invest in all of the above, perhaps appointment of major gift officers, of new criteria for selection of and new roles for Boards, and expanded donor responsibility for Executive Directors.
The work of nonprofit organization is too important to society to do anything less.