Manage Your Charity Like Your Investments

When your charity extends beyond handouts to the people who knock on
your door, you should look at the management of your favorite charitable
organization in the same way that you would scrutinize a money manager.
For example, if you were to place $250,000 with an international equity
management company, you would examine a number of factors, such as the
return on the investment, management fees, risk, and how that investment
fits in with the rest of your portfolio.

Return on investment: The way you can view the return on your equity
investment is to look at the (hopefully) increasing value of your
monthly statement. But how do you judge returns from a charity? If you
donate money, will they find matching donors? Will they buy properties
that they can use and eventually sell for a profit? While the money is
waiting to be used, are they maximizing returns on their short-term
investments without taking undue risk?

Management fees: Though the directors certainly deserve to be paid for
their work, is the salary commensurate with someone in the business
world? Do they run the organization efficiently, or are they spending
most of their days in staff meetings?

Risk: Does the management have a track record, or are they an unknown
quantity? Are there regulatory or licensing issues that need to be
addressed?

Part of the portfolio: Just like wise investors must balance their
stocks, bonds, and cash, your specific philanthropic investment should
be well-balanced with your overall worldview.

One of the problems faced by many donors, however, is that although they
understand the importance of looking at these types of risk and reward
ratios, they may not have the tools or the time to get clear answers.
Reading charities’ brochures and talking with their fund-raisers is
important, but for larger donations, that’s only the beginning.
Consider the following story: A donor wanted to pay to build a building
for a school. The organization had been around for many years, the
directors’ salaries were reasonable, and the deal seemed
straightforward. When we sent in lawyers and accountants, though, it
turned out that the school owed millions of dollars in back taxes. Had
the donor given the organization the money, the donation would never
have reached its destination – the new building. Instead, the tax
authorities would certainly have put a lien on the bank account and
taken the funds to pay old debts. By having outside counsel to examine
the deal not only on a surface level, but rather by looking through all
of the records, the client was able to protect his multimillion-dollar
investment.

Douglas Goldstein, CFP, (doug@profile-financial.com) is the director of
Profile Investment Services. He offers securities through Portfolio
Resources Group, Inc., member FINRA (formally NASD), SIPC, MSRB, SIFMA.
Accounts carried by National Financial Services LLC, member NYSE/SIPC, a
Fidelity Investments company. His book, Building Wealth in Israel: A
Guide to International Investments and Financial Planning, is available
in bookstores, on the web, or can be ordered at
www.profile-financial.com, Israel: (02) 624-2788, USA: 1 (888) 327-6179.