[We are pleased to introduce this series of six articles as a companion to the book by Steven L Meyers, Personalized Philanthropy: Crash the Fundraising Matrix and Make the Real Shift to Donor-Focused Giving. While that book was written primarily for gift officers and professional advisors, these articles are written to share with donors – hopefully to begin a new conversation about philanthropy with clients/donors who ardently wish to support their most treasured charities. The articles aim to introduce some of the basic concepts of Personalized Philanthropy, a powerful new and tested model for charitable planning which challenges conventional fundraising practices in bridging current and future giving so that donor impact and recognition may begin immediately and scale up over time.]
Bringing Change to the World Through Personalized Philanthropy
Connecting your values to actions
- Why focus on the most important Core Needs of the Institutions you care about?
- How can you overcome fundraising mechanics and connect your true vision 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?
Connecting the Social Capital You’ve Created as a Donor to Real Societal Change in the World
Perhaps ideas are already forming about where you 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 that of their family and loved ones. Others might not worry about changing the world, but do what they can by following 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 in to your deepest philanthropic instincts will take you beyond yourself. Thus, it also becomes important to think deeply what are the most important needs of the organizations you care about, the places that can implement and connect your vision of a better world IN the world.
Your financial planning advisor may have helped you generate a lot of “social capital” through your income tax saving and estate tax saving. By this time, you may have realized that your wealth is multi-dimensional. It’s about more than just the money; it ’s about your personal values and also about reaching out even beyond your own family to your community and the betterment of humanity. If so, now is the time for you to think exactly how are you going to connect that social capital you’ve created to real societal change.
This might not be as easy as you think for either you or the organizations 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 you to make an annual gift, for example). Sometimes it is surprisingly hard to mesh the needs you have as a donor with the needs of the charities you care about. But, working this out is ultimately so 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 gift officer, who knows both you and the organization you care about, should be able to help you with this. You need more than the general case statement. Essentially, there has to be a case statement for you and the use of your funds. This meshing of your compelling interests and the organization’s compelling needs – that’s your vision! Once you have a sense of what matters, that’s where my personal gift plans or ‘killer apps’ can come into play and be 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 make your change in the world. These are the three “classic” game-changing personalized gift strategies and how you might deploy them for example, for scholarships right in the trenches, in real situations. 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. Now is the time for you to think exactly how are you going to connect that social capital you’ve created to real societal change.
The Three Personalized Gift Designs
- Virtual Endowment – donor combines and in effect chains together a series of current gifts of 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 – 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 fully established and able to sustain the program for the future. Later, you’ll see how you won’t have to wait until your gift is fully paid to enjoy being a benefactor.
- Step-up Gifts – donor establishes a gift at a starting level with an outright gift or, alternatively, current “spending rate” annual gifts, and then steps it up. Later, you’ll see how your impact can begin now, with assurance you will achieve your greatest goals over time, e.g., growing your support from a master’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 of 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, which 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 donors is finding a source of funds to enable the mission to be carried forward, both today or tomorrow, or both.
Of course, you can support the mission by making current contributions that are to be expended immediately; or you can make a major outright gift when they have a special campaign; or you can make a planned gift through your estate plans. But often, an institution’ s most highly valued source of such future streams of support comes from endowment, or endowment-like gifts.
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 can also be 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 institutional advancement offices divide donors and fundraisers into separate departments – 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/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 over their lifetime of 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 the organization’s most enduring and important needs.
The vastly under-estimated power of spending rate – each one of these game-changing strategies in one way or another leverages the power of what institutions call “spending rate,” the percent of the corpus of your gift that can be expended annually to support your program.
As noted earlier, the entire point of endowment and other approaches for building legacies is to create a stream of annual revenues to sustain your 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 on the stream of annual gifts first – 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% spending rate. Many donors can give $5,000 per year 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?
Next week, article 3:
Personalized Philanthropy and the Grail of Fundraising for the Four Donors Within You
Steven L. Meyers, Ph.D., is Vice President of the Center for Personalized Philanthropy at the American Committee for the Weizmann Institute of Science.