By Joseph C. Imberman and Donald P. Kent

2000 of our closest friends were recently in attendance for the General Assembly of the Jewish Federations of North America (GA). The GA gives all participants the opportunity to network furiously with each other and at the same time take part in some wonderful programming about Jewish communal life. For those of us past or current professionals, there are during GA sessions after hours investment receptions by entities such as the State of Israel at which one can learn and after the GA continuing education which takes place largely by discipline. These sessions in particular make us think hard about life’s big questions. The big questions made us think about several points regarding donor advised funds (DAFs) and how integrated financial resource development is practiced at federations and maybe other charities.

As the first draft of this article was being written, on the last day of 2016, donors all across the U.S. with substantial portfolios and interest in charity were being advised by counsel to make very large gifts to charity in 2016 rather than 2017 because of potential changes to the law which might make giving less financially attractive going forward. One of us spoke with a mid sized foundation executive who was in the final stages of securing approval to accept 15 million dollars of real estate gifts on December 31. Unlike Canada where such changes seem to occur the day after a new administration takes office, in the U.S. any major change to the tax treatment of charities requires major debate in significant committees of Congress and the involvement of large federal bureaucracies like the U.S. Treasury and a long gestation period.

At one of the endowment presentations at the GA, Charlie Glassenberg, Vice President of Gift planning and Investment partnerships at Combined Jewish Philanthropies in Boston took exception to this approach. He asserted that contributions to DAFs should not be solicited based on possible tax advantages. He explained that in Boston, donor advised funds are seen as a mechanism for building trusting relationships with philanthropists and helping donors make grants which have more impact. This is an end in and of itself. The community’s management does not measure the success of the DAF program based on how much is granted from all donor advised funds to the annual campaign. Rather, he shared some wonderful stories about how this approach has led to some very large gifts, both during lifetime and at the death of donors for community priorities.

At least 100 years after Jewish charities began acquiring substantial sums of “special” assets not directly related to their annual operating budgets (or campaigns) the leadership of these same institutions still debate how much to invest in the management and development of special assets such as donor advised funds or “private foundation substitutes” which are not true endowments but which assist charities to carry on their functions and allow donors to:

1. separate the decision about what to give to charity and when with the decision on which public charity will ultimately get how much and at what point;
2. retain the ability to recommend grants to qualified public charities over time;
3. receive personal recognition by both small and large institutions for their giving;
4. contribute assets other than cash or publicly traded securities to a fund whose administrative cost is generally as low if not lower than that of for profit financial institutions;
5. secure the best expertise in the community on a pro bono basis as to how the money should be used to secure maximum leverage and influence;
6. create truly special charitable entities which mirror the activities of private foundations with less cost, at least as much family involvement, and remarkable community investment expertise.

We agree with Glassenberg that the business of managing donor advised funds and even supporting foundations (participatory philanthropy) can be a very valuable one for large charities. But many charities offer these vehicles without properly assessing the costs and benefits. Many smaller charities, without sufficient resources to cultivate these donors, as Glassenberg does in Boston, are overwhelmed by the administrative requirements in running a DAF program. DAFs are viewed solely as charitable cash management tools for donors in these communities. One can question whether these same communities would be better off closing their DAF programs and focusing their scarce resources on building their permanent endowment funds.

The real issue for Federations which offer DAFs is determining what the objectives of the program might be, such as building meaningful relationships with the top philanthropists in a community or increasing funding for community priorities and at the same time honestly answering the question whether the costs to manage the program properly are worth the effort. We believe that in most of the larger communities and more developed Jewish community foundations, DAFs are a fantastic vehicle, but only if properly staffed and managed. We do question whether or not some of the smaller Federations should be deploying their scarce resources to offer DAFs when they are not likely to reap sufficient benefits. There are too many options for donors to create these funds outside of Federations and community foundations. And smaller communities should be focusing their efforts on building their financial foundation through legacies.

In an earlier piece we asserted that charities like federations which manage many fund development activities essentially have three or even four separate businesses… annual campaign, permanent endowment development, participatory philanthropy and everything else (special campaigns, capital campaigns, etc.) Clearly the most urgent current needs met through the annual campaign and special campaigns should continue to be the highest priority. But it is short sighted to not adequately fund the permanent endowment efforts, though the benefits will only be reaped years if not decades after the investment is made. And if a Federation decides to continue to offer services in the participatory philanthropy realm, it must devote sufficient resources to reap the benefits that are available.

In addition, bringing data to the conversation which documents the fact that all of the businesses benefit the bottom line is sometimes difficult, particularly in research resistant environments (for profit banks and trust companies as well as larger single focus organizations like the Common Fund are much better at research on certain financial resource development topics than operating charities). Simply put why spend thousands of dollars on the three or four separate businesses if there is less benefit to the bottom line today?

Part II

This leads us to the point about integrated financial resource development. Those who miss the opportunity to integrate their fund development operations and train up staff members whose skills could be used more effectively are suffering. The second business line or permanent unrestricted and restricted giving as differentiated from donor advised fund management (and foundations) unfortunately has a long lead time, a fact which decreases the eventual value of a gift for accounting purposes when looked at today. But no one can dispute the long term value of a federation or community foundation (or other charity) mounting efforts which accumulate up to hundreds of millions of dollars in the pipeline (whether as a service to the donor or the community).

Our university colleagues learned these lessons many years ago and have reaped the rewards. And the benefits accrue … UJA/NY funds fully one third of its operating budget from endowment income. Others fund up to 25% of their grant making budgets from endowment. Our basic point is still relatively simple in concept but complex in execution. Messaging, solicitation and branding for all streams of resource development should be balanced, clear and nuanced to show that the institution prizes all revenue streams. All of those hired to manage the process over time should come to understand in greater detail the entire set of ways to give, rather than treating one as inherently more important than the other because it produces a gift today as opposed to tomorrow. And training those in this business to be able to interact with families of wealth at a sophisticated level across the spectrum of issues including but not limited to multi-generational philanthropy, family succession planning, investment of assets as well as grant making, administration and charitable aspects of estate planning will produce a fully knowledgeable and competent team, a team much more capable of interacting around complex philanthropic issues and acting as advisors and confidantes as well as annual solicitors. Yes this is a complex task and probably not possible in all settings and with all staffs for a variety of reasons – time, skill level, complexity of tasks, etc. And yes there will always need to be specialists to whom the rest of the team looks for counsel on specific technical issues. And there may be two businesses and two staffs required to do this correctly but it must be done.

And there will always be institutions which are structured in such a way that for governance purposes these functions are entirely separate. Such is life in the big city and in our work. None of it changes the basic message. Out of complexity will come more giving and grant making!

For wonderful and important current background on the current issues see:

“Gilded Giving: Top Heavy Philanthropy in an Age of Extreme Inequality,” released by the Institute for Policy Studies and Inequality.org, raises the specter of a philanthropic sector dominated by wealthy mega donors and their foundations and donor advised funds.

Philanthropy outlook, 2016/2017 and 2017/2018, Indiana University Lilly Family School of Giving, presented by Marts and Lundy. An extract from the report follows:

“The projections of The Philanthropy Outlook point to some dramatic changes in American philanthropy. Contributions to donor advised funds and to family foundations continue to grow significantly, leaving enormous amounts of charitable dollars waiting for future distribution. These donors are seeking meaningful relationships with organizations and the kinds of inspirational ideas that will fulfill their philanthropic aspirations. … the need for vigorous and meaningful engagement on the part of recipient organizations has never been greater,” John M. Cash, Ph.D, chair of the board of directors, Marts and Lundy

Special recognition: This is an appropriate time to note the passing of Mandell L. Berman, a visionary philanthropist from Detroit who supported endowment development in all of its many facets during his entire life as a lay leader and donor and who provided inspiration to many of us to continue in our work and examine its validity and importance. Another Detroiter recently passed and whose memory should not be forgotten is Sol Drachler, former leader of the Jewish Federation of Metropolitan Detroit, a visionary professional and role model for all of those who knew him.

Joseph C. Imberman is an endowment consultant, former Associate Vice President of Planned Giving and Endowments for the Jewish Federations of North America, and Senior Advisor to the Centennial Campaign of the Federation Combined Jewish Appeal of Montreal and the new 2017 Legacy Initiative of the Foundation of Jewish Philanthropies of Buffalo. He has assisted dozens of Jewish federations and agencies over the years to grow and develop their endowment and grant making efforts and helped them to raise millions of dollars.

Donald P. Kent is an investment advisor and partner in the firm of AB Bernstein where he helps dozens of clients achieve their financial goals. He is also former Vice President, Financial Resource Development, United Jewish Communities, and a national expert and resource on these issues.