California is a significant force in philanthropy in the United States. In 2001, California's taxpayers contributed $16.5 billion to philanthropy, in a year that saw $122 billion given to charity nationwide. California ranks 10th in the country in charitable deductions by taxpayers with incomes of $75,000 to $100,0001, and second in the country, behind only New York, in the total number of foundations, foundation assets and annual grants made. The Golden State leads the nation in the number and size of donor-advised funds. As of 2001, there were more than 5,600 charitable foundations in the state, representing more than 9 percent of the total number of foundations in the United States, and nearly 14 percent of all foundation assets.2 Assets and grants to California foundations more than tripled in the 1990s. Forty-two percent of the state's foundations were created in the 1990s, compared to 36 percent at the national level.3

Understanding what drives California's donors and the role that their professional advisors play is therefore important to anyone concerned with the public policy, best practices and the general advancement of philanthropy. With an eye toward these issues, two separate independent studies were conducted, one focusing on the perspective of California's donors, and the other on the professionals who advise them. Although these studies were not paired, looking at them together reveals an uncomfortable truth:

Advisors believe they are listening and responding to the needs of their clients. Donors don't always agree.

THE STUDIES

Both studies are anecdotal and do not provide definitive, scientific answers. Still, they offer interesting insights. One, “What California Donors Want: In Their Own Voices” (Donor Study),4 was conducted on behalf of the National Center for Family Philanthropy, a Washington-based non-profit organization, during 2002 and 2003. Released in 2004, the study consisted of 27 interviews with 32 individuals (17 men and 15 women) of whom 20 were Caucasian, two Latino, four Asian and three African-American. Spouses or other family members participated in six of the interviews. The interview groups were organized geographically: 15 from Southern California, 10 from Northern California and one from the Central Valley. Participants were identified by peers, other advisors, charitable institutions or word-of-mouth. The criteria purposely avoided defining “donors” by size of assets or level of annual giving. But the participants were those whom referral sources felt were both philanthropic and thoughtful about giving.

The second study of 507 advisors, “Doing Well by Doing Good in California” (Advisor Study),5 was conducted during the same time period on behalf of The Philanthropic Initiative (TPI), a Boston-based non-profit. It consisted of a telephone survey of 426 advisors (126 financial planners, 125 estate-planning attorneys, 89 life insurance planners and 86 certified public accountants) and personal interviews of 81 advisors (21 in-person and 60 over the phone). In addition, TPI conducted three focus groups with 10 or more advisors in each. Participants were selected based on recommendations of an advisory committee of professionals working in wealth and charitable planning and from rosters of professional societies. Each of these participant advises clients who have net worths in excess of $2 million. This study's stated purpose was to determine whether and how advisors counsel their high-net-worth clients about philanthropy, to expose the barriers to effective philanthropy-related counsel, and to identify the tools advisors feel are needed to be more effective.6

MOTIVATIONS

The Donor Study found that wealthy philanthropists are clear about why they contribute to a charity, a donor-advised fund, a family foundation or a supporting organization. They see personal benefits. But while everyone noted that giving helped them with their taxes, tax savings was not their primary motivation. Rather, self-oriented motivating factors included:

  • Social obligation — Philanthropy is expected of them because of their success and role in the community.

  • Purpose — They want to create significance and/or seek fulfillment in their lives. No matter how successful many have become, something still seems to be missing. Philanthropy helps round out their lives and make their success meaningful and useful.

  • Doing well by doing good — They recognize that philanthropy is good for business, but this means more than using philanthropy as a marketing tool. Their giving has a real impact on employees and current customers.

  • Balance — Some donors said philanthropy gives a significant spiritual and emotional satisfaction; it's also intellectually stimulating and great fun.

Many participants also have altruistic reasons for giving. They recognize that they have more money than they need for personal security and enjoyment. Charitable contributions are not new to them; most have been writing checks to non-profits for years. At some point, personal financial goals and needs were satisfied and it was time to give back. Others feel it's the right thing to do. But the most compelling motivation for increasing their philanthropy is the desire to contribute to society. Some see benefits for their own families, inspiring and encouraging family members to become personally philanthropic. Some see the opportunity to use their high-profile status to promote philanthropy, especially among other wealthy individuals. Donors often said peer pressure and encouragement helped or were the main reason they got involved.

Interestingly, wealthy donors often try to apply their business skills to solving social problems. Some expressed dismay at the inefficiency of the non-profit world and said they believed they could affect the structure and effectiveness of these organizations.

FAMILY LEGACY

Donors also said they were inspired to give by the hope of creating a family legacy and helping their children deal with wealth. A number of donors designed their estate plans to cap their children's inheritance; many have informed their children that the bulk of their estate will go to charity. Almost all the donors with children wanted their offspring to be involved in charitable giving. Most hoped their children would learn from the example being set. Many had exposed the younger ones by giving them charitable allowances to manage and distribute, talking about projects at dinner, and taking them on field trips. Older children got involved in the management and grant making of a family foundation.

Some donors have been disappointed with their children's lack of interest. One donor admitted: “We have trouble getting our sons to read anything we send them. They are too busy with their families and careers. Maybe my wife and I are at fault, because we make all the decisions.” Others expressed similar frustrations and were at a loss as to how to engage their children in philanthropy.

Yet some were happy to report that philanthropy had brought their family together and become their greatest bond as adults. One theme that was expressed by many donors: a feeling that the philanthropy they engaged in was important to nurture critical values in their children. It was an expression of family values and would serve to remind future generations of this value system. Family dynamics were a factor and sometimes a concern.

Yet advisors said they very reluctant to discuss legacy and values with their clients. Only 7 percent of respondents in the Advisor Survey said they regularly raise these issues with their clients. This may be the biggest disconnect between the donors and their advisors.

OUTSIDE INFLUENCES

Several donors reported that they had been influenced by their employers' philanthropy, which they saw as a clear and direct expression of social responsibility. Some noted the impact of community service classes in high school and college; others attributed their interest in philanthropy to the example of prominent individuals, such as Eugene Lang, whose I Have a Dream Foundation “adopted”a sixth-grade class in Harlem and promised to pay for each child's college education.

Certain areas in California have well-established philanthropic networks, especially the Bay Area and Silicon Valley. Some donors said they were inspired to give by their local philanthropist networks.7 It was not just the information these groups provided, said the donors, but also the peer pressure.

ETHNIC FUNDING

Asian-American, African-American and Latino donors share similar attitudes and practices regarding philanthropy. Many are motivated by the desire to help their own group and considered it their responsibility to do so — because they did not believe their communities are a priority for the broader philanthropic world. While many of these donors operate outside the circle of established donor resources, some expressed a need, and others a desire for more connection with the philanthropic and professional communities.

Many minority donors serve on numerous non-profit boards in their communities. This may be a critical factor in influencing their personal philanthropy, as well as an expression of their commitment to the community. In some communities, donors noted, philanthropy is personal and therefore not a subject to be discussed outside the family. This it more difficult to generate peer pressure that is often so vital for sparking philanthropy. Giving is not institutionalized in some communities, and taking credit for it is seen as lessening its value.

ADVISOR WORLD

Interestingly, advisors have a somewhat different take on donors' motivations. They think tax benefits are the most important; 66 percent of the 89 insurance agents think so, followed by 42 percent of the 125 lawyers and 33 percent of the 86 accountants. Yet less than half of all these wealth management professionals (44 percent) said they believe most of their clients would reduce their giving if the estate tax was eliminated.

Further, 68 percent of the total said they feel that a dramatic change in the estate tax would not necessarily change the way they advised their clients on philanthropy. Perhaps that's because these advisors believe other factors also strongly influence their clients' philanthropy:

  • 96 percent said clients care greatly about a cause, issue, institution or their community;

  • 81 percent said clients want to create a family legacy;

  • 83 percent said clients have a tradition of family giving;

  • 84 percent said those clients have a religious or spiritual motivation;

Few advisors said they believe clients donate for the purpose of gaining publicity or to enhance a family or business name. This is in contrast to many of the donors above who readily acknowledged the importance of such benefits.

The disparities between advisors and donors don't end with their different ideas about what motivates charitable giving. They also view each other's role and interest in the philanthropic process differently.

ROLES AND INTEREST

Donors appear to be simultaneously frustrated with, confused by, and appreciative of their advisors. Although lawyers and financial advisors are important influences on donors' philanthropic deliberations, about half of the 32 donors surveyed decided to set up a charitable program before working out the legal and financial details with their advisors. These donors asked their lawyers only to implement decisions. In contrast, donors who were undecided about their philanthropic endeavors often depended on lawyers or financial advisors and sometimes friends to recommend appropriate vehicles.

Advisors apparently operate in a slightly different universe than their clients. First, they see their role in suggesting charitable giving as extremely important: 80 percent of the 507 said they routinely ask their clients about charitable giving; 75 percent said discussing charitable giving is good for business — yet only 46 percent feel that in doing so they were responding to clients' expectations and needs.

Still, charitable giving, or at least talking about it, is a significant part of these advisors' practices. Among the respondents, 38 percent consider discussing philanthropy with clients to be a very important part of their practices while another 44 percent consider it somewhat important. Apparently, though, fewer accountants see suggesting philanthropy as their responsibility: Only 67 percent of accountants reportedly discuss charitable giving with clients versus 80 percent of all advisors.

What if a client isn't that interested in philanthropy, how much do advisors push the matter? With the lawyers, only 19 percent said they revisit the subject once a client has expressed disinterest. But financial planners and insurance professionals are more determined: 60 percent of the financial planners and 48 percent of insurance professionals said they'd discuss it again. Similarly, only 20 percent of lawyers but 52 percent of financial advisors said they explore reasons why a client is not interested in philanthropy.

Gender and age differences have expected impacts. Female advisors are slightly more likely to ask clients about philanthropy than men (83 percent to 79 percent) and more likely to believe that it's very important to discuss charitable giving (44 percent to 37 percent). But male advisors tend to believe it's more important to have a clear picture of a client's financial situation before discussing philanthropy (76 percent to 68 percent). Meanwhile, advisors aged 60 and above are more likely to think family traditions of giving are very important to individuals' decisions to give (56 percent to 44 percent).

What's good for the client is also good for the advisor. Advisors take charitable giving so seriously that 35 percent report personally making significant charitable contributions; 52 percent report doing some charitable giving; and a whopping 91 percent report volunteering with charitable organizations.

CONFUSION

While philanthropy is many clients' and advisors' common goal, the experience of setting up a program for charitable giving is too often an unhappy one.

Several donors reported being confused by their legal and financial advisors' explanations. Documents drafted in legalese, complicated flow charts and financial projections seemed to hinder comprehension more often than help. The donors said they wish their advisors had walked them through how the charitable arrangement would actually work. They wanted to know, for example, how much effort was involved in a foundation, and what a donor advised fund's real restrictions and limitations are.

In fact, many donors expressed confusion with their advisors' explanations of the different charitable instruments and their long-term consequences. Many also reported that their lawyers had not informed them of the full range of choices. Several learned about alternatives only after their lawyer had set up a donor-advised fund (DAF) or a foundation.

The donors who chose to set up foundations said they'd wanted three things: maximum control, for their family to work together through the generations, and no restrictions on what or where to give. But most did not understand the operational issues involved in having a foundation, including the grant-making responsibilities. They also indicated that they didn't have a realistic sense of the time commitment a foundation requires. Donors who preferred DAFs were willing to give up some control in exchange for fewer or no administrative responsibilities. Some picked special-interest DAFs because of their own areas of expertise or interest (such as women's organizations or religious affiliation). But several donors had mixed reactions to DAFs, experiencing varying levels of service at different community foundations.

The choice between a private foundation and supporting organization (SO) confused many donors. They were most perplexed by the concept of an SO — even after their advisors explained it to them. They reported being unclear about an SO's benefits or drawbacks over time.

Also, many donors said that advisors typically discourage them from setting up scholarships but often fail to offer suggestions or alternatives for accomplishing this goal.

That's quite a lot of discontent. Meanwhile, what is it that advisors say they're doing? Apparently that depends on who the advisor is:

  • Age — Advisors over 50-years-old were twice as likely to recommend a DAF at a community foundation as advisors under 50, and were able to distinguish between commercially branded DAFs and community foundation funds (53 percent to 43 percent).

  • Gender — Men were more likely to recommend private foundations or charitable trusts than women (30 percent to 19 percent). Women were more likely to recommend direct charitable gifts to non-profits (35 percent to 25 percent).

Whatever the advisors' preferences, they say that their high-net worth clients favored giving methods as follows: 46 percent for direct charitable giving; 39 percent for private foundations; 25 percent for charitable trusts; 23 percent for DAFs at community foundations; and just 10 percent for DAFs at commercially branded funds.

The frequency with which advisors recommend DAFs may be a function, in part, of the effectiveness of the foundation's outreach to professionals. The survey found 54 percent of all the advisors had referred clients to a community foundation. This happened after 41 percent of the professionals indicated they'd interacted with a community foundation in the past year; 38 percent had had at least one meeting with a community foundation representative and 37 percent had personally donated to a community foundation.

WHAT DONORS WANT

The Donor Study concludes that donors want and expect information that is “practical, accessible, and presented in plain language.” They want comprehensive, unbiased and value-neutral information to make good, long-term decisions.

While the advisors believe that they provide such information, they also indicated that they themselves want more “how to” articles and case studies to learn from, and more resources explaining the options to them for use in client proposals and presentations. In fact, the Advisor Study suggests that much of the advice given is closely connected to how the advisor is compensated (hourly or fixed fee), who may have educated or informed the advisor of the options and benefits, and how much personal experience the advisor may have had in a particular charitable technique. That's hardly unbiased, value-neutral and comprehensive.

Donors also said they want to be “connected to the network of national and regional resources at the point of entry.” Many of the new donors in the study were unaware of the professional associations, such as Council on Foundations (www.cof.org), Association of Small Foundations (www.small-foundations.org), National Center for Family Philanthropy (www.ncfp.org), and Regional Associations of Grant makers (www.givingforum.org) or philanthropic networks like Resourceful Women (www.rw.org), Women Donors Network (www.womendonors.org) and the Foundation Incubator (www.foundationincubator.org).

Surprisingly, many advisors are unaware of these resources as well. For example, 56 percent of the respondents in the Advisor Study have little or no awareness of the Southern California Association for Philanthropy (now known as the Southern California Grantmakers), which serves local foundations in California.

Many donors are unfamiliar with philanthropic consultants or don't understand their expertise or perspective. Some said they're resistant to the idea of paying for advice on philanthropy. Most are unaware of the body of literature available to enhance their own knowledge like The Chronicle of Philanthropy, Foundation Center's Philanthropy News Digest and newsletters of the National Center for Family Philanthropy. Donors conversant with the Internet found web services and resources appealing, especially for their access to best practices, forms and policies. All donors, but new donors in particular, are very interested in the prospect of connecting with other donors and mentors.

Donors also want more education and practical information, and they want to know about best practices. For example, those donors who have foundations have asked for assistance in grant making. They want to know how others do it and who's doing it best. They are interested in leveraging, efficiency, outcome measurement and suggestions for dealing with charitable solicitations from friends.

Outreach to minority donors is important. Many minorities are unfamiliar with national or local philanthropic organizations. Initially, many said they didn't need outside guidance because they feel they know their own communities well. But once they learned what resources are available, they are much more interested in and open to the idea of mainstream help.

Donors also want advice on how to involve family members in charitable giving. This is especially true when children evince little interest in their parents' philanthropic choices. Another family problem is the difference in approach and/or objectives between a husband and wife (a particular challenge to argument-averse advisors). But donors seek solutions so that family legacy objectives can be attained and sustained.

REFLECTIONS

So what do these studies teach us? Tax, while relevant, is neither the only nor even the most important motivator for philanthropy. Advisors who design their plans around tax-avoidance techniques and view philanthropy primarily as a tool in the tax-planning process fail to understand many of their wealthiest clients.

Instead, high-net-worth clients increasingly are demanding value-based planning. What differentiates the trusted advisor from the salesperson peddling products or documents will be the ability to discuss clients' personal goals and aspirations, how much is enough for the children, dreams for a legacy, and the range of options to attain these objectives.

Planning options that exceed the advisor's scope and breadth may require the input of more experienced, outside advisors or specialists. High-net-worth clients expect experts to know experts and collaborate with them to create customized plans. Unbiased advice requires active avoidance and immediate disclosure of any actual, perceived or potential conflicts of interest. Necessary advice must be rendered no matter how one is paid.

Practical rather than theoretical advice requires an understanding of how planning strategies actually work, short-term and long-term. DAFs that terminate after one or two generations may not meet some donors' long-range goals. Charitable trust arrangements unable to adjust to the vicissitudes of family circumstances or changed economic conditions may create disenchanted or disgruntled donors and clients. “Many advisors recognize,” concludes the Advisor Study, “that comprehensive philanthropic planning can lead to deeper, richer client relationships, client loyalty as a consequence of better service, and positive positioning as a civically engaged advisor and/or institution.”

Endnotes

  1. Reported in The Chronicle of Philanthropy (August 9, 2001).
  2. Center on Philanthropy & Public Policy, California Foundations:2000-2001 Update, Research Report 19 (University of Southern California, December 2003) at p.3.
  3. Center on Philanthropy & Public Policy, California Foundations: Trends and Patterns (University of Southern California, 2002).
  4. The study was funded by the San Francisco-based James Irvine Foundation, and conducted for the Washington, D.C.-based National Center for Family Philanthropy by Jan McElwee and Associates, a philanthropic consulting firm in Los Angeles.
  5. The study was sponsored by The Philanthropic Initiative, Inc., a non-profit organization located in Boston, and funded by the David and Lucille Packard Foundation, Los Altos, Calif. The survey was conducted by a research firm, Opinion Dynamics Corp., a Cambridge, Massachusetts, national public opinion research firm. Interviews were conducted by Heather Hiles, formerly of The Hiles Group, and now a partner at IFF Advisors in San Francisco.
  6. This was a more focused sequel to a national survey conducted in 1999 by TPI that focused on national behavior around philanthropy. Nonetheless, demographic, geographic, ethnic, personality and wealth variables at a minimum require that we acknowledge the limitations on generalizing imposed on us by the studies' parameters.
  7. Among these organizations are The Foundation Incubator (www.foundationincubator.org) and Silicon Valley Social Venture Partners (www.svpbay.org).