From the October 2008 issue of Wealth Manager Web • Subscribe!


Failure is always lurking in philanthropy's shadows. So it goes for tackling challenges that have defied resolution otherwise. That doesn't mean that organized altruism per se is stumbling. Although some efforts at giving don't work, a fair degree--perhaps the majority of philanthropic activity--is successful at some level in fulfilling its strategic aims. Nonetheless, quick and easy fixes tend to be the exception in the business of charitable giving.

That's hardly news to veterans of the non-profit sector. New donors, however, are not always fully prepared for the hard realities of philanthropy. As a result, managing expectations is a critical step for wealth managers advising clients on the finer points of making sizable donations for the first time.

"Many clients make contributions and end up feeling quite dissatisfied," says Betsy Brill, president and founder of Strategic Philanthropy, a Chicago philanthropy consultant that advises institutions and wealth managers. Unrealistically high expectations are usually part of the reason, she explains.

In theory, a novice donor is vulnerable to disappointment--all the more so for those high-net-worth individuals who are just beginning to formally deploy their wealth on a higher level in the cause of positive social change. Unsurprisingly, anyone willing to write checks for substantial amounts of money in the name of a charitable strategy does so with the belief that the effort won't be in vain. In fact, the larger the donation, the more likely that a donor may expect results.

Not every newcomer to philanthropy is destined for a letdown, of course. Nonetheless, it pays to familiarize first-timers with the possibility, if only to avoid complications later on. When it comes to money matters, no less is recommended for new clients generally. Philanthropic consulting certainly deserves comparable attention, and perhaps a bit more.

In general, it's not possible to control performance in either investing or charitable giving. The next best thing is managing expectations, otherwise known as keeping an eye on risk. If there's any hope for success in money management, controlling risk is essential. For wealth managers working with charitably inclined clients, risk management includes educating donors on the limits of philanthropy. Disgruntled clients, after all, are not good for business.

"The first step with clients is assessing their goals in philanthropy," advises Nina Cohen, managing director of philanthropic advisory services at Glenmede Trust Co. in Philadelphia. "I try to get a sense from them about what they're trying to accomplish."

That's easier than it sounds, she notes, since there's a lot of moving parts in executing a philanthropic vision. Defining charitable goals, for instance, can be highly subjective. What looks like a worthwhile objective to one man may fall flat in the eyes of another. In addition, there's a growing list of products and strategies for fulfilling goals. From private foundations to donor advised funds to charitable remainder trusts, donors have a range of vehicles to consider. "For example, if the donor is interested in creating a long-term family enterprise, where the family will get together and make charitable decisions, we're going to look at a particular entity--probably a private foundation," Cohen says.

Slippery or not, managing expectations is a crucial starting point for launching a new philanthropic venture. "From the wealth manager's perspective, the most important message to communicate to clients is that establishing a clear mechanism for mutual accountability is critical in all forms of charitable giving," says Strategic Philanthropy's Brill. That means defining expectations for the client in advance, regarding reports, communications and goals, she emphasizes.

Ideally, the donor understands the challenges that await. If not, that's the first order of business. There's no silver bullet for improving the odds that a client is in tune with the philanthropic task at hand, but there are some obvious first steps.

"I'd encourage a wealthy individual to spend some time, if possible, at a non profit they want to give money to," says Lucy Bernholz founder and president of Blueprint Research & Design, a philanthropy consultancy in San Francisco. An early goal might be agreeing on standards for how the charitable organization will report to the donor. If a non profit receives money, the donor should have a good sense of what reports, if any, he will receive. Similarly, there should be no illusions about what can--or cannot--be achieved in a given time frame.

Sometimes perceptions make all the difference. "There may have been expectations up front on the part of the client that the non profit will reach a certain goal by a certain date," says Brill. "If there's no report [from the organization], the client may feel that her contribution didn't have any meaning."

The problem isn't simply that clients may not be thinking of such matters in advance; it's also a question of their experience and training in the evaluation of charitable efforts once the reporting is in hand.

"Most [individual] donors don't necessarily have the skills to assess appropriate expectations around accountability and to weave those into any written agreements that they may have," observes Brill. "But it's critical--for all parties." As a result, the task of evaluation may fall on the wealth manager, who may be inclined to work with a philanthropy consultant.

Developing reasonable expectations can also vary depending on the charitable organization. A small grass-roots non-profit group may not have the resources to produce sophisticated metrics and evaluation reports. In that case, the donor must adjust expectations about the non profit's capacities.

Maintaining reasonable expectations is a simple task in theory, although in practice it's not getting any easier. Expectation inflation is one reason.

"Because there's so much wealth being made and given away in peoples' business lifetimes, there's an expectation that the skills that helped donors become successful in business ought to be used in non profits," says Blueprint's Bernholz.

Perhaps that's why individuals are increasingly inclined to be active participants in the giving game, according to "The 21st Century Donor," a 2007 study published by nfpSynergy, a London research consultancy for non-profit organizations. The modern donor, the report advises, "is richer, more engaged, more discerning, and more in control than her 20th Century predecessor. Giving to a cause that they care about passionately will increasingly be as much part of many (rich) people's lifestyles as mortgages, second homes and holidays."

No wonder, then, that high-net-worth clients who engage in philanthropy may bring high expectations to the table. Having triumphed in business, it's easy to think that philanthropic challenges can be overcome, too. Some of this is driven by a passion to make a difference, although naivet? and hubris may be factors too.

"On the whole, donors want to see tangible outcomes to their giving, with a high ranking given to quantitative metrics as a measure for success," according to a recent profile of attitudes among ultra high-net-worth donors. But if newcomers to charity are expecting too much from their altruism, that opens the door for advisors to provide guidance, counsels this report, published by WISE Partnership, a philanthropic advisory firm in Geneva, Switzerland. The good news is that many donors recognize that they need advice when it comes to philanthropy, the study observes.

Generalizing is still a dangerous game with the charitably inclined high-net-worth set.

"Each donor or family comes from a different perspective," reminds Doug Bauer, senior vice president at Rockefeller Philanthropy Advisors in New York. Trying to figure out how the donor thinks about philanthropy improves the odds that the client will find satisfaction in his charitable work. In search of perspective, Bauer says relevant questions for clients include: What is the legacy you're trying to create? What are the values that inform your philanthropy?

"Everyone has a set of ideals that shape the way they think the world works," Bauer continues. Part of the advisor's role is making sure the donor recognizes those ideals.

Consider a well-heeled client who wants to make an impact on public education, Bauer proposes. Assume the client is a self-made man who believes in capitalism and free markets, a background that inspires him to promote those values in the public school system. But the ideals of laissez-faire and the political realities of public education can sometimes make for strange bedfellows, Bauer says. If so, perhaps the client may want to redirect his charitable efforts in education to areas that may be more in line with his thinking--charter schools, for instance.

The moral of the story is that preparing clients for the world of philanthropy requires a strategy that minimizes the potential for surprises. The good news is that the lion's share of wealthy individuals are either "somewhat satisfied" or "very satisfied" with their charitable giving, according to the "Bank of America Study of High-Net-Worth Philanthropy," a 2006 research project conducted by The Center on Philanthropy at Indiana University (see Graph at end). Only 8 percent said they were dissatisfied on some level.

How can you make sure that your clients stay out of the minority?

The answer almost certainly springs from the old saw about an ounce of prevention being worth a pound of cure. With that in mind, the due diligence process that prevails in business deserves equal attention in philanthropy, Bauer counsels. Before diving into a particular charitable strategy, a donor should have a basic understanding of the philanthropic landscape in the targeted niche. Perhaps there's an opportunity to work with others toward a common cause. Learning from past mistakes can be valuable, too.

Bauer recommends telling self-made clients from the business world to think about philanthropy as an entrepreneurial venture. Ask them to consider their business experience. What did they need to know about the competitive landscape to succeed? Such questions trigger a lot of discussion, he says. "Now think about that in the field of education or climate change or arts and culture," Bauer adds. "Try to shift a client's intellectual firepower to a different set of questions." Some of the same disciplines that helped the client become wealthy will help with social investing.

Blueprint's Bernholz agrees. "Just as a client might do due diligence on a potential investment, or if he was going to buy another business, he should do a site visit," she says. "I would try to address their expectations by framing it in something they already understand." That might be talking about researching a non profit as if it were a potential investment, business partner or vendor.

The trick is balancing the hubris that comes with having created wealth against the humbling challenges that define so much of philanthropy. Some of the skills from the former can be productively used in the latter, but there's a limit. Many wealthy donors are apt to think that because they were successful in the for-profit world, that will seamlessly translate to triumph in philanthropy.

In fact, Bauer warns, philanthropy is a different world. The motivations are different, the people are different, and so are the politics in comparisons of philanthropy to business, he stresses.

"You have to understand that there are organizational cultures that are already in place," Bernholz says of non profits. "It's best to try to build some personal relationship with the leadership of an organization. Try to be useful to the non-profit leadership, rather than come across as the savior of the organization."

Progress in philanthropy, after all, usually takes time and comes after a fair amount of effort and, yes, money. This is no place for wide-eyed optimists who think otherwise.

James Picerno ( is senior writer at Wealth Manager.

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