“Scam Alert” On Charitable Gift Annuities Was A False Alarm
To The Editor:
In his Dec. 2 article, “Scam Alert on Some Charitable Gift Annuities,” Chris Annalora bumbled aboard the bandwagon of fee-based consultants who want the world to believe there is something amiss when a commission is paid in connection with a charitable gift annuity transaction.
His effort, as expected, was weak. For instance, Annalora suggests that advisors should “be suspicious” of “unknown” charitable organizations “especially those offering commissions,” because they “may not be on the up-and-up.” His caution would be sound if the financial integrity of the annuity issuer could be determined by focusing on the organizations recognizability and compensation methodologies instead of its financial statements. However, most reasonable people should focus on what is important–the net assets of the issuer.
Which annuity would a reasonable person prefer: (a) one issued by an unknown charity with $100 million in net assets that uses a commission methodology, or (b) one issued by a well-known charity on the brink of bankruptcy that uses traditional compensation strategies? Apparently, Annalora would recommend option “b” because he would at least know the bankrupt charity and appreciate its embracement of compensation methodologies recommended by fee-based professionals.
Next, Annalora states that the payment of a commission in connection with a charitable gift annuity transaction is a “no-no” because “its considered to be inappropriate by most reputable charitable giving planners.” (Isnt that a bit circular? Maybe its “inappropriate” because its a “no-no.”) What Annalora means to say is that its inappropriate because its not “fee based.” However, since when does commission compensation cause the recipient to suffer a loss of reputation? It is simply absurd to suggest that if a charitable organization elects to limit its costs to those relating to the point of sale–well recognized by American industries and capitalism generally as the most efficient means to effect revenue growth–then the compensated facilitator must be disreputable.
Annalora then suggests that the payment of a commission in a charitable gift annuity transaction should reduce the donors charitable contribution. Annaloras suggestion is simply imagined. United States tax law is very clear that the donors tax deduction is equal to the difference between the assets contributed to the charity and the present value of the annuity given by the charity to the donor. The donors tax deduction is not affected by the charitys overhead or other expenses–except in Annaloras world.
Finally, Annalora concludes, “You only make yourself look bad if youre taking commissions that most charitable giving planners dont charge.” Forgetting for a moment that looking “bad” to Annalora is probably looking “good” to the rest of the world, Annalora would have us believe that efficiency should be rejected in favor of fee-based consultants traditional notions.
Sorry, Annalora, if efficiency is “bad,” then the rest of us hope that all charities become extremely “bad.” Next time you want to give us an “Alert”–at least present an issue that is more alarming than your logic.
Mark A. Absher
New Life Corporation of America
Reproduced from National Underwriter Life & Health/Financial Services Edition, December 16, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.