02C-Backer Friedland-Donor Advisors and Strategic Philanthropy

DONOR ADVISORS AND

PHILANTHROPIC STRATEGY

Thomas E. Backer, PhD & Lilli Friedland, PhDHuman Interaction Research Institute

April 2008

supported by a grant from the William & Flora Hewlett Foundation

travismTypewritten TextCopyright2013, Human Interaction Research Institute. Reprinted with permission.

Donor Advisors and Philanthropic Strategy

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Donor Advisors and Philanthropic StrategyExecutive Summary

Thomas E. Backer, PhD & Lilli Friedland, PhDHuman Interaction Research Institute

April 2008

At a time when philanthropy has enormouspotential to advance the public good, donors canbenefit from many kinds of assistance in makinggood decisions. Do advisors to the wealthy help theirclients shape philanthropic strategy, how do they do so,and how do advisors prepare for this work? Toprovide some answers, interviews were conductedwith 75 accountants, family office managers,philanthropic advisors, private bankers, trust andestate attorneys, wealth managers andinstitutional development directors, along with agroup of thought leaders in philanthropy. Aliterature review, including publications of theinterviewees, helped provide context.

The study took a psychological perspectivethroughout. Advising work, especially whenfocused on philanthropy, is inherentlypsychological it involves clarifying deeply-heldpersonal values, identifying causes that mighthave personal meaning, and dealing with thecomplex human realities of families. Shaping aphilanthropic strategy requires attention to suchpsychological complexities. It also requiressupport for choosing appropriate philanthropicinstruments; and for connecting donors withknowledge and skill about philanthropy,nonprofits and the community.

Findings were interpreted in the context of thespecific work done by each of the seven categoriesof donor advisors, including similarities when thefocus is on philanthropy. Strategy was defined asthe operation of an enterprise by defining missionand values, setting forth a plan of action, andmeasuring outcomes to see if the mission isachieved. Donor advisor activities were placed inthe larger context of the overall philanthropiclandscape (foundations, infrastructureorganizations, and so forth).

Five main findings emerged from the study:

1 - Effective donor advising takes manyforms, but has four common characteristicsand eight key areas

The four characteristics common to effectivedonor advising are:

* building trust between advisor and donor

* finding a psychologically-based understanding ofdonor intent and behavior

* drawing on knowledge and experience withphilanthropy, the nonprofit sector and the community

* doing skillful research to provide data for donordecision-making

Beyond these commonalities, there is a great rangeof practice. For example, some advisors are pro-active, and have a well-developed, multi-stepmodel for building philanthropic strategy, whilebeing sensitive to client needs and preferences.Others are more informal and largely reactive.

Donor advisors interact with their clients in someor all of the following eight key areas:

* financial assessment - do I have the financialresources to be philanthropic?

* values clarification - what deeply-held valuesguide my philanthropic desires?

* family involvement - how and to what extentshould my other family members be involved, andhow are they likely to be impacted byphilanthropy?

Reprinted with permission from the Human Interaction Research Institute, Encino, CA. Reproduction prohibited without publishers written permission.


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* structure - what philanthropic instruments fit mytax, financial and legal circumstances (as well asmy values), and how will the instruments I choosebe created?

* actions - what grants will be made or otheractions taken to fulfill my plans?

* learning & peer networking - what opportunitiesare there for me to learn more about philanthropy,either from direct experience or from interactionwith peers?

* collaboration - what opportunities are there for meto collaborate with other donors or foundations,and what are the advantages/disadvantages ofdoing so?

* evaluation - how do I define and measure thesuccess of my philanthropic activities?

Advisors might provide input on only one, onsome or on all of these. In some cases, clients mayhave several advisors providing them with inputrelated to philanthropy.

A particularly important characteristic of someadvisors emerged in this research. Dual passportdonor advisors are persons of wealth who alsoprovide professional service as advisors. At theirbest, they have natural authority and ability togenerate trust. This does not guarantee they willdo good donor advising work, of course, nor doesit mean those not from such backgrounds cant beeffective. In addition, there may be connectionsbetween the advisors personal and familyphilanthropic history and their skill in donoradvising work. Both observations need morestudy.

Some donor advisors are not specifically identifiedas such, but instead work more informally behindthe scenes, on a compensated or uncompensatedbasis, with wealthy individuals, sometimes foryears. These represent another kind of dualpassport and also need further study.

Theme 2 - Donor advising in the U.S. is afast-growing cottage industry which has notyet fully developed a business model

Donor advising is a cottage industry with manysmall firms or individual practices, plus somelarger organizations in which philanthropicadvising is only one aspect of their work. Theinfrastructure for donor advising, both internallyand externally, is still limited. Some practices orfirms are set up formally and are well-linked tothe larger philanthropic world. Others are not.

It is fast-growing, particularly on thephilanthropic side, the subject of direct interesthere. It is growing because of client demand, withassistance on building philanthropic strategyincreasingly seen as adding value. That leadsclients to demand such assistance, and advisors toprovide it.

Donor advising lacks well-developed businessmodels to drive growth, particularly as a serviceoffering of large business institutions that alreadyserve donors. What does philanthropic advicecontribute to retaining clients, or to getting assetsunder management and what are appropriatefees, if any, to charge for it? In essence, what doesphilanthropic advising bring to the bottom line?

Theme 3 - More rigorous training and practiceguidelines for donor advisors are needed

Very few formal training programs exist, but sometraining materials and interventions do. Manyinterviewees had advice about how training ofadvisors can be improved. Organizationsproviding information and guidance to advisorsinclude Advisors in Philanthropy, Family FirmInstitute, National Center for Family Philanthropyand The Philanthropic Initiative. The AmericanCollege offers a certification program, leading tothe designation Chartered Advisor inPhilanthropy (though most of its training is onlegal, tax and accounting issues).



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A few academic institutions are beginning todevelop or at least consider advisor trainingprograms. At present, most of these are one-shot approaches like a seminar or workshop.Such events typically involve bringing in expertsfor a presentation on key aspects of donoradvising work.

On the job training is increasingly common. Insmall firms this usually takes the form ofcoaching, combined with follow-along mentoringto a junior person as part of an advisor team. Inlarge organizations, it may involve hiringsomeone with philanthropic experience to fulfill atraining role and to serve as the philanthropicadvisor of record for the firm.

In this fast-growing field, practitioners face anumber of challenges:

* confidentiality - advisors sometimes talk amongstthemselves too freely about their clients, despite ahigh desire for privacy among many donors.

* unqualified practitioners - anyone can callthemselves a philanthropic advisor, and if they arein the community doing shoddy work that affectsthe reputation of all.

* setting boundaries with clients - even though it maybe very tempting to go on the clients yacht for theweekend, such boundaries are crossed atconsiderable risk, as they are in other kinds ofprofessional relationships.

* maintaining ability to disagree with clients -advisors need independence from their clients inorder to provide useful service.

* conflicts of interest - many advisors givingphilanthropic input have some conflict, e.g., theyare hoping to keep the donor in a particularinvestment vehicle or with a particular firm.

* recommending other advisors - good advisors willrecommend another advisor if there is somereason to do so, but some fear loss of control ifthey do.

* donors are getting more sophisticated - advisors whohavent kept up with the growth of the field arefairly easy to pick out, and are at a competitivedisadvantage.

Theme 4 - Providing opportunities for donorlearning is an important part of donoradvising

Already identified as a key activity, providinglearning opportunities emerged as of specialimportance because donors grow most quicklythrough direct learning experiences. This mayrange from site visits, to opportunities for pilottesting, to provision of data for feedback purposes.

In particular, peers are of great importance fordonor learning of all sorts. Donor learninggroups, for instance, provide a context in whichdonor decisions and response to donor advisingcan be organized.

Advisors need to know about these groups. Theycan then refer their clients to them whenever thatis indicated.

Some learning groups are free-standingorganizations. Some are affiliated with financialinstitutions or other advisor organizations, whichhelps them with quality control on behalf ofclients.

Theme 5 - Donor advisors can help inpromoting effective donor collaborations

Donor advisors regularly reported having donematchmaking to bring together two donors, ora donor with a philanthropic institution like afoundation. Intermediary organizations also canplay a powerful role in facilitating donorcollaborations.

Sometimes a donor advisor may operate alearning group or collaborative giving programthemselves. Donors come to them as clients partlybecause they perceive there is a good alignmentbetween their goals and philanthropic process



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with those of the group to which they will thenbelong.

Plans for dissemination and further study

This report will be disseminated to theparticipants in the study, who are in prominentroles in the donor advisor and philanthropicworlds. It will be placed on the HumanInteraction Research Institutes website, and onwebsites of organizations that serve advisors.

The study also will be shared throughpresentations at national conferences such as thoseof Grantmakers for Effective Organizations andthe Council on Foundations. The 2008 FamilyFirm Institute conference and the 2009 Advisors inPhilanthropy conference are among the otherpresentations planned, along with guest lecturesat several universities.

To promote learning in the larger realm ofphilanthropy, a book based on this study isplanned. It can influence good practice andhealthy growth of this field, for donors as well asadvisors. Concise learning briefs will bedeveloped to share results with donors andadvisors, through networking and supportorganizations that target these audiences.

Topics for further research identified by this studyinclude:

* how younger advisors deal with donor advisingwork

* how experienced donors deal with philanthropicstrategy, and how advisors help or hinder them

* how advisors can serve as a bridge betweenindividual and institutional philanthropy

* dual-passport advisors and how their backgroundinfluences their work

* impact of personal characteristics like religion andgender on the donor-advisor relationship

* increasing role of technology in donor advisorwork

* media coverage of donor advisor activities

* relationship of this study to other ongoing research

* characteristics of donors who collaborate, and howadvisors can facilitate collaborations

* characteristics of advisors who are pro-active, andimpact of a more engaged approach

* how donor advisors can serve as agents of changewhile also serving their clients

* how advisors can help their clients shapeevaluation strategies for philanthropic activities.

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Supported by a grant from the William & Flora HewlettFoundation. To learn more and to obtain a downloadable copyof the full study report, contact [email protected]



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The problem of our age is the proper administration of wealth.- Andrew Carnegie, The Gospel of Wealth (1889)

In this time of exploding personal wealththroughout the world, people of means obtainmany kinds of professional advice about how topreserve, grow and transfer their wealth to theirheirs. Increasingly, advisors of all types also offerhelp with their wealthy clients philanthropy, sothat they can make better decisions and have moreimpact on the public good. These are hardly newchallenges, as the opening line of AndrewCarnegies 19th century treatise on the subjectmakes clear.

Private bankers, trust and estate attorneys,accountants, wealth managers, philanthropicadvisors, family office managers and institutionaldevelopment directors can play critical roles in thephilanthropic lives of wealthy people and theirfamilies. These seven types of trusted advisors(and others not studied here) often provideinformation, education, counsel and professionalsupport about various aspects of philanthropicstrategy from making a simple decision aboutwriting a check to a particular charity, to settingup and operating a strategic, values-basedphilanthropic operation. Today such anoperation might be multi-faceted, including adonor-advised fund at a community foundation,a family foundation, participation in a givingcircle, and other options.

But how commonly do donors seek and receiveconsultation on philanthropy from these varioustypes of advisors, and how helpful is the advicethat is provided? What is the emerging profile ofdonor advisors, set into the larger philanthropiclandscape in the United States? This exploratorystudy conducted interviews with advisors in eachof the seven categories just mentioned (plus somethought leaders in philanthropy) to learn:

(1) whether and how advisors help clients makedecisions, and to develop an overall philanthropicstrategy (values, goals, environmental scans, choice ofphilanthropic vehicles, involving family members, etc.);

(2) whether and how advisors connect clients tolearning resources they may find useful, such as localpeer networking groups or national organizations thatoffer training programs and publications;

(3) whether and how advisors help clients developpartnerships with other donors or foundations;

(4) what training or experiences help advisors provideexcellent service to their clients;

(5) whether and how advisors build skills or getinformation about philanthropy they need to serveclients (such as through informal peer networkinggroups or more formal professional associations); and

(6) what additional training, technical assistance orinformation advisors would find useful.

These questions have been little studied. Inparticular, there has been little comparativeanalysis that can (a) identify similarities ordifferences among the seven types of advisors, (b)help donors learn how to get more usefulguidance from advisors about philanthropicstrategy, (c) help advisors improve theirknowledge and practice in this area, and (d) helpintegrate donor advisors in the largerphilanthropic landscape in the U.S.

Donors also may receive advice from staff of theirfamily foundations, or staff of communityfoundations where they have a donor-advisedfund. However, these relate to an institutionalrole that is not emphasized in the current study. Similarly, donors often receive advice onphilanthropic matters from family members,clergy or friends, but this important resource alsois not the major focus of this research.

Interviews were used to gather most of the studydata, since relatively little of these activities aredocumented anywhere. A simple interview formcontaining questions about the above six topics



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guided the interviews, most of which wereconducted by telephone.

Interviewees for the study were selected initiallyfrom donor advisors and philanthropic expertswho participated in previous research (Backer,Bleeg & Miller, 2006) by the Human InteractionResearch Institute (HIRI), and then bysnowballing asking interviewees to nominateothers they thought could contribute usefully tothe study. A representative sample was notintended, but rather a set of interviewees whohave long experience working with wealthyclients, and/or long-time experience observing thephilanthropic scene.

Such greybeards, to use one interviewees term,can more easily conceptualize principles ofpractice, comment on how advising fits into thelarger philanthropic context, and identifybenchmarks or good practices for further study.The advisors in this study (and the thoughtleaders as well) tended to be well-known to eachother and well-known in their communities. Theytypically obtained much of their business byreferral, and often were referred to (by each otherand by clients or community leaders) as rolemodels.

Some literature also was reviewed, particularly toprovide a richer historical and environmentalcontext about donor advising and its place in theoverall environment for American philanthropy(Ellsworth & Remmer, 2005; Gary, 2007; Hughes,2004; Ottinger, 2007; Remmer, 2000; Stone &McElwee, 2004; Williams & Preisser, 2007). Thisliterature included pioneering works on donoradvisors, plus other books and articles that touchon the subject. It also included study reports fromprevious HIRI research on such topics as donorlearning groups and donor practices ingrantmaking (Backer, 2004, 2006). Whereverpossible, writings of the interviewees werereviewed to supplement what was learned fromthe interview process.

The Psychological Point of View

This study was guided throughout by apsychological perspective on philanthropy and onthe donor advising process. Such a perspective iscritical because much of the work donor advisorsdo is inherently psychological clarifying deeply-held personal values, identifying causes that mayhave personal meaning for clients, and dealingwith the complex human realities of familiesengaged in philanthropic activity.

For instance, many donors are shy aboutdiscussing money in general or their philanthropicactivities in particular, and must have assistance inovercoming that hesitance. As part of the processthey need to feel a certain level of comfort with theadvisor (related partly to the perception ofcompetence, but also partly to the perceivedpersonal character of the advisor).

Of course, there are many elements of donoradvising, especially those regarding wealthpreservation, growth and transfer, that are notpsychological in nature. Some aspects ofphilanthropic strategy are not primarily of apsychological character, such as setting up afoundation or a donor advised fund. But evenhere values and complex human nature weigh in.For instance, choosing a family foundation over adonor advised fund may have legal or taximplications, but may also reflect the donorsgrasp of important psychological elements (e.g.,how much the philanthropic activity will allowreaching important personal goals and provideemotional fulfillment to the donor).

Only one advisor interviewed for this study hadformal training in psychology. A number ofothers regularly refer clients to psychologists,especially those with family systems training, whoare able to more effectively handle the complexfamily dynamics that surround family wealth andfamily philanthropy.



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Family systems psychologists have expertknowledge about how families function as a socialgroup, and about how life stages of individualsimpact the family. They work with families onpersonal issues, with family businesses, and withfamilies or their philanthropic institutions (like afamily foundation) on philanthropic issues.

Many other advisors, while not trained inpsychology, nonetheless have considerablesophistication about psychological concepts andapply them to work with clients. These dynamicsoften center on family issues which reachexpression in discussions (or conflicts) aboutphilanthropy, but which reach far beyondcharitable decision-making. They may focus onexpectations family members have aboutinheritance, sharing of power, partnership withother family members, and many other issues.

The family dynamics of wealth managementconstitute a whole separate field of practice,including but extending far beyond philanthropy.Hughes (2004) sees philanthropy as the familyssocial capital, helping family members, isolated bytheir wealth, to connect with the larger issues ofthe world and find a place in it.

Philanthropy includes not just giving of money,but of time, reputation and intellect as well. Andfamily may mean not just children but siblingsand other relatives, life partners or even friendsand employees of the wealthy individual.

The viewing lens of psychology was aninstrumental part of this exploratory research.The studys authors are both licensedpsychologists, and so brought this point of view toboth how study questions were defined and howthe results have been interpreted. Though bothwere trained as clinical psychologists, thepsychological perspective referred to here is notabout psychopathology, but rather about complexdynamics of individuals and groups as they affectthe donor advising process and the shaping of aphilanthropic strategy.

Advising on philanthropy is an intimate activity,because it requires sharing of personalinformation about values and hopes. Oftenphilanthropy begins with the honoring ofsomeone who has recently died, which sets upother possibilities for psychological complications.Of course there are wide differences, as we willsee, in how donor advisors do or do not deal withthese potentially uncomfortable subjects.

One of the authors also has specialty training infamily systems, and this area of psychology hasparticular relevance for the donor advising field,because so many philanthropic activities involvefamily members and their interactions. This alsorepresents a point of view brought to the study:that understanding and skills in working withfamily dynamics is critical to success in donoradvising, and that these skills are learnable.

Again, this does not always mean formal training,as the backgrounds of many intervieweesindicates, but it does mean the commitment topaying attention to family issues as part of theadvising work. And as will be discussed later, asthis field grows, development of more formaltraining on psychological aspects of advising ingeneral and dealing with complex familydynamics in particular, will be critical toimproving practice.

The other author has conducted research onvarious aspects of philanthropy, particularly thoseinvolving foundations. In these realms,philanthropy also has important psychologicaldimensions (Backer, 2004). Since their financialresources are small compared with governments,foundations stimulate change through the leveragethat comes because they can use resources withfew constraints, and, through the ability to convenethe community for planning or action-taking.

Perception and persuasion are bound up in boththe leverage and convening processes, sophilanthropic strategy is inherently psychological,from the era of Rockefeller and Carnegie to today.Moreover, philanthropy is psychological because



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both foundations and individual donors can setany bottom line they desire.

History of Donor Advising

There have been donor advisors as long as therehave been donors. Many advisors in history werenot so designated, and did their philanthropicadvising in the context of another role, for instanceas advisors to royalty or religious leaders.

Probably the first well-documented example of aphilanthropic advisor is Frederick Gates, who wasengaged by John D. Rockefeller Senior to help himmanage his philanthropic activities in 1891. Hecontinued this expansive role until 1923. Gateswas a Baptist minister, and got acquainted withRockefeller when he helped reorganize theUniversity of Chicago, under funding Rockefellerprovided.

Gates worked with Senior and a handful ofother people to manage one of the worlds greatfortunes, and also helped Rockefeller shape anenduring philanthropic legacy. That includedboth assistance with individual philanthropicdecisions and setting up infrastructures like theRockefeller Foundation. Gates stayed on to helpRockefeller with philanthropic decision-makingafter he left his job as business advisor. Part of hisphilanthropic influence stemmed from hisbusiness acumen; he was, according to Mr.Rockefeller, the greatest businessman ever(Baick, 2004).

While advising to wealthy donors has continuedsince the time of this early example, most of it hasbeen quite low-key. Each of the categories ofdonor advisors studied here has a long history,and some of our interviewees have themselvesbeen doing this work for more than 30 years.However, many of the advisors and advisoryfirms focused on philanthropy in particular aremore recent in origin, at least for the samplestudied here.

A new wave of activity in donor advising ishappening just in the last several years. This hasmeant tremendous growth in the number of bothindividual consultants and firms. The number ofhigh-net-worth and ultra-high-net-worth donorshas grown, and so has interest in philanthropy byliving donors (stimulated in particular by therecent $30 billion gift made by Warren Buffett tothe Gates Foundation).

This will only increase, as the projected $12 trilliontransfer of wealth in the U.S. occurs over the next15 years, including $2 trillion earmarked forcharitable contributions (Social Welfare ResearchInstitute, 1999). A transfer of as much as $41trillion has been anticipated by some observers.

On the larger front, there has been a more generalgrowth of infrastructure for philanthropy since the1980s. As the number of foundations in the U.S.has increased greatly, many associations andresource organizations have sprung up to supporttheir needs. So too have organizations supportingthe networking and learning needs of individualphilanthropists.

Two studies of American donors philanthropicbehaviors shed some preliminary light on thetopics of interest for this research. First is a studyof donors in California (Stone & McElwee, 2004),which interviewed 32 donors about what theywould like to enhance their philanthropicactivities. These donors were willing to pay forlegal and financial advice, but were reluctant topay for philanthropic advising because they didnot believe that the feel good activity ofphilanthropy required this sort of professionalinput and that money spent on donor advisorswould then be unavailable for direct charitabledonations. Moreover, because there is so littletraining or certification for philanthropic advisorsat present, the donors interviewed in this studysaid they had difficulty determining whichadvisors had competence to assist them. In somecases, this increased their reluctance to useadvisors.



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The second study, funded by the Bank of Americaand conducted by the Center on Philanthropy atIndiana University (2006), involved a much largernational sample of 30,000 high net-worthhouseholds in the U.S. They found that a numberof donors do consult advisors:

* 41.2% - fundraisers and nonprofit staff* 35.9% - peers or peer networks* 26.6% - accountants* 16.6% - financial/wealth advisors* 16.4% - attorneys* 15.2% - foundation staff* 12.3% - others* 8.7% - bank or trust company staff* 7.1% - brokers* 3.7% - executive coaches

These results provide the best platform againstwhich to evaluate the results presented here. Theysay that a significant minority of donors in theU.S. (especially high net-worth donors with morethan $200,000 in annual income or assets of morethan $1 million, about 3.1% of the totalpopulation) do frequently consult with others onphilanthropic issues.

All of the categories studied here except familyoffice managers and specialized philanthropicadvisors are represented in this sample. It alsoshould be noted that the Bank of America studycasts a fairly wide net, rather than restricting theirsample to the ultra-high-net worth donors whoare the typical clients of many of the intervieweesin this study (they most often are clients with $50million or more in investable assets).

Interestingly enough, the only research identifiedthat specifically focused on donor advisors wasconducted in Australia (Madden & Newton, 2006).Based on responses of 115 professional advisors,the study shows a marked increase in interest toprovide philanthropic advice over advisorsqueried in 2002. An increase in the number ofadvisors actually consulting on philanthropicissues also increased significantly, as had theirwillingness to raise this topic with clients. The

researchers are about to conduct their third surveyof advisors.

Definition of Philanthropic Strategy

Strategy is defined in the business world asoperating an enterprise by defining mission andvalues, setting forth a plan of action, andmeasuring outcomes to see if the mission isachieved. Bolduc et al (2007), in a study of howfoundations use strategy, refer to a frameworkfor decision making that is (1) focused on theexternal context in which the foundation worksand (2) includes a hypothesized causal connectionbetween use of foundation resources and goalachievement (p. 2). Their research determinedthat while some foundations are quite strategic,many foundation leaders do not use strategyconsistently in their organizations philanthropicwork.

In discussing activities of individualphilanthropists, Brest & Harvey (2008) assert thatstrategic philanthropy is about maximizing thesocial return on investment, and that strategy isa design for achieving this goal. Helping donorsto understand these concepts and to apply themcorrectly is an important part of the work of donoradvisors, they say.

The interest in this study is in more thancheckbook philanthropy, or setting up afoundation or donor advised fund primarily fortax purposes. Donor advisors can help with theseperfectly legitimate tasks, of course, but the focushere is on advising that helps donors with the artof strategic giving, as it is termed by Frumkin(2006).

Definition of Donor Advisors

The seven types of donor advisors interviewed inthis study are defined as follows:

* private bankers - private banks are units ofbanking institutions that provide morepersonalized and extensive services to wealthy



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clients. Most US banks now have a privatebanking division intended to attract high-net-worth clients. Banks also have philanthropicdivisions that manage philanthropic assets of bothindividual and institutional clients. They oftenget referrals from other parts of the bank withexisting clients, including the private banks.

* trust and estate attorneys - these attorneys helpclients prepare the legal path for passing theirestate along to heirs or to philanthropic causes, orboth. They prepare wills, set up trusts andprovide other legal services, all of which can havephilanthropic implications. Legal practitionersincreasingly see these relationships aspsychological in nature, as indicated by theexistence of an American Bar AssociationCommittee on Emotional and PsychologicalAspects of Estate Planning.

* accountants - accountants and accounting firmshandle the tax reporting and financialmanagement needs of wealthy clients, which mayagain bring them into contact with philanthropicinterests and activities.

* wealth managers - both individual advisors andlarge financial institutions take assets undermanagement from wealthy clients, helping themmake investment decisions intended to preserveand grow their fortunes. They may also providephilanthropic advice, especially where this mayhave implications for wealth management.

* philanthropic advisors - these individuals andfirms specialize in advising wealthy clients ontheir philanthropic activities, helping them designand implement philanthropic strategies, learnabout charitable causes and about the process ofphilanthropy, and network with other donors andthe larger nonprofit community.

* family office managers - increasingly, wealthyfamilies have their investment, financial andaccounting needs handled as a group by a familyoffice (the model for this is the Rockefeller FamilyOffice which has existed since the 1920s). Family

offices also may provide advice about or directlytake on the management of the familysphilanthropic enterprises.

* institutional development directors - bothuniversities and large nonprofit organizationshave staff whose job it is to recruit donors to giveto the institution. Often these developmentdirectors serve as philanthropic advisors towealthy individuals who are the institutionsmajor donors.

This is an exploratory study, so no pretense thatall categories have been included. For instance,the study did not include financial planners, asinitial information seemed to suggest that theseprofessionals work less with high-net-worthclients, who are more likely to have financialplanning included as part of services in othercategories, but this may not always be true. Norwere staff of family or community foundations,whose advice is focused on grantmaking, thoughof course they may also provide more generalguidance on philanthropic strategy (and bothwould be good subjects for an expanded inquiry)

Also, the study did not include family systemspsychologists, family wealth consultants, or familybusiness consultants, all of whom frequently playa role in the shaping of a wealthy donorsphilanthropy. One interviewee was included whoadvises on issues related to publiccommunications about the donor and his or herphilanthropic work, but advisors offering othertypes of specialized expertise were not.

Still, the array of donor advisors interviewed isquite broad, as are the backgrounds and contextsin which they provide philanthropic advice:

1 - Some of those interviewed are individualpractitioners, some part of small boutique firms,some part of large professional practices or hugecorporations.

2 - Advisors in fields like banking, law, accountingand wealth management (including the wealth



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management function of family office managers)are to some extent regulated by law. However,philanthropic advising is not regulated, and thereare no restrictions on who may provide advice inthis area.

3 - Many if not most wealthy individuals havemore than one advisor, each of which may beproviding elements of philanthropic advice. Thismay include more than one private banker orwealth manager, sharing the wallet of a wealthyclient.

4 - Some advisors have specific ties (or at leastinformation about) particular religious groups,take a progressive or conservative socialviewpoint, or are focused on a particular cause, asare the donors they work with. Many are specificto a particular geographic area.

5 - The advisors come from a broad range ofpersonal and professional circumstances. None ofthose interviewed were originally trained to bedonor advisors, all had done (or continue to do)other types of work in addition to the advisingwork.

6 - They come from a variety of family andreligious backgrounds. In some cases, thispersonal background influenced both theirdecision to do donor advising work and how theyshaped their practice. Some of those interviewedhad an academic background (historian,medievalist) that they felt helped to develop theskill set needed to do this kind of work. Othershad previously been school principals, businessexecutives, entrepreneurs, or foundation directors.

7 - Advisors often have taken multiple paths to getto their current work. For example, one was a taxattorney, turned investment advisor, turnedChartered Financial Analyst, turned philanthropicadvisor with a Certified Advisor in Philanthropydesignation.

Definition of the Larger PhilanthropicLandscape

Individual donors and families, and the advisorssupporting them, are just one part of the overallphilanthropic infrastructure in the U.S. Thisinfrastructure also includes private, family,community and corporate foundations. And itincludes various instruments individual donorscan use in addition to setting up a foundation -various types of trusts, donor advised funds (bothat community foundations and private financialinstitutions), and instruments provided by bothsome philanthropic advisors and by intermediaryorganizations.

Increasingly, donors (especially those in the ultra-high-net worth category) may have a portfolio ofphilanthropic instruments, as already mentioned.Nonprofit organizations, including intermediariesthat help to bring together work in a particularfield, may also serve in an advisory role withwealthy individuals, helping them to makephilanthropic decisions.

Professional and trade associations exist for eachtype of advisor, including a few orientedspecifically to philanthropy, or even to donoradvisors. For example, the Seattle PhilanthropicAdvisors Network (SPAN) brings together donoradvisors in the Seattle region, for educational andnetworking events. A recent meeting of thisgroup featured Bill Gates, Sr. as a luncheon guestspeaker.

Peer networking organizations are becomingincreasingly common for learning and giving forwealthy individuals many of which were startedby individuals of wealth. They help donors learnabout causes, learn about the role of philanthropyin family life, and learn about strategies for giving,including collaborations. Giving circles, althoughfocused on combining philanthropic resources,also can serve an educational function for donors.



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Other parts of the philanthropic universe includeacademic organizations studying philanthropyand independent researchers on the same subject.The Center on Philanthropy at Indiana Universityhas a graduate degree program in philanthropy,though this is more for training of academics thanpractitioners. In addition, there are a few entitiesoffering training specifically in philanthropicadvising, often through limited, one-shot seminarsoffered by financial institutions such as banks.

New models of philanthropy are emerging all thetime. For example, the Pew Trusts, originally agrantmaking foundation, recently converted intoa public charity so that it can receive funds from avariety of donors and collaborate with them onprojects. Pew now will design a philanthropicprogram specifically for a donor-client, or willoffer opportunities for a donor to invest inprograms they already have operating, throughpooled charitable investments.

Some geographical environments are richer thanothers. In the Pacific Northwest, for example, theresources are very extensive. There is a strongcommunity foundation with tremendousoutreach; there also is Social Venture Partners (oneof the first and the most effective giving circles),the Womens Foundation (which has its owndonor education program); and individualconsultants such as Frank Minton, a particularlywell-known philanthropic advisor. There is anetwork of CPAs and financial planners, and therealso is the Seattle Philanthropic AdvisorsNetwork, mentioned above. Other resources inSeattle include the Washington Planned GivingCouncil, and Philanthropy Northwest, thenetworking organization for foundations in theareas.

Study Findings

The 75 interviews conducted for this study tookplace between February 2007 and January 2008.As mentioned, most were done by telephone.Interviewees were promised that they would notbe identified by name in any of the results

presented, but that they would be acknowledgedcollectively in a list of interviewees (given at theend of this report).

Analysis was undertaken independently by thetwo researchers, identifying major themes,recommendations and best practices that thenwere woven into the study report. All conclusionsand themes are very tentative because the studysinterview sample was both small andopportunistic rather than representative. Theresults are just beginning to delve into thecomplicated practice of donor advising aboutphilanthropy.

To increase the accuracy of the findings andconclusions from them, interviewees were allprovided with a draft of the study report for theirreview and commentary, and their input wasincorporated into the final version. Responsibilityfor all interpretations made, of course, rests onlywith the studys authors.

A total of five major findings emerged from thestudy:

Theme 1 - Effective donor advising takes manyforms, but has four common elements and eighttypical activities

Theme 2 - Donor advising in the U.S. is a fast-growing cottage industry which has not yet fullydeveloped a business model

Theme 3 - More rigorous training and practiceguidelines for donor advisors are needed

Theme 4 - Providing opportunities for donorlearning is an important part of donor advising

Theme 5 - Donor advisors can help in promotingdonor collaborations

Each of these is discussed separately in theremainder of this section of the study report,including quotations from the 75 interviewees.None of these quotes are attributed, sinceinterviewees were promised anonymity.



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Theme 1 - Effective donor advising takesmany forms, but has four core elements andeight typical activities

There was a remarkable consistency amongst the75 interviewees about the core elements ofeffective donor advising. Though these tookdifferent forms for different advisors, in both theirdepth and formality, all figured importantly in thework of the advisors we interviewed. The fourcore elements are:

* building trust between advisor and donor

* finding a psychologically-based understanding ofdonor intent and behavior

* drawing on knowledge and experience withphilanthropy, the nonprofit sector and the community

* doing skillful research to provide data for donordecision-making

The donor advisors interviewed interact with theirclients on some or all of the typical activitiespresented below, each of which is expressed herealso as a question the donor asks him or herself,and which the advising process helps to answer:

* financial assessment - do I have the financialresources to be philanthropic?

* values clarification - what deeply-held valuesguide my philanthropic desires?

* family involvement - how and to what extentshould my other family members be involved, andhow are they likely to be impacted byphilanthropy?

* structure - what philanthropic instruments fit mytax, financial and legal circumstances (as well asmy values), and how will the instruments I choosebe created?

* actions - what grants will be made or otheractions taken to fulfill my plans?

* learning & peer networking - what opportunitiesare there for me to learn more about philanthropy,either from direct experience or from interactionwith peers?

* collaboration - what opportunities are there for meto collaborate with other donors or foundations,and what are the advantages/disadvantages ofdoing so?

* evaluation - how do I define and measure thesuccess of my philanthropic activities?

These can be considered the activities most likelyto be engaged in by donor advising onphilanthropy. Advisors might provide input ononly one, on some or on all of these. In somecases, different advisors may provide input ondifferent elements.

Beyond this, there is a great range of practice. Forexample, some advisors are pro-active they reachout to their clients to discuss philanthropy as anoption, as part of financial and estate planning.Others are largely reactive. Such advisors respondto a clients expressed desire to develop some sortof philanthropic strategy, but do not bring up thesubject unless the client does (philanthropicadvisors are engaged only if philanthropy alreadyis expressed as a clients desire, but they too candiffer in their degree of pro-activeness withclients).

Many interviewees reported conducting orobserving advisory work that focused only onfinancial, legal or fundraising issues, even whenmention was made about helping clients leave alegacy or otherwise engage in philanthropicendeavors. Many others reported being deeplyand actively engaged in helping to shape clientsphilanthropic strategies.

Finally, advisors focus on whatever is the nature oftheir practice legal, financial, fundraising orphilanthropic (the four types of activities thatwere the concentration of this study). Theinterviews revealed a great range of styles andspecific methods used to carry out that focus.



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For the pro-active advisors, or for the reactiveadvisors whose clients ask about philanthropy, thesteps that follow may be small and informal, orlarge and overtly strategic. In many cases, thewhole purpose of the donor advising is to helpdonors become more strategic in their giving.Said one advisor: We turn them from accidentaldonors to intentional philanthropists and anothersaid We move them from checkbook to strategicphilanthropy.

Each of the four core elements and eight typicalactivities will now be discussed separately.

Core Element 1 - Trust The single most common word people used todescribe the source of success in donor advisingwas trust. This was true no matter the type ofadvisor, or the type of advising work being done.Based upon personal relationship, referral fromtrusted others, and/or community reputation,advisors who can generate a trustful relationshipwith their donor clients have the psychic rawmaterial to develop an effective advisingrelationship. Sometimes the trust factor is also afunction of social familiarity people who comefrom the same social milieu as the donor have anedge in terms of a looks like us sort of trust.

Often the trust has developed through somespecific activity the advisor completedsuccessfully for the donor. For instance, a trustand estate attorney whos done a good will ortrust, a wealth manager whose investments haveperformed well, a banker who provides financialinformation or services these, said numerousinterviewees, help to create a climate of trustwhich can generalize to asking the advisor forphilanthropic advice and action.

There were some caveats. People who are trustedare not necessarily competent, said a number ofour interviewees. Once trust is established,donors are inclined to take advice even though itmay not in fact be coming from well-informed,experienced judgment on the part of the advisor.

This may particularly be a problem for advisorswho are truly quite expert in legal or financialmatters, but dont have a background inphilanthropy. They may have entirely honorableintentions, but not know the edges of their owncompetence, to use a term of Berkshire-Hathaways Charles Munger.

Moreover, many donors dont have thebackground to judge competence so they mustrely on whom they trust. Said one interviewee:Whats troubling is that people of wealth have noidea how to set things up they find their way toan estate planner or attorney they trust, but whodoesnt explain all the complexities or regulatoryburden and they are often frustrated later.

Another interviewee provided an example: For awealthy retired physician, an accountant set up afoundation. But the physician didnt really haveenough money to do this, and as a donor was notinterested in that kind of more engagedphilanthropy. Thus, the foundation was not asuccess, and the donors philanthropic ambitionswere somewhat thwarted.

Also, there is some suspiciousness of advisors whocharge fees for their philanthropic services. Somewealthy individuals, interviewees said, areperfectly comfortable paying for legal or financialadvice, but not for philanthropic input, which theysubjectively feel should be free.

For those advisors not specializing inphilanthropic advising, the provision of somephilanthropic input may be done without fee, butthis is changing as the demand for this serviceincreases. It also is changing as both advisor anddonor begin to understand better how complexeffective philanthropic advising can be.

On the other side, there is legitimate self-interestfor advisors, who are professionals rightlywanting to be paid for their services, but also apotential for exploitation. Several intervieweessaid donors should always ask: whose agenda isit? when talking with an advisor.



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Core Element 2 - Psychologically-basedunderstandingThe foundation of the donor-advisor relationship,and one of the wellsprings of trust within it, is thedevelopment of a psychologically-basedunderstanding by the advisor of the donorsneeds, aspirations and complex relationship tophilanthropy. Interviewees indicated that creatingsuch an understanding requires a number ofactions:

1 - The advisor must enter the relationship as adeep listener, as one interviewee put it. Theyneed to go deeply into helping clients understandtheir values and passions. Listening sets up all theother aspects of good understanding. Theisolation sometimes experienced by the wealthymakes this even more important. For someclients, as one interviewee said, They dont talkto each other even if they are socializing orplaying golf, though they may exchange stories.In addition to listening well, the advisor needs tolearn not to be afraid of silences, which can befollowed by particularly valuable input when thedonor does finally speak up.

2 - There is a need to meet clients where theyare, at whatever level of investment in andunderstanding of philanthropy they currentlyhave. Pushing clients beyond these limits is notlikely to turn out well, some intervieweesemphasized, even if the client initially may acceptthe pushing!

3 - The process of working with donors thus needsto be custom-tailored to each donor and theirparticular circumstances, at a particular point intime especially where psychological matters areconcerned. As more than one interviewee said,this mitigates against pre-packaged approaches todonor advising, though some basic processes maybe routinized across clients.

4 - Change happens within the context ofrelationships, so advisors need to build thatrelationship prior to suggesting significantchanges.

5 - As with counseling or psychotherapy (or legaland financial advising not focused onphilanthropy), there is an obligation not to createdependent relationships. Good advisors, manyinterviewees insisted, set limits, sometimesincluding limits on how long they will work witha donor before insisting that the donor functionwith some independence. However, someadvisors reported working successfully withdonors for years, even decades, in the context of ahighly trustful, evolving relationship.

Trust is needed because money is involved mostwealthy individuals have had some negativeexperiences in how their money has been handledby various professionals, up to and includingoutright fraud or thievery. As importantly, moneyis a sensitive topic for many individuals of wealth,and often they are quite shy about discussing it. Atrustful environment makes it easier to have anhonest, open discussion about philanthropicmatters that also involve money.

Moreover, many wealthy people are apprehensiveabout asking questions concerning philanthropy.They are accomplished individuals who dontwant to look stupid or uninformed. An advisoralso can create an atmosphere in which the donorcan feel more comfortable in being vulnerable inthis way. To use the words of one interviewee:There is a general emotionally placed sense thatdonors have. Doing good is who they are as aperson so it should be easy. There then is a senseof guilt or shame if they cant figure out how to dothis on their own. They can feel like theyre not agood person or not competent. This then becomesa failure of character not just a failure ofcompetence.

Psychologically-based understanding by theadvisor requires understanding the family as wellas the individual donor. This means getting toknow the family history and dynamics. It alsomeans measuring the desired level of involvementof family by the donor. There are some specificissues related to how to get children or otherrelatives involved in the philanthropy.



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There often is a simultaneous wish to dophilanthropy well and to have an impact, and atthe same time make philanthropy a core part ofthe family identity, their time together and theirrelationship. These motivations are not mutuallyexclusive, but they need to be managed carefully.

One of the ways to have impact is to focus thephilanthropic activity on certain problems orpopulations. As several interviewees pointed out,if the donor is honestly trying to be inclusive offamily members, this may be difficult.

A family systems background, as defined earlier,can contribute importantly to doing this part ofthe work Interviewees said that it is important forall types of advising, such as estate planning, notjust for philanthropy. Several interviewees hadformal training in that area, but until recent yearsthere was no place to get such training, and thereis not now in many geographical areas.

In particular, family systems training can helpadvisors better understand and deal with thecomplex family process around working togetherand making joint decisions. A lot of philanthropygets sidetracked because family members cantwork together. The effort to give stalls, doesntwork well or a strategic plan is difficult to setbecause of these interpersonal and family dynamicproblems. The clinical resources to help familieswith this too often are not brought in to theadvising process if the advisor does not alreadyhave this skill.

Money is still a taboo topic of conversation inmany families. There is a need to create a safeenvironment in which people can talk aboutvalues, money and financial decision-making.This will enable them to better get to thecontradictions and the emotional complications.There also needs to be recognition of diversity ofvalues in the family, and acknowledgment ofpainful experiences the family may have had inthe past (as well as times they have supported andsustained each other, creating interaction patternsthat can be drawn on in a healthy way).

Sometimes the advisor will have to handleconflict. One advisor was involved in a familywhere war broke out late in the life of the donor.He created a second foundation, but there was alawsuit and a court split up the assets. Then anew infrastructure was set up, one with publictrustees not family members for the foundation,and a much simpler infrastructure to guide thephilanthropic activity.

Also, at times personal issues interfere withphilanthropic strategy or even create it. Theexample was given by one interviewee of awoman donor who created a foundation becauseshe didnt want to leave money to her estrangeddaughter!

And sometimes advisors have to clean up a lot ofmesses in an existing philanthropy (to use thewords of one interviewee). Mistakes may havebeen made by the donor or by a previous advisor,and remedial actions are needed to get thephilanthropic activity on a firmer footing. Thisalso has to be done sensitively, so as not to trashthe previous advisor (in many cases these areattorneys, accountants or others who continue towork with the donor, even if not in aphilanthropic capacity), or the donor themselves.

In at least some cases, donors (and some advisorsalso) come to philanthropic work with a certainlevel of mis-trust and disdain for the nonprofitsector. They see nonprofit organizations asinefficient and their impact as much less thanwhat they desire. As a result they tend to focuson due diligence instead of strategy, because theyare convinced that nonprofits are inefficient,incompetent and unethical, to use the words ofone interviewee.

There are also differences in these psychologicalelements between generations (the so-called G1,G2 and G3, with G1 being the wealth creatorsand then the successive generations thereafter,who are the wealth builders and maintainers).Some advisors developed their practice workingwith Depression era clients or Greatest Generation



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clients. Their perspective on giving money awayis very different than that of younger clients (e.g.,a focused desire to give back to the country thatprovided them with opportunities), and advisorsneed to make that adjustment if their workincludes a broad range of age groups.

Today, many interviewees emphasized, gettingpeople to give money while they are living is nolonger as much of an issue. As one intervieweesaid: We dont need to talk them into anything,but we do need to help them figure out how to doit. In many cases clients have become quitesophisticated; they know what the issues are andwhat kinds of investments theyre interested inmaking. The nature of the consultation they seekfrom advisors changes as a result of this increasedsophistication.

Part of psychological understanding is recognizingthat donors motives may shift, sometimesrepeatedly. A good advisor has to understandthat donor motivations are not stable, andsometimes are deeply conflicted. One intervieweereported working with a donor for eight years.Because the donors motivations and actionsshifted so often, at the end of that time the advisorfelt less sure of the donors underlying motivesthan did other advisors who came in and had oneconversation with the donor.

On the more positive side, many donors have areal learning curve over their philanthropiclifetimes. This has been discussed in biographiesof wealthy people, and also in philanthropicwritings. For example, Andrew Carnegie changedhis views about philanthropy over a 20 yearperiod, as have many others. The good advisorhas to establish where the donor is on thattrajectory of learning and try to guide progress tothe next steps. This may lead from an initialdefinition in the donors mind, to something thatcan be expressed and even put into writing.

There is a psychological side for the advisor too.For example, donor advisors must be able to workwith powerful people who dont necessarily know

much about the subject on which theyre seekingadvice, and they must be comfortable with therealities of great wealth and power. Someinterviewees said that this is not work that suitseveryone, and that psychological comfort with theworld of the wealthy and the lifestyle that goeswith it is essential to success.

Finally, donor recognition is a psychological issueadvisors sometimes may need to confront. Somedonors desperately want to be recognized in apublic, and symbolic way, for the gift they havegiven. Others are just as strongly motivated toremain anonymous, or at least to be recognizedvery simply. Advisors need to address this issuevery sensitively, and respect the donors desires.

Core Element 3 - Knowledge and experience Advisors of course need expertise in their primarydomain of advising. The concentration in thisstudy is on philanthropic knowledge andexperience. The main areas of expertise neededare in (a) forms of philanthropic vehicles, (b) thenonprofit community, including appropriatecharities for investments and how philanthropicchoices relate to legal and financial choices (and todonation decisions in the case of fundraising-based advisors), (c) the process of planning, and(d) the social and family contexts of wealthydonors.

Many interviewees were concerned that advisorsoften lack one or more of these areas of knowledgeand experience. One observed: I dont see peoplegetting the whole continuum of information theyneed to make decisions, especially aboutphilanthropic vehicles.

This may mean that a donor will get differentopinions from different advisors. A communityfoundation will give one message regarding donoradvised funds; attorneys another aboutfoundations; wealth managers about investmentproducts that they have a stake in selling them;and so forth. What people need, said anotherinterviewee, is a full range of value-neutraloptions.



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This has practical consequences that can affectphilanthropic performance. Said one interviewee:A lot of people say they are in a giving vehiclethat doesnt suit them, an intervieweecommented, but they dont know how to makethe switch, say from a donor advised fund thatdoesnt give them much chance for input toanother vehicle that does. On the other hand,donors need to know the complications of eachavailable vehicle. For instance, they probablyshould not start up a foundation unless they havea long-term view and want to be quite involved.

In short, because of the limits of input they receivefrom their advisors or other sources, donors oftenhave to make the most important decisions withthe least amount of information, in the words ofone interviewee. The effective advisor has a lotof tools in the toolkit and can fit the tools to thedonors needs to help them make the rightdecisions philanthropically. Also, effectiveadvisors know when to bring in other advisorswhose expertise is needed.

Core Element 4 - Skillful researchInformation both about structuring theirphilanthropy and about the nonprofits or issues inwhich they make investments is fundamental to adonors success. Good advisors are good thinkerswho can synthesize information about theinterests of their donor advisees about thecharities they want to invest in, about issues theycare about, about the philanthropic vehicles thatare open to them, about how these relate to thelarger environment of their community or theworld.

Sometimes this information comes from some typeof systematic information-gathering the advisorundertakes on behalf of the donor. Oneinterviewee reported undertaking a months-longstudy of the particular institution in which thedonor was considering an investment, looking atits larger community context, what other funderswere supporting it, and how to leverage aninvestment the donor might make to enhancelong-term sustainability. Another talked about

hiring experts to conduct an environmental scanin the donors chosen topic area of interest, todetermine where the most strategic investmentcould be made.

Whether this research requires an informal inquiryor a formal study commissioned out to a third-party expert, skillful research is fundamental tothe effectiveness of most donor advisors.Advisors also need to be able to communicatewhat they learn so that their research can be usedby donors for good decision-making. Success mayinclude understanding the way in which thedonor absorbs information most effectively(written report, Power Point, verbal presentation,etc.).

Research skills advisors originally developed intheir previous lives in an academic institution canbe very helpful here. Several intervieweesoriginally were trained as historians, and havemade good use of that training in their donoradvising work. For them, research means morethan just the search for information throughreading, interviewing or site visiting. It meanshaving a permanent curiosity about the way theworld works, and the willingness to investigatehow the donors philanthropic objectives fit into alarger environment. The donor will make theultimate decisions, but having adequateinformation available can help to shape gooddecision-making.

The range of donor advising activitiesInterviewees tend to connect and work with theirclients in many different venues and styles.Referrals from other professionals are common, aswell as connections through business or socialrelationships. As one interviewee said,serendipity has as much to do with it asanything.

Frequently, donors will have done somephilanthropic work on their own before coming toan advisor. Sometimes their self-initiated effortsare successful and they approach an advisorbecause they want to build on that success. More



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often, interviewees said, donors come to anadvisor because their efforts (or those of aprevious advisor) didnt work out so well, andthey are frustrated.

Often the advisory relationship begins without aspecific focus on philanthropy, and that developslater (though in a number of interviews hereadvisors were clear that they often dont deal withtheir clients philanthropy at all). Thephilanthropic focus when it happens can rangefrom recommending a specific charity the clientmight find of interest, to suggesting an issue orcommunity that could be the aim of the clientsphilanthropy, to developing some sort of ongoingprogram. Strategy can be involved in even thesimplest activities, e.g., keeping a roster of all thechecks a donor has written.

Donor advising thus covers a great deal ofterritory, and there is no generic version of aphilanthropic consultant, as one intervieweeobserved. While some advisors look onphilanthropy as either a tax exercise or a threat tomaintaining the asset base others see it as animportant aspect of the clients life and goals, withaccording attention to it by the advisor. Therelationship is with the individual donor orfamily, even though a foundation or otherorganizational structure may be involved.

Some of the donor advisors interviewed had verylittle to do with philanthropy, and said so. Legaland financial advisors may simply not deal withclients philanthropic activities, and sometimesthis is because clients are not much interested inthem. In other cases, there is philanthropicactivity such as setting up a foundation for the taxbenefit it will provide, but little in the way ofstrategy other than being sure the foundationmeets its payout requirement and otherwise iscompliant with the law.

At the other end of the spectrum are not onlyadvisors specializing in philanthropic strategy, butalso some who work in full-service philanthropicfirms that also provide tax and legal advice,

investment management as well as guidance onphilanthropic strategy. Many donors have morethan one advisor. They might have an accountant,a trust and estate attorney, a wealth manager, abanker, and a philanthropic advisor.

Also, within a single organization there may bemore than one person serving a high-net-worthclient. One of the financial advisors interviewedasserted that in any community the banks andwealth management firms are all chasing the samehigh net worth and ultra high net worth clients.And these clients may diversify their financialportfolio, putting parts of their resources underdifferent firms so that the firms share clientswallets, as one interviewee put it.

Examples of practiceTo provide a larger frame for the discussion ofspecific donor advisor activities that follows, hereare several examples of practice from the 75interviews conducted:

* One donor advisor reports she helps clients dowhat they want to do philanthropically across abroad range of intent and activities. This maymean helping her client develop grant guidelinesand structures for a new activity. Or it may meanrefining the directions and specifics of a long-standing charity.

She works to ensure the programs they want toestablish are actualized and accomplish what thedonors want. She does due diligence work,determining through a research process whetherthe charities her client is considering are goodones to invest in. She helped one client establisha foundation through which charitable workfocused on the international arena can be done.The advisor also smooths the way with relevantU.S. regulatory bodies to be sure that the money istransferred appropriately to charities in othercountries.

* Another advisor reports having developed aphilosophy of philanthropy for clients thatresonates with a investment banking philosophy:



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- funding longterm- building relationships in a community- educating donors about the field in which theyregiving - helping donors become visible, publicambassadors to that field- creating a narrow focus for the work, e.g., earlyintervention for mothers at-risk- setting mission, vision, guidelines for that focus- bringing on smart legal and investment adviceto build a team for the donor

* An advisor sees philanthropic input coming inthe same form as help clients receive with theirinvestment portfolio, tax matters, and generalestate planning. It is driven by a customizedapproach to what the client needs. To learn aboutthose needs, the advisor has detailedconversations with the client, to determine bothexplicit and implicit goals. Says the advisor, wehave thoughts but want to hear what the clientwants; we dont do a pre-packaged approach, likedonor advised funds, for every client.

* Another advisor sees her work as beginning withdialogues that identify the donors particularpassions and specific areas of interest. Then shehires a researcher to benchmark each field ofinterest topics like mentoring of disadvantagedyouth, preventing diabetes, etc. Next, she bringstogether experts to meet with the donors,including both content experts and other funders.Finally, at the end of this process she helps thedonor identify where are the gaps and where thedonor might make the greatest difference. Thisleads to the development of a strategy that can beimplemented with specific philanthropic activities,and to the creation of one or more philanthropicvehicles (foundation, donor advised fund, trust,etc.).

* All families are unique, an advisor says inspeaking of his work with clients. A portion of hisclient base does nothing in philanthropy, so hesimply mentions philanthropy as an option forestate and tax planning. Some clients say Ivejust made $5 million and Im still churning very

hard so philanthropy isnt a goal right now.Then there are clients in the middle, who want adonor advised fund but pretty plain vanilla,which they appreciate largely for the tax impact.And then are the other end of the spectrum areclients who spend the majority of their time doingphilanthropic work.

* Another advisors new client focused a high levelof importance on having a family meeting, todetermine how the donor and his spouse couldbest engage their children in philanthropicactivities. After the meeting, the advisor workedwith the donor to put together a mission statementfor this purpose. Added to that was aphilanthropic strategy the advisor created, onethat respects the individual goals and preferencesof each family member.

Examples of how strategy is addressedInterviewees frequently mentioned that they try toeducate their clients about the advantages ofhaving a strategy to focus their philanthropy. Saidone: Our donors are on the cusp - we turn themfrom accidental donors to intentionalphilanthropists.

Out of the basic strategy may come not onlyspecific charities, issues or communities to focuson, but also the desire to do research (or have theadvisor do it), make site visits, and otherwisebuild the knowledge base on which goodphilanthropic decisions can be made. Everybodycomes in at a different point of maturation andexperience, but in most cases some sort of valuesclarification across generations can help identifycore giving areas of interest.

These are then put into the larger context ofcharitable giving (both in life and in death) andgiving to heirs. As one interviewee put it: We tryto focus and bring out peoples philanthropicintent, which they usually have but dont knowthey have.

Several interviewees emphasized that the amountof giving has to be of a certain size for it to make



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sense to create a detailed strategy. But given somesignificant level of resources, a written strategycan dovetail neatly with financial and estateplanning, e.g., about leaving a legacy. Some self-examination is usually part of this, so that thestrategy is informed by the persons values.

Said one interviewee: there is a general lack ofrecognition not just among donors but amongmany types of advisors about the value ofstrategy. There is a general sense thatphilanthropy consists of choosing a list ofgrantees. Some advisors specifically ask theirclients if they are interested in knowing what theirimpact is, because if they say yes then strategy canbe discussed.

Often even very sophisticated donors dont knowabout strategy and would faint if they heardabout a theory of change and logic model, as oneinterviewee expressed it. Advisors have to meetpeople where they are and define strategy interms the donor and family members canunderstand. Sometimes the advisor also needs towork with the donor to temper unrealisticexpectations about what they can accomplish orhow they can measure success. The strategy canthen be adjusted to align with these more realisticexpectations.

Typical Activity 1 - Financial assessmentTiming often weighs heavily in the developmentof philanthropy. Frequently, people come toadvisors because of a liquidity event in business,a serious health diagnosis of the donor, or thedeath of a family member and inheritance issues.Tax matters often underlie the urgency of seekingprofessional advice, with estate planning not farbehind.

Whatever brings the client in the door, one of thefirst steps is to determine how much is enoughin protecting their assets and assuring that theclients current lifestyle can be maintained (or if areduction in lifestyle is needed in order to makeavailable the resources for meeting philanthropicgoals, determining that such a step is acceptable).

The whole financial picture is needed to make thisjudgment.

Often the risk is much less than the donor thinks,and they can give more than they thought theycould. Development of a financial modelrepresenting the clients present and anticipatedfuture situation often is helpful in making thesedecisions. This exploration culminates in whatone interviewee calls financial discernment aself-reflective clarification to determine howfinancially secure the clients is.

Advisors take the client through the numbers, andmeasure whats needed to maintain a certaindesired lifestyle. Conservative projection ofexpenses then allows a determination of whatincome is available for philanthropy, and whatimpact that will have on taxes.

As another interviewee said, I have never met adonor who didnt have a good idea what theywant to do. The real opportunities come when thefinancial threshold goes beyond what they can dowith the money they have to spend for legalreasons, so they need help in giving more away.This is when they get strategic.

Typical Activity 2 - Values clarificationThe next step is to identify the values about givingthat are important to the client. This can involvedelineating specific philanthropic goals: forinstance, to differentiate between ameliorativesolutions and root solutions (which gets intopolicy and advocacy).

Values clarification sometimes involvesconstructing a kind of moral biography so thedonor can see the big picture of their personalvalues, partly by looking at how theyveimplemented them already in their lives (e.g., indifferent types of charitable activity - givingmoney, volunteering, etc.). This can be donethrough a biographical interview the advisorconducts, teasing out enduring principles fromamongst a lot of activities the donor has engagedin.



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There are other ways to clarify values, accordingto those interviewed. For instance, an advisor canask clients who they admire and why. Or theycan ask clients to tell them a story from theclients childhood that relates to some type ofcharitable activity in the family of origin. Or theycan ask the client: If you think about what youheard on the news the last week what got yougoing?

Some advisors create exercises for their clientsabout values, such as writing out a list of personalvalues that can then be compared betweenhusband, wife and children (see next section).Sometimes a visual exercise like draw a familycrest can be part of the process. And the advisormay ask the client to look at the milestones in theirlives. What do they remember as very deepexperiences for themselves?

A critical part of the donor advisors work is toreflect back to the client what they are saying.This serves both to refine donor intent and toidentify new areas for possible philanthropicactivity. The resulting moral compass identifiedrelates not just to philanthropic activity but tofamily values, business values and larger societalattitudes. Sometimes this is done by theindividual or couple separately, and sometimes itinvolves the entire family (See next section).

Said one interviewee: we go through a scoping oran initial conversation over one to two days, to getpeople to sort out their priorities. This involvestaking clients through an exercise of thinking intothe future what would they like to see andwork backwards from that point. Twenty yearsfrom now, what would be the most importantchanges to see (improvements in education,poverty alleviation, and so forth)? From that theycan focus on one or more strategies they canexplore in more depth.

Advisors reported they encourage people to bedeliberate to explore a field and find out whatthey respond to most (hands-on work in thecommunity with individual people, advocacy

work at a larger policy level, etc.) without makingtoo many commitments up front. This will help todevelop the ability to engage. Said oneinterviewee: Donors often have a pretty clearidea of what theyre interested in but may haveonly superficial knowledge of the topic. Theadvisor can find community settings in which thedonor can learn both about their interests andabout themselves.

Ultimately, the biggest impact on donors inclarifying their underlying philanthropic valueshappens when they get out into the field and seethe reality of the people and environments theywant to affect. Thus many advisors try to arrangesite visits, sometimes with the donors remaininganonymous, and perhaps just participating asobservers at the beginning.

Typical Activity 3 - Family involvementThe next step is to determine whether and howthe family will be involved with the donorsphilanthropic activity. One interviewee suggeststhat the process always start with thefundamental values of the family. These can bemore successfully stimulated by an outsider; theyare more apparent from the outside looking in.

Another interviewee emphasizes that whenyoure dealing with several family members thereis usually a dominant speaker, so I have toencourage the others to speak. Sometimes I willmeet with people individually because, forexample, the grandkids might have too muchrespect for the grandparents to speak up.

In addition to looking for specific areas ofphilanthropic activity, this family discussion canfocus on the overall family legacy. Is this relatedto the source of the wealth to be distributed? Is itrelated to family background, culture, religiousvalues, etc.?

Sometimes, interviewees reported, getting familiesor individuals to make decisions can be a problem.There are so many choices about how and whereto give, and how to structure philanthropy, and so



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few constraints. And especially since firstgeneration wealthy individuals are often highlydriven perfectionist types, they may delay makinga decision for an unreasonable time because theywant to be sure to get it right. Then the advisormay need to provide some gentle pressure tomove ahead, even without complete information.

Typical Activity 4 - StructureNext, the advisor needs to sort through with thedonor (and the family) what the many options arefor structuring the philanthropic activity. Asmentioned previously, that means that advisorsneed to be well-informed themselves about theseoptions foundations of different sorts,supporting organizations, donor advised funds,trusts of various types, funder collaboratives(giving circles, formal collaboratives, etc.),checkbook philanthropy, and so forth.

Interviewees had concerns in this arena. Somesaid that too many advisors are still trying to useold templates because this is what they know. Thedonor may not be satisfied with the results, andgoes to another advisor, but doesnt givefeedback. This leaves the original donor advisorin a state of happy incompetence noopportunity for learning how to do better.

For instance, one advisor reported that his clientsbecome more philanthropic after they have beenshown how to give as much as they have beengiving over time but with different assets in waysthat save them lots in taxes. Charitable givingusing appreciated stocks or real estate, setting uplead trusts or other instruments that affect taxconsequences, and numerous other options can bepresented by a knowledgeable advisor for theclients consideration, also taking into account theclients personal and family values.

The unstructured state of the field of donoradvising of course has an impact on this. Sincethere are so few external standards and not muchformal communication about state-of-the-artpractice, there arent many ways for advisors tolearn how to do better in this technical realm.

Typical Activity 5 - ActionsOnce the underlying philanthropic structure hasbeen set up, more specific actions can be taken.The advisors role here is to provide counselaround technical issues first, setting up all theprocedures by which potential grant recipientswill be evaluated (called due diligence), andsecond, setting up the structures by which actionwill be taken how grants will be made, forinstance. This may include a number of actionalternatives, such as multi-year grants, capacitybuilding grants, operating support grants, grantinitiatives, Requests for Proposals, etc.

As one advisor said, this is a developmentalprocess: We try to measure what is reasonable interms of scope, and not bite off more than thedonor can chew especially at the beginning. Wedont want people to be overwhelmed with toomuch information or too many grant proposals.This advisor introduces clients to a small cadre oforganizations that might match their interests, andinforms them about the due diligence concept andhow it can be applied to each of these potentialrecipients. Later the base can be expanded as thedonors experience and sophistication increases.

One interviewee said of her firm: Our hallmark isan understanding that this business is 10%inspiration and 90% process having a wonderfulidea and terrific intentions but not implementingthem very well can be as forbidding to real changeas not having a wonderful idea. This is wherestrategy comes in, to focus the actions and howthey are carried out.

Some philanthropic advisors will structure andalso may operate a system for philanthropic actionon behalf of their clients. This may includeserving as initial or even permanent executivedirector of a family foundation, or other activeroles. Sometimes it also includes proprietarysoftware for managing the back office of theclients philanthropy.

Finally, the advisor sometimes may serve as avoice for the client, representing them in their



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communities of interest, and with otherphilanthropic entities. This can be particularlyimportant for clients desiring to maintain a highdegree of privacy in their philanthropy.

Typical Activity 6 - Learning & peernetworkingAs the philanthropic strategy is set in place, manydonors are interested in learning more aboutphilanthropy, and about the environment inwhich it operates. Interviewees suggested thatthis learning process often has already begun inthe family and social context of the donor. Donorsoften report to advisors

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02C-Backer Friedland-Donor Advisors and Strategic Philanthropy

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