Are philanthropy advisors as important as financial advisors? A case for the difficulty of giving wisely

I remember the disbelief and near nausea of opening up my 401K quarterly reports between October 2008 and March 2009. Any of you who experienced the same shock know how suddenly you realized the need for a better investment strategy and a better financial advisor. After seeing thousands and tens of thousands of dollars disappear, you probably wanted to go back in time and pay any price to hire a savvy investment manager. At that point in time, no one needed to be convinced that trusting the system was dangerous and relying on your own allocation choices was inadequate.

I often wish we could receive the same quarterly reports on the effectiveness or ineffectiveness of our charitable giving. Can you imagine how much more seriously we would supervise our philanthropy?

Philanthropic Equivalents of Financial Investment Advice

In the world of retirement investments, 401K plans and IRAs offer an array of investment options. Some company plans simplify the decision-making of the investor by giving 3 choices: low-risk, medium-risk, and high-risk. Some plans let you do online “research” and allocate each dollar how you see fit. Other arrangements match you up with an advisor or let you use your preferred advisor to allocate your retirement investments. If you are one of the few to earn a higher income, you may have replaced these approaches with a family office of advisors who manage your wealth. Regardless of which option you have chosen for your retirement investments, it may surprise you that each one of these financial investment options is becoming available for your charitable giving strategy.

For small donors giving decisions can now be made by navigating online databases of charities (e.g., Network for Good or Global Giving) and choosing ones in a preferred program and geographic area. Online research and evaluation tools complement these databases to help inform your allocation of philanthropic capital. In a January 2010 BusinessWeek article “Rethinking Ways to Give Wisely” Amy Feldman suggested that (primarily online) nonprofit charity evaluators and resources are the best solutions for small donors who want to know they are making a difference with their donations. She points to online donor resources like Charity Navigator and GiveWell and to new financial advisor resources like Root Cause and Partners for Change. These philanthropic resources are essentially the functional equivalent of the do-it-yourself retirement tools that attempt to inform the smaller investor on a reasonable allocation of funds.

When considering the next step up in charitable giving advisory services Feldman concludes, “There are few places to turn for philanthropic advice for those giving less than $1 million.” Historically she is correct. It has been fairly standard to move from “giving on my own” to directing one’s giving through a foundation with paid staff--the equivalent of starting a family office in the financial world of wealth management. However, there is a burgeoning field of philanthropy advisors that can serve donors who contribute less than $1 million each year. I work for one such firm.

Although Excellence in Giving primarily provides customized and personalized philanthropic advisory services to families giving more than $1 million a year, Excellence in Giving also offers a “Giving Advisor” package (starting at $25,000 for a $250,000-750,000 annual donor) and a “Philanthropic Coaching” package (starting at $6,000 for a $75,000-250,000 annual donor). These services allow a smaller donor to access the knowledge base and network of a philanthropic advisory firm that serves dozens of family foundations. It is the philanthropic equivalent of the financial advisor who serves multiple clients and shares his ongoing research and insights among them all.

Do You Believe Effective Philanthropy Is Complex?

So why this shameless self-serving plug for my company? It is because people have yet to recognize the difficulty of giving effectively. Most people know that they need advice when it comes to financial investments. However, few have realized the complexity of deciding which one of the over 1.6 million U.S. nonprofits to fund. The decisions are even more complex than making financial investments because you cannot judge success in simple terms of profit and loss. Wise giving decisions grow out of a careful analysis of organizational governance, strategy, trackable impact, financial management, sustainability, and scalability. That kind of wisdom requires more than reading direct mailings, searching through online databases, or attending well-produced fundraisers.

In my service to faith-based clients I have often been disappointed with the theologically excused lack of due diligence. Centi-millionaires who have painstakingly researched business prospects and hired multiple advisors to make the best business decisions turn instead to impulses and coincidences for giving decisions. Some wait for nonprofits to approach them. Then they pray about the grant requests and wait for an internal sense of what to give. Or, they listen to one organization’s presentation and decide to give without knowledge of the sector in which that group operates or how that organization compares to others. However, none of them would take this approach to their business ventures and investment decisions. It ends up looking like hypocrisy: God can’t tell me which stocks to buy without independent analysis, but he can tell me where to give without any due diligence required. I am concerned that such theologically excused and consequently uninformed giving results from a lack of recognition about the complexity of effective philanthropy. Or, it may be a sign that giving is only an exercise of the heart's intentions and not an unyielding effort to transform other lives (see my 2009 post "Is Your Giving Actually About You?").

Future Growth for Philanthropic Advisors

When more people begin to recognize the difficulty of giving wisely, the field of philanthropic advising will grow. Right now online research and evaluation tools are experiencing the greatest growth, and I would predict that services tailored to advising multiple donors giving $25,000-100,000 will follow with notable growth in the next decade. Small and medium-size donors will eventually recognize the value in receiving impact reports on their giving like they do with their retirement accounts (a common EIG practice). The importance of tapping into expertise from philanthropic advisory firms will increasingly make more sense as donors attempt to distinguish between the good, the better, and the best organizations.

Of course, I may be blinded by my daily role as a philanthropy advisor. I could be too passionate about my work. I may be forgetting that ineffective charitable giving does not carry the same fearful effect as decreasing personal assets. So philanthropic advisors will never become as important as financial advisors. Then again, I may be privy to an inside story where smaller donors are accessing the research, knowledge base, and network developed through work with multiple donors who have a variety of interests. I may be witnessing a fundamental change in people's pursuit of social solutions and dissatisfaction with mere charitable intention.

The growth of philanthropic advising will ultimately be determined by people’s awareness of the complexity and engagement in smart giving. What do you think? Are philanthropy advisors as important as financial advisors? Or, are the less than 1% of U.S. nonprofits of which most people are aware actually the best organizations to fund for the causes you care about?