Similarly, managers and other advisers should commit to coaching, and otherwise supporting clients throughout the entire charitable giving cycle. Implementing best practices either separately or concurrently, will undoubtedly require a significant investment of time and resources. However, the benefits of providing this combination of service and expertise can only strengthen the family’s philanthropic experience and the client-manager relationship, which is well worth the effort.
Trustees, family office managers, and other advisers to family office clients will increasingly be required to deepen their capacity to provide meaningful feedback regarding their clients’ philanthropic activities. At the very least, they will need to develop significant partnerships with experienced philanthropic advisers. Over the past 10 years, several surveys of affluent individuals have shown philanthropic families – those both new and more experienced – expect their advisers to provide more guidance and intellectual capital on the subject of charitable giving. Indeed, given the many opportunities to participate in global philanthropy and the proliferation of charitable institutions and causes, affluent families face significant challenges in managing their giving.
The benefits of facilitating family philanthropy include strengthening the client-manager/adviser relationship, learning more about family dynamics and decision-making processes, and building stronger ties with family members across generations. While charitable planning should occur within the context of a comprehensive review of wealth management, tax and legacy planning, here are several best practices that should be considered when advising new philanthropists.
Clarify Motivations and Goals
Discussions about philanthropy can begin only after clients articulate their motivations for giving. Understanding the “why” of giving is perhaps even more important than identifying the “right” charitable beneficiary. Identifying philanthropic motivations will likely include a discussion of individual and collective values, interests and goals. Most successful philanthropists have written and adhere to a “charitable mission statement.” This practice is essential to engaging family members, identifying charitable intent and strategies, and focusing an individual’s or family’s giving in a manner that maximizes its impact. Basically, a charitable mission statement should include the following elements:
• History of the individual/family; origins, values, business interests, traditions
• Field(s) of interest and what the individual/family intends to accomplish
• Program focus and specifics of where giving will be targeted
• Key goals and desired outcomes
In addition, managers should be fully informed about their clients’ past and current charitable giving practices. These activities often significantly shape the direction of future charitable commitments and provide insights regarding the levels of control the donor and manager will want to exercise over the philanthropic planning process.
Decide How, How Much and What to Give
Before engaging a new philanthropist in a discussion around how to give, how much and what to give, the manager must thoroughly review client’s financial and tax planning needs. For example, the manager should first identify factors that will determine whether it is appropriate to make a gift during life or at death, through a legacy, establish a permanent giving vehicle, such as a foundation, or give outright.
Secondly, managers often need to help clients balance enthusiasm with restraint in giving. Many charitably inclined individuals quickly become over-committed and overwhelmed by actual and perceived responsibilities as a philanthropist. In most cases, it is best to advise new givers to start small – to limit the size of the initial gift (even when their financial capacity would support a larger commitment) and the number of charitable beneficiaries or causes that are funded.
New philanthropists might also be advised to set aside limited funds for “unplanned giving” to support causes that fall outside their charitable mission statement, unforeseen or nonrecurring projects and particular interests of family members. This practice keeps the focus on the donor’s primary intent and helps manage the expectations of family members and potential charitable recipients.
Learn about Charitable Institutions, Causes and Philanthropic Networks
The field of philanthropy is dynamic and resources now available are staggering and at times confusing to new philanthropists. Managers will need to provide educational and networking opportunities for new philanthropists. Partnering with philanthropic advisers who are highly knowledgeable about a particular field of interest, like environmental conservation for example, and who can manage complex research projects and educate clients about charitable institutions and causes will conserve the financial and human resources of the family office. Managers would do well to encourage their clients to seek out like-minded donors or join one or several giving circles. These affiliate groups have become a popular forum for new philanthropists to learn how to give effectively. Giving circles not only provide a forum for sharing ideas, knowledge and experiences, but its members are often able to be more strategic in their giving and collaborate with like-minded philanthropists.
Manage Due Diligence Procedures and Establish Measures of Accountability
An important pre-requisite to executing an effective and responsible philanthropic plan is establishing sound due diligence procedures. New philanthropists often identify this aspect of charitable giving as the least enjoyable and, in some cases, a notable barrier to participation. When advising new philanthropists, it is important to assess the level of due diligence required to support their philanthropic mission and strategies. A manager needs to decide whether those efforts should be managed solely by a family member(s), by the family office, in collaboration with philanthropic advisers or by combining the intellectual and human resources of these groups of constituents.
Given the structure of a family office, many of the administrative tasks and due diligence requirements related to charitable giving can be managed suitably by staff. This may include ensuring potential charitable recipients are properly registered and able to receive qualifying charitable contributions, distributing funds, receiving correspondences and reviewing grant guidelines with charitable recipients. Other tasks, such as conducting site visits and meeting with leaders in the charitable community, might be better managed by family members. It is critical the manager takes an active role in delegating these functions and establishing appropriate measures and procedures for accountability. It is also important to help family members who assume any due diligence responsibilities understand how to review financial audits, grant proposals and programmatic reports, and ideally to provide tools such as checklists to help them document their findings.
Set Manageable Expectations for (Family) Participation
While many new philanthropists are enthusiastic about giving, they may not fully grasp the time commitment required for full engagement. In some cases, they will not want their philanthropic activities to disrupt or encroach unduly upon their daily lives. The manager should be able to provide some guidance to clients to help make them make the transition from an occasional donor to a more engaged philanthropist as seamless and stress-free as possible.
Also, philanthropists who establish permanent giving vehicles often expect family members – adult children and grandchildren – to be engaged in the “family” philanthropy. The manager must assess the levels of interest among family members and help them set manageable expectations and frameworks for participation. This practice will involve helping families strengthen their internal decision-making processes, clarify family roles and establish governance structures.
Evaluate the Impact of Giving
Whether giving is motivated by a desire to respond to immediate needs, such as supporting disaster-relief efforts in Haiti, or funding long-term strategies and programs that address intractable social problems, evaluating the gift’s impact on recipient charitable institutions, causes and supported communities is a critical aspect of philanthropic planning. Given the current economic environment, charitable institutions have begun focusing significantly more resources on demonstrating accountability, stewardship and transparency in their activities, in order to ensure donors that every contributed dollar is used wisely. Seasoned philanthropists would say that evaluating outcomes is a core learning practice, an ongoing process and essential to determining if giving practices are consistent with short- and long-term philanthropic goals. Most new philanthropists however find that assessing the impact of their philanthropy is their greatest challenge.
Family office managers and advisers, in their roles as risk managers, are in the best position to manage the evaluation process. For this stage of charitable giving it is best to coordinate and oversee how clients receive feedback from donee/charitable institutions, which might include direct observation and participation with a project, interviews, surveys, activity reports from outside institutions and financial reports.
Key to helping both new and experienced philanthropists analyse whether their chartable gifts are having a desired impact is identifying the right questions to ask and providing a forum for examining responses to these questions. In addition, this simple checklist can be used to begin a discussion regarding the impact of a gift:
• How has my gift contributed to improving/changing the condition? How has my gift helped: address a critical need; raise awareness of the issue; support collaborations?
• What have I learned about the range of factors that affect progress on this issue by focusing my giving in this particular area?
• What additional information (internal and external factors) do I need to know about what’s happening in the field or my area of interest?
• What is my measure of success as a philanthropist?
Evaluating the impact of giving will depend on several factors, not least of which is the size of the gift. Depending on the causes or issues that a donor seeks to address, evaluation can be more efficiently managed by experienced professionals and, to this end, the manager should engage a philanthropic advisor, a program officer or other experts in the chosen field(s) of interest.
