Philanthropic Philosophy Is Changing

As a CPA wealth manager, you’re uniquely positioned to assist your clients with business analysis and altruistic goal fulfillment.

May 15, 2008
by Jean-Luc Bourdon, CPA/PFS

Philanthropy is changing due to new wealth largely created by entrepreneurship. Technological entrepreneurship, in particular, has accelerated the pace of wealth creation – making it possible for the founders of eBay, Yahoo, Google, Facebook and other Internet-based startup companies to reach billionaire status in just a few years.

This is as unprecedented as it is exciting. Equally as exciting is the way philanthropists emerging from this new era of wealth creation utilize their entrepreneurial and technological savvy to maximize the impact of their for charitable activities. Think of this as “social return on investment.”
For example, old philanthropy purchased existing vaccines for distribution. New philanthropy seeks innovations and market opportunities to create better and cheaper solutions, such as improvements in research, manufacturing and distribution. The microfinance movement is an exciting example of adapting a market-based infrastructure to charitable purposes, rather than providing handouts through existing channels.

This businesslike thinking is reflected by some interesting terms now included in the charitable lexicon: philanthropy 2.0, entrepreneurial philanthropy, “philanthropreneurs” and social return-on-investment. Some nonprofits were created specifically to develop this new philanthropy: the Center for Effective Philanthropy, Ashoka, the Skoll Foundation and Omidyar Network are a few of them.

Entrepreneurs led the way to this philosophical shift, but the trend is now widespread. The Bank of America Study of High Net-Worth Philanthropy (PDF) asked respondents for reasons why they would give more to charity:

  • 74.8 percent said less money spent on administration;
  • 58.3 percent said better able to determine impact of gifts;
  • 34.7 percent said more access to research
  • 21.3 percent said more information on giving vehicles.

This means respondents would give more if these issues were addressed (likely by an advisor). Clearly, donors want to maximize the output of what they consider charitable investments. Clearly also, advisors have a better job to do.

How Can This Be Done?

As an example, let’s look at an entrepreneur who wants to allocate $30,000 of a charitable donation to education. Under the old philanthropy approach, the benefactor would offer students a means of joining existing educational venues (mainly scholarships allowing students to attend on-campus programs). The new philanthropy approach says to seek alternatives allowing students to pursue an education in a way that is financially possible on a self-supporting basis, thus creating a market-driven dynamic.

A $30,000 scholarship will allow one or a few students to attend an on-campus program for one year. The same amount contributed to making equivalent education available though distance-education technology could benefit hundreds – possibly thousands – of students. Furthermore, the scholarship approach requires a costly selection process (deciding who gets what). Whereas the distance education approach has a natural selection process: distance students are generally highly motivated, disciplined and tend to do better than on-campus students.

What Is the Opportunity?

As philanthropy becomes more entrepreneurial in nature, CPA wealth managers are well equipped to help clients fulfill their charitable intentions. We not only offer necessary tax expertise, business skills and personal goal fulfillment strategies, but we can apply our CPA training to our chosen realm of personal practice.
The opportunity opened to us is wide. The concern with charitable efficiency applies to big and small donors alike. For instance, a recent Fortune article indicated that philanthropic productivity is what prompted billionaire, Warren Buffett, to make history’s largest charitable donation to the Bill Gates Foundation rather than to his own?

And, even the smallest donation can be evaluated on those terms, thanks to the Internet. The efficiency of nonprofits can easily be assessed on Web sites like Charity Navigator. The Web site GuideStar even makes tax Forms 990 available online. Of course, many clients will need our help for ideas and analysis.

The opportunity to help clients is not only wide, it is also deep. Work done by Martin Seligman, pioneer of positive psychology, shows that the joy of undertaking an act of altruism provides profound satisfaction. There is an undeniable correlation between philanthropy and happiness. Therefore, our work can help clients attain lasting fulfillment through pursuits expressing their deepest empathy and gratefulness. Who wouldn’t want happier clients? Who wouldn’t want to contribute to it?

What Does This Mean for Advisors?

The charitable-giving conversation cannot be a passive conversation, whereby we diligently wait for clients to bring it up and note their charities of interest. More than ever, it is an area of active planning calling on our diverse skill-set. The value we bring to the conversation sets us apart in a way that maybe most meaningful to clients. By addressing their concerns, we help clients realize more fully their altruistic aspirations. Our role isn’t only to help clients attain the life they dream of, but to also open up opportunities they may not have imagined.

For many advisors, charitable intentions may still be a difficult topic to bring up. To some of us, it brings to mind visions of angry heirs or uncomfortable clients. Yet, just like terminal illness, prenuptial agreements and problem children, it is a topic we learn to handle. By stating the planning reasons of our interest, asking for the client’s thoughts on charitable giving and listening to the answers with equanimity, we have the potential to help in a profound way. Remember, the more personal the issue, the more helpful we are and the stronger the relationship we create.

In Summary

A shift in philanthropic philosophy allows CPA wealth managers to utilize the broad scope of our analytical and people skills. By taking this opportunity, we enable our clients to act with greater confidence and enthusiasm on their altruistic inclinations. In the process, clients are likely to gain lasting satisfaction and fulfillment. By the same token, we just might too.

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Jean-Luc Bourdon, CPA/PFS is an advisor with Walpole Financial Advisors, LLC in Goleta, CA. Bourdon volunteers as a youth mentor and financial literacy advocate. He currently serves on the UW-Platteville’s Distance Learning Alumni Advisory Board.