Elon Musk isn’t the first billionaire to complain that giving his money away is hard. But I was intrigued by his recent comment that “if you care about the reality of doing good and not the perception of doing good, then it is very hard to give away money effectively.”
“I care about reality. Perception be damned,” he added. You should help your charitably inclined clients do more than just throw money at the causes and organizations they believe in. You should help your clients’ charitable efforts achieve meaningful long-term results, even if not for high-visibility causes.
Like Musk, I’ve found the most effective forms of giving require a lot of upfront due diligence. You not only want to vet the targeted organization(s) carefully, but you’ll also need to keep following up with them to make sure the money is being used effectively to produce measurable long-term outcomes.
As the old proverb goes: “Give a man a fish, you feed them for a day. Teach him how to fish and feed them for a lifetime.”
For example, Musk has donated $100 million to fund carbon capture technology. He could have selected many high-visibility places to give, but he chose to incentivize innovation in a field that could help address an even bigger challenge: mitigating climate change.
Regarding due diligence, overhead isn’t necessarily a terrible thing for charities. It takes people to conduct a mission, and they need an operating budget to get their work done. But the question is, how efficiently are they using the money to address the issue they’re trying to solve? How do you measure their efforts? How do you assess the organization’s work vs. competing charitable organizations?
While most of your clients aren’t planning headline-worthy gifts, it can take just as much due diligence to make a four- or five-figure gift as a nine-figure gift—especially if it’s for multiple years. One of the most important discussions you should have with clients is whether they think their gift can do more to address a societal issue than the U.S. government (that is, the Internal Revenue Service) or a rival charity with a similar mission.
When How and Why
When using philanthropy to address the root of societal problems, I like to start with the When/How/Why methodology before writing checks.
When. If the gifts we establish for our clients won’t be distributed until after our client has died, how do they select an organization where they want their money to go 25 years from now?
How. How are adjustments made in the event the organization is no longer the leader or no longer exists? How do you help your clients understand and discern the best place to deploy that capital? How are we going to judge if the gift will have the desired impact?
Why. Why is your client making the gift now, and what do they hope it will ultimately accomplish?
For example, instead of simply writing a check to the local food pantry, how about funding research and programs that address the systemic causes of hunger? How can we solve those issues as opposed to “your donation buys 1,000 meals”?
If your client is worried about people who don’t have food or shelter, what’s causing that problem? What if you could help your client make a bigger gift for something that addresses the underlying causes of homelessness, starvation and food deserts? Which organization does the most effective job of addressing these issues and has the most impact on the population you’re trying to help? How does your client want to deploy their and the family’s capital?
Follow Through
If you don’t have the bandwidth or structure to follow through with organizations after your client’s gift has been made, there are a number of great intermediaries to help you. For example, the non-profit Purposeful Planning Institute may be able to help you locate these intermediaries.
I have a new client who wants to make a big difference with his money to the tune of $75 or $80 million. We’re leading his planning, and I set aside money that will ultimately go to charity. I’ll eventually introduce him to one of the facilitators we work with to help him identify worthwhile organizations that will help him address such societal problems as people abused by alcoholics or children who’ve lost their parents to cancer.
Enlisting NextGen
When it comes to philanthropy, generations vary greatly, and even siblings within the same family will have vastly different priorities and interests. Many high-net-worth families don’t discuss their values and charitable plans with each other. You can bring a lot of value by helping them integrate differences of direction in a non-conflicting way. You’ll want to develop that skill for yourself or in tandem with a skilled facilitator.
One of the biggest threats to an advisor’s business is the loss of assets due to generational wealth transfer. According to Yale Levey of Next Wealth Generation Planning LLC, the best way for advisors to “inoculate themselves” against generational wealth transfer is to have a “multi-generation relationship with the family,” not just a relationship with the primary wealth creator in the family.
“As advisors, we’re in a unique position to show family members where they have the capacity to create greater happiness, greater impact, and a greater legacy,” observed Levey. “Those are what I call personal rates of return. If you can increase the personal rate of return for your client and their family and friends, you’re securing a long-term relationship while making a difference,” he added.
Cement Your Relationship with Clients
As I discussed last month, helping your clients set up a planned giving strategy isn’t going to migrate assets out of their accounts. It will help cement your relationship with the family for generations to come. Writing checks is the easy part. Helping clients use their money to address the roots of societal problems—with the right organizations—is a superpower you’ll want to develop. They don’t have to be billionaires to make a significant impact.
Randy A. Fox, CFP, AEP is the founder of Two Hawks Family Office Services. He is a nationally known wealth strategist, philanthropic estate planner, educator and speaker.