Very wealthy or entrepreneurial investors seek advice before they decide to donate to charity.
Very wealthy or entrepreneurial investors seek advice before they decide to donate to charity.
"[Successful advisers] are the ones who are raising the questions, and they are proactively approaching their clients," said Eric Kessler, principal of Arabella Advisors of Washington, which advises people on philanthropy.
In addition, investors will receive advice from foundation staff, peers, attorneys, fundraisers and accountants.
Households with a net worth of $50 million or more are defined as very wealthy, and the term "entrepreneur" is used to represent households where at least 50% of wealth comes from entrepreneurial assets, according to a study of high-net-worth individuals conducted by Bank of America Corp. of Charlotte, N.C., and Indiana University's Center on Philanthropy in Indianapolis. The study might be the largest ever undertaken.
The report is based on a random sample of 1,150 individuals with an annual income of $200,000 or net assets of $1 million or more; it identified 12 donor types and how they go about giving away their money.
Among the donor types were bequeathers, who left at least 25% of their estates to charity; dynasts, who gave children money to donate to charity; and high-frequency volunteers, who donated more than 200 hours per year of their time.
Philanthropy has changed, moving closer to a Wall Street-type approach to giving.
INVESTMENT PRINCIPLES
"It is very similar to the investment world," said Mr. Kessler. "People who we work with spent a lot of time and energy growing their wealth. They are applying the same principles that they did to earning their money in how they give it away."
Donors are carefully sifting through charities, scrutinizing administrative expenses.
"There is a huge interest across all segments for the need to understand the effectiveness and impact of their donations," said Cary Grace, managing director for Bank of America Corp.
Once they identify charities, the ultrawealthy are generous.
For instance, they gave, on average, 10 times as much in 2005 to charity than those with a net worth of $5 to $50 million.
Their top motivations for giving included their desire to meet critical needs and to give back to society.
Of any group, they donated the most money to every charitable category except disaster relief.
Nearly 60% of the ultrawealthy made provisions in their wills for charity, and 53.3% of them created a charitable foundation.
The ultrawealthy were more likely than others to seek external advice about giving, which 50% received from accountants.
Entrepreneurs gave 25% more on average to charity than did the other donor groups. They also gave more to education and to environmental or international groups.
However, they were less likely than other groups to seek professional advice, and they were more likely to make donations through their businesses.
Understanding how investors decide to make donations might help advisers and non-profit organizations communicate and market services to wealthy people.
GAINING AN ADVANTAGE
"Financial services around high net worth and the very wealthy is a very competitive space," said Ms. Grace.
In order to compete for the business of high-net-worth donors, advisers will need to be able to offer technical advice, said Yale Levey, managing director of Next Generation Wealth Planning LLC of Roseland, N.J., and board member of the International Association of Advisors in Philanthropy. "They want us to take the tools and technical aspects, and make them more accessible, understandable and approachable." Many baby boomers want to create an income they cannot outlive, and leave a legacy, he said. "There is an enormous intergenerational transfer of wealth happening because of the baby boomer generation, and this creates lots of business opportunity," said Mr. Levey.
High-net-worth donors often seek more-complex gifting strategies, said Barry Glassman, senior vice president of Cassaday & Co. Inc. of McLean, Va. "Their assets are more complex, and there may be greater opportunity for advanced strategies," he said. "They have a charitable intent. The tax savings is secondary."
They often are interested in family foundations or donor-advised funds.
"They want to see an impact for their efforts," Mr. Glassman said. "They'll choose how they'll make that difference, and they want follow-up."
The bank's report, "Portraits of Donors," is available at newsroom .bankofamerica.com/index.php?s=press_kit&item=92.
Sue Asci can be reached at sasci@crain.com.
