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| Best Practices: Banker's Agenda |
Banking on Philanthropy
Regan Good
12/01/2004
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In their quest to compete for our business, private banks now provide a
service that, at first blush, would seem to be at odds with their strengths in
maintaining and managing our fortunes: providing advice on how to give them
away. These institutions’ desire to offer a holistic suite of services has
prompted many of them to launch dedicated philanthropic advisory businesses in
the last half-dozen years. But whether it makes sense to turn to our private
banker, or to an independent advisor, for help with our charitable strategies
depends on the extent and nature of the support we need.
 Still a nascent
industry, philanthropy advisory blossomed during the economic boom of the 1980s.
Historically, wealthy families have relied on the counsel of financial planners,
accountants and lawyers when devising philanthropic strategies and creating
foundations. Yet, over the past 20 years, newly minted wealth creators have been
demanding ever more assistance in determining priorities, vetting nonprofit
groups and understanding compliance issues. This need spawned the marketplace
for independent philanthropic advisors. Today, there are approximately 200
individuals offering such services, including those working in law
offices.
Over the past six years, however, these independents have gotten a
taste of competition from the private banking industry, which has made
philanthropic counseling an essential part of its soft services menu. Now
would-be philanthropists and potential patrons have a wider choice of advisory
skills.
Soft Sell
Jay Steenhuysen, managing director of philanthropy
services for Charitable Entity Administration, a for-profit independent advisory
service in Providence, R.I., says that an effective advisor needs to help a
client with six aspects of giving, and offer in-depth advice at each level.
“There are mission-targeting issues, compliance and tax issues, governance
issues, management issues, grant-making and family involvement and succession
issues,” he says. “Different groups have different competencies. As you look at
all those areas, you may have a wonderful provider from the bank for compliance
and tax issues, but one not so well versed in helping target the mission or
conduct salient research.”
TOP VIEW
Many private banks now offer philanthropic advisory as part of their holistic
client services package. In this final installment of a three-part series, Worth
examines what types of services these institutions can provide well, and how
they stack up against independent, specialized consultants. |
H. Peter Karoff, founder and chairman of The
Philanthropic Initiative (TPI) in Boston, the first nonprofit organization in
the country to offer purely philanthropic services and training to affluent
families and corporations, contends that private bank advisors may be over their
heads when handling administrative tasks. While Karoff applauds the private
banking sector’s effort to bolster its philanthropic thinking, he disparages its
execution. Lacking proper support systems and staffing, Karoff says, private
banks might not be able to manage the type of full-fledged efforts that can
translate into truly effective and satisfying giving. “The problem is that the
philanthropic advisors are somewhat marginalized within their institutions,”
Karoff claims. “Within a bank, philanthropy is not the main event. These
so-called soft services are, well, soft.”
So soft, in fact, that private
banks often do not charge for their services (see “Off the Meter” at the end).
TPI, by contrast, is a financially self-sufficient nonprofit that charges
consulting fees averaging $1,600 a day. Karoff admits that his firm’s fees
usually consume approximately 10 percent of a client’s grant-making dollars. For
this, TPI researches, develops, manages and evaluates a strategic philanthropic
program with multiple recipients.
From a strategic point of view, Karoff
fears that a private bank’s constraints may limit the types of projects private
philanthropists can launch. Bankers simply might not be able to invest the
amount of time necessary to oversee what Karoff calls the “programmatic side” of
giving, including tasks that require months, even years, of research. Karoff
recalls, as an example, a client who presented to him a sketchy idea of funding
what he vaguely described as “diversity in Newark.” Advisors from TPI trekked to
27 institutions of higher learning in New Jersey and asked how they would use a
grant of $400,000 over three years to help their college better reflect the
immense social diversity within the state. “We got back about 25 proposals, and
we selected eight schools to receive these grants,” Karoff recalls. “Then we
worked with them by bringing in some outside experts to help them do their
thing. There will be follow-up as well, to see how well the plans were executed.
This all takes a tremendous amount of time and expertise.”
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