Beyond the Checkbook: Beginning the Philanthropy Process

Jeff Ladouceur trailed his finger down the list of entries and called out, “Kennedy High School, one thousand dollars in March.” “I’ll take that one,” Amelia said, “Our kids went there. Academically it’s a great school, but they’re also big on values like responsibility and community service. We love them.” Jeff scribbled on the white board: children, personal connection, education, values, responsibility, service. “Okay,” said Jeff, “Next one. You gave another thousand dollars to a charity called ‘First and Foremost’ last April. Why?” Colin responded, “It’s a local group started by a very dedicated education expert I met through a colleague. They give academic scholarships to low-income kids, but they also provide support—tutoring, part-time jobs, mentors—to give them a better chance of succeeding.” Jeff turned again to the white board and wrote: children, education, sponsoring success, poverty, local. After an hour of back-and-forth, the white board is full of Jeff’s notes and he begins circling words and phrases that are repeated over and over again.

Jeff, an SEI Wealth Advisor, has been helping Colin and Amelia Cooper look for patterns in their charitable giving, an exercise that should reveal something about what each one values and hopes to accomplish through philanthropy. While the couple may have had some guiding philosophies, they had never made them explicit. Now, with Jeff’s help, they’re on their way to creating a charitable mission statement that reflects what their philanthropy strategy has been and what it might become.

How did we get here?

Creating a philanthropic mission statement wasn’t something Colin and Amelia had planned on doing when they hired SEI a year ago to manage their wealth. As successful business owners, they had accumulated about $36 million over time and wanted to make sure they were managing and using it wisely. When we first began working with the Coopers, we took Colin and Amelia through Discovery, a process by which we learn about clients’ lives and goals in great detail, and found that the couple’s top priority was to make sure they had enough to keep their lifestyle going. They weren’t particularly extravagant, but they did spend money on the things they cared about: Ivy League educations for their kids; a sprawling home and vacation property in which they entertained friends and clients; travel; and a small art collection, which they intended to expand.

By tracking their spending over time, we learned that the Coopers needed about $750,000 per year to support their current lifestyle. We built a financial and investment plan to support that spending level while setting money aside in other investment pools to satisfy longer-term goals like seed money for the kids’ later endeavors and the couple’s eventual retirement. But six months into our relationship with Colin and Amelia, the situation changed dramatically. The husband and wife, who had been toying with the idea of selling their business down the road, received an excellent offer and decided to accept. The sale would net about $75 million.

After working sessions to re-envision what life would look like after the sale of the business, and financial planning to accommodate new goals and a new lifestyle, we estimated that Colin and Amelia would have an additional $35 million that wasn’t allocated to any specific goals. Then came the fun part— what to do with the remaining money.

Becoming Philanthropists

The Coopers told us in the original Discovery process that they wanted to give back to the community, but they saw philanthropy as something they’d attend to in a concentrated way down the road—once they’d made sure they had enough money to take care of themselves and their family. Though they had never budgeted for philanthropy, they always responded generously when asked by friends, family and colleagues to support their causes, and they donated to charities they cared about personally. They rarely paid attention to what the individual donations added up to; they considered that relevant only in the context of tax reporting and left it to their accountant. They had been practicing what’s known as checkbook philanthropy.

While they didn’t really think of themselves as philanthropists— checkbook or otherwise—a number of influences were moving Colin and Amelia in that direction. The donations they had been making were beginning to add up to significant sums that increased steadily from year to year. That generosity landed them on the lists of a growing number of charitable organizations who now called regularly for donations, and neither Colin nor Amelia was sure how to say no. And then there was the influx of considerable new capital from the sale of the business that would enable them to address their goal of giving back—with significant impact—much earlier than they’d expected. If that wasn’t incentive enough, the financial planning we did with the Coopers revealed that if they didn’t develop a philanthropic plan for that new money, the government would be happy to take a large chunk of it off their hands in the form of taxes.

The particular forces that convinced the Coopers to take a more deliberate approach to philanthropy are not uncommon among wealthy families. Here are some other situations we encounter that tend to move people beyond checkbook giving:

• Estate planning, which provides an opportunity to think about one’s legacy
• A compelling event like the death of a loved one from cancer, or a catastrophe like 9/11
• A growing desire to get children involved in giving
• Time and a desire to do something different or compelling
• Desire to spend time with others involved in philanthropy

Checkbook philanthropy is a relatively reactive approach. By contrast, the most effective philanthropy starts with deliberate planning aimed at determining the impact the givers want to have on the community and the specific issues or organizations on which to focus. Eventually, they’ll decide exactly how much money to give to each organization.

Learning from the Giants

Public institutions and large family foundations have some great lessons to offer newcomers to philanthropy like the Coopers, most notably the deliberateness with which they approach their giving, their efficient processes, and their critical evaluation of motives, objectives and impact.

Take the mission statement, for example. The Trustees of large charitable institutions tend to be easily identifiable and are bombarded with grant requests from worthy organizations. For them, the mission statement is critical. It defines the intentions and objectives of the organization and draws clear boundaries, enabling Trustees to reject grant requests that aren’t aligned with the institution’s philanthropic goals. After significantly narrowing the field through initial screening, a range of other criteria kick in. Some are purely quantitative, like the size of the requesting organization, while others are more qualitative, like Trustees’ impressions of the relative worth of proposed projects.

The point is that a well-defined mission and concrete, consistent criteria drive grant-making decisions. We see the same kind of deliberate approach after the gift has been made. These successful philanthropy giants critically evaluate the impact of their giving, assessing whether each grantee has used the money effectively and efficiently in ways that are consistent with the institution’s mission.

Powerful Philanthropy on a Personal Scale

The philanthropy giants achieve their exemplary discipline and efficiency by industrializing the philanthropy process, creating formal organizations and operations driven by their equally formal mission statement. An individual, on the other hand, is unlikely to wake up one morning and decide to craft a philanthropic mission statement. Our clients’ mission statements tend to evolve as their thinking about philanthropy evolves, and that’s fine. The Coopers, for example, were comfortable with their approach to giving until those forces we described earlier came into play.

While there’s much to be learned from those large foundations and institutions, our clients generally want to engage in philanthropy on a much more personal scale. We try to help them understand their motives for giving; explore different ways to become more deliberate and, in the process, have a greater impact. We achieve this by:

1. Exploring passions.

There are a number of ways to explore passions and set goals, and it’s important to recognize that not everyone will arrive at answers in the same way. Some may prefer a direct approach, identifying the values that govern their lives and the kinds of causes consistent with those values. The Coopers took a different approach, reviewing donations over the past three to five years, looking for patterns and thinking about what felt satisfying and what didn’t. Some like to ponder the questions quietly or read books and articles for inspiration, while others look for conferences and opportunities to interact with experienced philanthropists and experts. Some approach the process like a homework assignment, carefully answering questions designed to lead them to conclusions. Others jump in and experiment, looking for ideas and testing them in action. It’s a good idea to try a number of approaches and see where they lead.

2. Assessing financial realities and other resources.

At some point, you have to get down to the numbers: how much money the new philanthropists can devote to charitable pursuits and what kind of impact they want to have with that money. The first variable of the equation is arrived at by evaluating life goals, lifestyle, family circumstances and a host of other personal and financial factors. The second variable is determined by laying out very clear philanthropic goals and consulting with general experts in philanthropy and experts in specific areas of interest. We may find that the desired impact isn’t achievable given the funds allotted, or that the client could be thinking about a much greater impact, given the wealth they can devote to philanthropy. In either case, we explore all the options to help them reconcile any differences between funding and desired impact.

All of this information helps us determine how best to invest the money dedicated to philanthropy, including considering factors like tax implications, which may influence the timing and amount of donations.

Nuts and Bolts and Other Considerations

Identifying giving intentions and objectives is usually the biggest hurdle for most people, but those steps create the context for evaluating choices and making decisions as they work towards those goals. And it’s eventually necessary to make decisions about the specifics of their philanthropy vehicles: should I start a foundation? Does a donor advised account make sense? There are lots and lots of products to choose from.

The appropriate time to discuss different philanthropy vehicles is after a client has determined that they have a lasting desire and can afford to donate significantly to their communities. Other considerations which factor into the selection of the right vehicle include: an appreciation for the types and flexibility of gifts that a family contemplates making, need for income from the assets, etc.

It’s a Journey

So you’ve explored your passions, created a mission statement, lined up your resources and investments and you’re off and running. Now what?

Philanthropy is a journey, not a destination, and it can take any number of turns along the way. One of the lessons Colin and Amelia Cooper learned in their journey is that giving generously may not ensure significant or lasting change.

The Coopers cared passionately about a lot of things. That’s normal. But over time, working with some of the philanthropy experts we engaged to help the couple, they recognized that by narrowing their focus they could have a greater impact. They corrected their course and their journey continues. Another common step along the path is getting others involved in philanthropy.

For instance, some parents, once they’ve clarified their own philanthropic goals and plans, want to introduce their children to philanthropy by including them in the execution of those plans. Others may get their children involved up front, making the exploration of passions a family activity.
The scope and nature of philanthropic pursuits are heavily influenced by available time, money and energy.

Wherever you are in your philanthropic journey, there are opportunities to learn and improve. The trick is to recognize that, while philanthropy is a very personal matter for most people, taking a deliberate look at motives, values and approach can yield new insights all along the way.

The SEI Wealth Network is an “umbrella” name for various life and wealth advisory services provided by your personal business manager and SEI Investments Management Corp. (SIMC). Components of these services and programs may be offered by SEI subsidiaries and non-affiliated third parties. SIMC is a wholly owned subsidiary of SEI Investments Company. The story represents a hypothetical based on a composition of multiple client experiences and issues and SEI’s proposed solutions. This is intended to illustrate the different services provided by SEI Investments Management Corp. and is not meant to guarantee that a client’s needs or objectives will be met.