Paying for Philanthropic Advice

My last post on Philanthropy: Spending Vs. Investing, was picked up by the Chronicle of Philanthropy yesterday. In the comments Jed Emerson weighs in with support for my view, while another reader calls me “All Wrong” and Anne Ellinger of Bolder Giving strikes a middle ground. When you think about the nine outcomes I listed to donors changing the way they think about giving, there is something that emerges from the various interconnected trends that will have a radical impact on philanthropy.

Sooner or later, donors are going to start being willing to pay for advice on how to give. This will transform philanthropy.

Currently, most donors are uninterested in paying for advice related to where to give their money. The most successful model of selling grant making advice to individual donors has been the community foundation model of charging a percentage on the assets in a donor advised fund. Donors were willing to pay because it was pitched as an “administrative fee” and the grantmaking advice was offered as a “free” add on. But the emergence of Schwab Charitable and the Fidelity Gift Fund, where they charge much less for administration (but don’t offer grantmaking advice) has unbundled the grantmaking and “exposed” the fact that donors were actually paying for advice. The wild success of Schwab and Fidelity in attracting new donor assets shows that when presented an option to not pay for (or receive) grantmaking advice, donors will jump on it.

[Update: I didn’t mean to imply that community foundations were misleading in how they charged. I was trying to say that when Schwab and Fidelity unbundled the administration of donor advised funds from giving advice – much as Schwab unbundled investment advice from trade execution in the 1970’s – we found that many, many donors preferred to only pay for administration]

If you think about it, most consumers refuse to pay for advice on what to spend money on as well. Consumer Reports probably has had the most success in advising people on their spending choices, but they are a rarity. On the other hand, most all investors pay for some sort of advice on how to invest. The market is thriving with everything from full service wealth managers to investing advice books and subscription based information services. On the web, where consumers are rarely willing to pay for information, we can really see the value that consumer place on investment related investing information. The Wall Street Journal is probably the only successful model of a newspaper charging for web access and sites like RealMoney, StockCharts, SentimentTrader and all charge for access.

As long as donors view giving as a spending category, they will be highly resistant to paying for information and advice to guide their giving. But to the extent that donors reframe giving as an investment activity… watch out, you’ll see an explosive new industry emerge to help guide the $300 billion+ that Americans give to charity each year.


  1. Wise donors have been paying for philanthropic advice for quite a few years now — I should know, I was one of the first “purely” philanthropic advisors in the US, going back to the early ’90s. Same is true of forward-thinking financial advisors (today’s ubiquitous “wealth managers” weren’t an industry back then).

    Wise advisors and donors both have recognized for quite some time that they had little insight into the “shadow world” of charities, and wanted an experienced guide to assure their giving would accomplish that which it was intended to accomplish.

    With the explosion of the internet and “charity ratings” websites, too many donors and advisors have come to believe that a little trolling on line will tell you what you need to know before choosing a charitable beneficiary.

    Smart advisors, and donors, continue to use experts, engaged privately, to provide information, insight, and assessment that simply can’t be accessed any other way. But that trend will not grow as long as “3-star” and “B+” ratings sites continue their very effective marketing and PR campaigns.

    Renata Rafferty
    Author of “Don’t Just Give It Away: How To Make the Most of Your Charitable Giving” and the soon-to-be-released “Smart Generosity”

  2. foundationwriter says:

    Schwab and Fidelity may charge less than most community foundations, but certainly not all. And the administrative fee is clearly just what it says it is; I don’t know a community foundation that claims that its advice is free.

  3. Renata, wise donors have, but most donors have not. There are simply not that many people making a living selling giving advice to the mass affluent. You’re just ahead of your time! But you’re in good company. Warren Buffett set up his investment partnership with its unique fee structure decades before others followed.

    Foundationwriter, in re-reading my post I realized it sounded like I was saying community foundations were being misleading. I’ll clarify. My point was that when grantmaking and administration was bundled together, donors paid the bill, but when Schwab and Fidelity unbundled the giving advice from administration we found that many, many donors preferred not paying for giving advice if given the choice.

  4. Terry Smith says:

    Sean, I too provide philanthropic advice to donors in Canada. Aside from banks and community foundations, there are very few services here for donors to help them do what they want to do and to help them find their passions,provide proper assessments of charities and monitor the impact of their philanthropic giving. My business is two years old, it is a small but quickly growing business as philanthropists realize that it is indeed hard to give away money and they may not necessarily have all the right information and tools to make their decisions. I agree most do not wish to pay advisory services,but some have discovered the value of good advice and assessment far outweighs the costs associated with such advisory fees when they realize the charities and projects they are supporting are indeed matching their philanthropic goals. I see nothing but growth in this area!
    Terry Smith Philanthropic Partnerships Inc.

  5. Thanks Terry. It looks like you have a great business. How do you think that fees are framed so that the services are viewed as having the most value by donors? Hourly fees? A percentage of the amount given to charity? A percentage of the amount held in a foundation or other charitable vehicle?

  6. Hi Terry and Sean,
    As someone who is providing this kind of advice in Western Canada my fees have evolved. I originally started with a percentage of total giving, however found that it was more palatable and easier to sell as a project (hourly) fee instead.

    Terry, I look forward to visiting your site. I launched earlier this year and things are picking up for me as well. I couldn’t agree more with you that more of these types of services are so needed in Canada.

  7. Terry Smith says:

    Sean, as Gena noted, my experience in Canada is that percentage of fees of either the gift or the endowment are not acceptable (and I was told that by several philanthropists as I was setting up my business). I usually negotiate a set contract for my services or have monthly retainers. Terry