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 Briefing.com 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.