Re-bundling Philanthropy Services

In many ways, Tactical Philanthropy Advisors represents an attempt to create a new platform for philanthropy advising. The key to understanding what we’re doing is to understand how we’re working with Schwab Charitable, Fidelity Charitable Gift Fund®, Calvert Giving Fund and Foundation Source.

In 1992, the Fidelity Charitable Gift Fund launched as the first national, “commercial” donor advised fund complex. Fidelity pioneered the low cost, limited service model. Many people, especially Lucy Bernholz, have explored how Fidelity “unbundled” philanthropy advice from transactions. Many observers have likened this event to the way Charles Schwab & Co “unbundled” advice from transactions in the wealth management field in 1975. At that time, Schwab became the first discount broker with a business model calling for them to offer very low cast stock trades, but without providing the advice that traditional brokers offered.

In philanthropy, much like in the financial advising field, a large segment of clients/donors who were particularly price sensitive fled the full service firms (the full commission brokers and community foundations) and went to the low cost, limited service model (offered by the discount brokers and commercial gift funds.)

In philanthropy the story ends there. But in financial services, there was a second revolution. In 1993, 18 years after the original launch of the discount brokerage service (interestingly, it has been 17 years since Fidelity launched the commercial donor advised fund model), Charles Schwab & Co. launched Schwab Institutional. The service was designed to collaborate with independent financial advisors who worked with high net worth clients. By working together the discount brokerage companies paired their services with independent, advisors to high net worth clients and effectively “re-bundled” advice and transactions. This worked exceptionally well because it allowed the discount brokers to run low cost, high volume businesses while the independent advisors offered premium priced, highly personal advice. It is very difficult to operate both kinds of businesses, because the corporate cultures are so different.

Today, Schwab Institutional, the segment working with independent advisors is Schwab’s crown jewel. It is the most profitable, fastest growing segment of their business. At the same time, independent advisors have become hugely successful as an industry.

At Tactical Philanthropy Advisors, we’ve created working arrangements with Schwab Charitable, Fidelity Charitable Gift Fund, Calvert Giving Fund and Foundation Source that mimic the symbiotic model above. The commercial donor advised funds and low cost foundation administrator Foundation Source represent an administration platform that independent philanthropy advisors can plug into. While we’re the first group to implement this business model, I think we’ll see many other philanthropy advisors crop up using our model.

Some of these advisors will choose to plug into the Tactical Philanthropy Advisors platform (see this link if you are interested in joining us) and some will start their own firm. We’re working very hard to build out a support system for philanthropy advisors who want to plug into our model. These include our reporting system, the Tactical Philanthropy Knowledge Network, a paperless new account opening process, and a flexible advising process that let’s us streamline the replicable, “science” of philanthropy advising while freeing the advisors to personalize the client experience around the “art” of philanthropy advising.

To be a great administrator, you must have high volume. You’ve got to have a ton of clients to offer very low cost service. But to be a great independent advisor, you just need to be able to provide great advice, manage client relationships and bring in new clients. But unless you have access to a high volume platform, independent advisors cannot scale because they can’t handle the administration seamlessly.

At Tactical Philanthropy Advisors, we have a $1 million minimum account size. We think the majority of our clients will be in the $1 million to $30 million range, although some will be much larger accounts where the client does not want to build a large organization and instead wants to work with us while keeping their staff level low.

This segment is larger than most community foundation accounts (where the average account size nation wide is $450,000) and smaller than most of the accounts served by the well known, large philanthropy advisors.

While of course I want my new firm to succeed, I think that it can only be successful if the model becomes adopted by other advisors and we start to really build a field. So for me, this is at once an entrepreneurial effort to build a firm and a mission driven effort to build a field.

Are we competing with community foundations?

I got a bunch of caution inquires from community foundations yesterday. So let’s deal with this head on. I see Tactical Philanthropy Advisors as being a partner to community foundations’ mission and a competitor (at least in theory) to their donor advised fund fee revenue. I say in theory because I think we’re so early in a long boom for philanthropy that I’m not interested in fighting for market share, it is all about working together to build a field.

Right now, we have a page on our website dedicated to the question “Why Do I Need a Philanthropy Advisor?” Once most high net worth donors believe they need an advisor and the question is just who (as they feel about financial advisors, CPAs and lawyers), then we can all fight over market share. But for now, I think the donor advising/education field needs to work together to build our field and leave petty competitive squabbles for another time. Yes, we’ll compete for clients from time to time, but we can do far more good in this world if we work together.