As I was watching and learning from the annual CAGP Conference in Winnipeg earlier this year, it struck me how different the charitable fundraising community is from the wealth management community.
You may have just hit your forehead and said ‘duh’, upon reading that first sentence. It is obvious. At the risk of stereotyping, the charitable fundraising world starts from a place more focused on caring, supporting and helping, while the wealth management space is more focused on business, profit and taxes. At the same time, the sectors that focus on larger donations, and more sophisticated investment management and estate planning, are both trying to build strong personal relationships with high-net-worth Canadians. In both cases, they are trying to help those families achieve their goals.
It is clear to me that the wealth management industry would be better served if they had a little more emotional intelligence. If they focused more on their clients’ emotional concerns and drivers, they would be able to form deeper personal connections especially through some of the unspoken hopes of their clients. This is among the key learnings I am finding from working more closely with the charitable sector.
At the same time, I believe that there are important learnings from a business, profit and tax perspective that could be helpful to the Canadian charitable sector. Given limited resources, and expanding expectations, these are four key areas I might look more closely at if I was running a charitable foundation.
Share of Wallet – from a wealth management perspective this is the idea that if a client has $2 million of investment assets, and $1 million is being managed by you, then you have 50 percent share of wallet. I believe that this is the biggest opportunity in Canadian fundraising today. One possible way to view share of wallet could be what percentage of total charitable giving a donor is giving to your charity. While this view is a reasonable option, I think the share of wallet for charitable giving should be much bigger. It should be ‘what is the share of income or share of a person’s net worth that they are giving to charity annually and in their lifetime?’
The reason I would focus on this is that Canadians are giving only 0.52 percent of their income to charity based on the most recent Canadian tax data, and just under 17 percent of Canadian tax filers claim any tax credit for charitable giving in a year.
By definition, a 100 percent of your donors are in the 17 percent category, but what percentage of your donor’s income is going to charity? And more importantly, what about the percentage of their net worth? And what will their estate size be if they doubled their annual gift for the rest of their life?
Of interest, many of your donors don’t know the answers to these estate and net worth questions, but if they did, there is an extremely good chance that they would donate more and increase their donation share of wallet. To get a sense of how a Canadian charity is trying to better understand this, you can visit the North York General Foundation website TriDelta Donation Planner – North York General Foundation. In full disclosure, my firm has helped them put this together.
Below is some data from CRA tax filings. It provides some interesting insight into how donations rise with income, but it still doesn’t touch on net worth.
| Income Segment | Total Number in Segment | Average Income | Number of Donors | Share Who Donate | Average Annual Donations | Donations as a % of Income |
| $100,000 – $149,999 | 3,223,120 | $120,139 | 1,021,160 | 31.7% | $1,971 | 1.6% |
| $150,000 – $249,999 | 1,403,640 | $185,627 | 551,430 | 39.3% | $3,025 | 1.6% |
| $250,000 + | 623,510 | $489,323 | 321,470 | 51.6% | $16,552 | 3.3% |
As an example, we have been working with one donor couple who work hard to keep their taxable income low but will likely be donating well over $20 million in their lifetime. Until recently, their taxable income would have been in the middle bracket below. If they were your donor, knowing their income wouldn’t tell you very much about their giving capacity.
After Tax Cost of Giving
I know that there has been a lot of discussion about gifting shares of public securities, flow through shares and life insurance donations. The reality is that most donors need some meaningful guidance to understand these options and to consider using them.
The ability for a donor to significantly lower the cost of donations can lead to significantly higher total donations to a charity. However, if you don’t have the expertise internally, my advice would be to have a small group of charitable focused advisors that can actively bring that expertise to your larger cash donors.
An article to donors about the topic is good, but it isn’t enough. For this to be effective, a donor needs to sit down and ask every question they can think of. They need to be beyond confident in how these giving options can work, and how they would work best for their personal situation.
As a charity, you don’t want to be reactive on this. You want to educate your donor base and then make it clear that they should be discussing this with their Advisors, and if helpful, you can refer them to an independent professional who can help lead to lower cost giving.
Major Gifts and Legacy Giving Require Solid Estate Planning
As in my second example, many charities do not have the resources or expertise to offer estate planning. Even if they do, there would be conflicts of interest that could prove problematic. Having said that, in my experience, most major gifts and legacy giving come from those who have a detailed estate plan.
If I was running a charitable foundation, I would want to ensure that every one of my $2,500+ annual donors have done an estate plan with a professional who understands charitable giving. I know that is a lofty goal, but in my practice, I have worked with several who might give $2,500 a year to charity before working with us, and after planning they commit to $1 million+ legacy gifts (and larger annual gifts). This type of planning can be done by a variety of planning professionals or accountants, but they need to be true specialists in this space. They exist, you will generally find them among advisors that do meaningful tax work for their clients, especially those with Corporations. There should be a small group of them connected to any charity if they want to do more major gifts or planned giving.
Asking if a donor would be with you if there is a time of need. One of the ways to test out your donor base is simply to ask. I might consider reaching out to individuals who have been an annual donor for the past 3+ years. At whatever level of their giving, I would essentially be asking them if they would be willing to give a much larger amount if there was ever a true time of need. The wording would be whatever works best for you.
For those that say yes, they clearly represent some untapped opportunities and should be moved up your relationship ladder.
Of interest, these four ideas all focus on increasing the energy on your existing donor base. I point this out because, based on my work with clients over the past 25+ years, I believe there is likely some meaningful low hanging fruit there.
The other key theme is partnering with external professionals who have mostly aligned interests. If done well, this really expands the resources and expertise of your charity in significant ways without any extra cost to you. You will notice I stated, “mostly aligned’”. It is important to accept that each of you have a different job, with different goals, however, if you have good partners, all will want to do what is best for the donor.
One last thought
At a time of higher inflation, problems in the overall economy, and tighter budgets for charities, many high-net-worth Canadians have seen their net worth grow to all time highs along with the rising stock markets. While this may not be fair, it means that many of your existing, larger donors are able to give more than they have ever given before. Now might be the very best time for you to help them expand their charitable share of wallet.
Ted Rechthshaffen, MBA, CFP, CIM, is President and CEO at TriDelta Private Wealth. His firm conducts detailed estate planning work with Canadians – including charitable planning. Ted can be reached at tedr@tridelta.ca
