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Deborah Kaplan Polivy: The Time For Endowment Building Is Now
That’s Deborah Kaplan Polivy’s new book. She’s with me to explain why that title is a simple truth.
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Transcript for 564_tony_martignetti_nonprofit_radio_20211025.mp3
I was just going to commend you, you were one of the few people that have pronounced it correctly. Good for you. [00:01:56.24] spk_1:
Oh, good. Thank you very much. All right. Deborah Kaplan Pahlavi ph D consultant and author. Her third book published in 2021 is the time for endowment building is now Why and how to secure your organization’s future. She’s been a frontline endowment fund raiser researcher, university teacher. She’s trained numerous boards and development professionals to achieve fundraising success. Her consulting practice is at Deborah Pahlavi dot com. Welcome to the show, Debbie, [00:01:57.74] spk_0:
thank you. My pleasure [00:02:10.24] spk_1:
to have you on nonprofit radio Yeah. Endowment the title of the book end out the time for endowment building is now why is that So [00:02:44.54] spk_0:
Well, we’ve all heard about the transfer of wealth uh, from baby boomers to whomever baby boomers choose to transfer their wealth to. And if we don’t capture that money now there is going to be, I don’t know, very little opportunity in the future. People are my age and younger, older are dying. We’ve made more money, particularly in the stock market and real estate than ever before. And if not for profits work hard. They can certainly do a good job in capturing this money for their own sustainability. [00:02:56.24] spk_1:
This transfer was originally documented by two, two professors at Boston College Havens and Schervish. Right, [00:03:00.57] spk_0:
yes, [00:03:19.74] spk_1:
I’ve had paul schervish on the show. I don’t know, I don’t know Professor Havens um say a little about you know, just summarize you you, by the way I admire as a former tony I love all your footnotes and thank you for putting them at the end of a chapter and not end notes at the end of a book where I have to flip all the way back there. Thank you for deciding to put footnotes at the end of each chapter [00:03:22.55] spk_0:
and author. An author makes no decisions. I have to, that’s what the publisher did not. Alright, well my graduate it, [00:03:32.34] spk_1:
my gratitude to them, I appreciate either the bottom of the page or um or the end of a chapter. So you you cite havens and Shellfish just say a little about their, about their research, the magnitude of this wealth transfer and, and we’re, you know, the trillions of dollars that were anticipated to see and we are starting to see, [00:04:54.14] spk_0:
right? Yeah. I’m not as familiar with their actual research. I’m quoting like other people quoted them when I began this book. It really wasn’t about the transfer of wealth. It was about trying to get people away from the language of planned giving toward endowment development. And then when I began to read and do my own research, I came across this study. I had heard about it years ago, but I was refreshed and doing or the research for this book and I realized that the timing was the factor. It wasn’t necessary, the language. It was, hey guys, and they say in their conclusions, nonprofits are going to get a lot of money from this transfer and then they say, if not for profits, work harder and are more aware and don’t do it in a serendipitous fashion, but do it in a very conclusive weigh in the decision making way that they’ll do a lot better than they ever imagined. And so that’s their conclusion. And I incorporated it in my book and in the book’s title. [00:05:11.14] spk_1:
And wasn’t the magnitude of that, something like 50, $59 trillion dollars [00:05:17.64] spk_0:
or nine trillion somewhere somewhere in that I have The numbers, but it’s 57, It doesn’t matter. It’s a lot of money, right? [00:05:25.01] spk_1:
What’s $2 trillion between friends? All right. It’s not in the thirties? It was I thought so. There was 50 59 you know, [00:05:31.54] spk_0:
hi [00:05:32.62] spk_1:
double high double digits of trillions of dollars. [00:05:49.04] spk_0:
And that was before the huge increase in the stock market and the huge increase of what’s happened in terms of asset value because of Covid. So the money really as you’re you’re right, who knows what we’re talking about? [00:06:42.44] spk_1:
Yeah. Yeah. Their research was like early 2000s was 1990s, early 2000. So it’s at least 20 years old. And yeah, the way the way asset values have increased since then I mean, I don’t know what you’re talking. A $100 trillion dollars from baby boomers to the next generation. I don’t know. But It’s huge. Even even if it was flat, it would still be 59 trillion, which is enormously big. So, uh, you know, as we as we sit here today, uh, Congress is debating whether to spend $1 trillion 20 times the order of magnitude, the larger end of that scale. So that spectrum, So a lot of money, let’s leave it at [00:06:43.78] spk_0:
that. You’re with that observation when you compare it to the congressional numbers. [00:06:59.54] spk_1:
Yeah. You know, the magnitude is enormous. Um All right. So let’s talk about, uh, types of endowment. Can we, can we make sure everybody’s got a baseline understanding of quasi versus permanent endowment. Can you take care of that for us please? [00:08:34.94] spk_0:
Yes, a permanent endowment is that in which money is invested and there is a spending policy. In other words, a certain percentage is distributed every year. The donor, according to the law, the donor determine what goes into a permanent endowment. The donor decides, hey, I don’t want my money spent today. I wanted to go into the permanent endowment and I have set up my gift and the verbiage in my gift accordingly. Now, many donors either are unaware that they have that choice or they don’t choose to put their money into the permanent endowment. So they say, okay, not for profit, you do with my money, what you want. And many organizations will spend that money doesn’t go into any endowment or they’ll put it in what’s called a board directed endowment or a quasi endowment, which means the board can use that money as it sees fit. What happens for the most part when boards pay attention is that they say, okay, we’ll put that money into a quasi endowment or aboard directed endowment, but we need X, Y Z votes in order to take it out. In other words, the board itself makes it difficult to spend that money so that it’s done quite judiciously as opposed to just spent every day and regular expenditures. [00:08:57.14] spk_1:
So we have different thresholds of spending capacity. So in one and we’re gonna flush this out, there’s a state law governing that you cannot spend principle of the endowment without going through enormous hurdles usually, or versus the board being able to approve spending of the principal or some folks, you know, you might call it the corpus. I don’t like to get too technical on nonprofit radio but the principle that, uh, so bored mechanism for spending [00:09:36.24] spk_0:
that, your first example, the law says, if a donor determines, uh, indicates that he or she wants the money or they want the money to go into permanent dominant. This is what the law subscribes. It’s the second one that’s really kind of equivocal because sports have great discretion over what they do with particularly a state. Yes, that come in without any their owner direction. [00:09:42.64] spk_1:
Yeah. All right. Let’s talk about that law a little bit, uh, to the uniform prudent management of institutional funds act. I wasn’t gonna ask you to the site of the acronym, but I like, [00:09:53.55] spk_0:
I can’t even pronounce it. I call it now. But [00:10:21.04] spk_1:
so it’s uniform prudent management of institutional funds acts. But it depends on whether your state has adopted. You have to, if you’re gonna embark on having a permanent endowment, you need to know what your state law says about that because this uniform law is not necessarily adopted in all the states. It was, it was a recommendation, uh, and, you [00:10:22.94] spk_0:
know, I think at this point in time it’s adopted by all states. Yeah. [00:10:28.45] spk_1:
On some states though, [00:10:30.22] spk_0:
modify [00:10:31.23] spk_1:
Based legislature might modify it. So it may not be identical? It’s probably not identical in all 50 states. [00:10:54.64] spk_0:
Right. But for more or less it is identical and it’s don’t correct it. And it was an attempt by state governments to, um, oversee the way in which non profits were using their requests in particular. But other future gifts, [00:10:55.72] spk_1:
endowment money, right? Money is placed in these permanent endowments. [00:10:59.62] spk_0:
Exactly. [00:11:27.04] spk_1:
Uh, you know, the basic state laws basically saying keep your promise correct. You got to keep your promise to the donor. And here’s a law that enforces that exactly forces your promise. Okay, Okay. And then the quasi, the board has some flexibility as you described. And I guess if they want to be very restrictive, then they would say like it takes a three quarters vote or maybe 100%. Maybe every board member has to agree to take money from our principal of our endowment. [00:11:35.74] spk_0:
But there’s a real difference in that in the former, the myth flower the uniform prudent management of institutional funds [00:11:41.29] spk_1:
there. [00:12:37.74] spk_0:
That’s a law Board has great discretion in terms of the board endowment. And that’s where I really focus. My book is hey, board, have you really analyzed what you’re doing with these monies? And do you have policies and guidelines? Do you have a preference whether you want permanent endowment or quasi endowment? And, and the most important thing, I think is once you have really determined what you want, really thought about it, talked about it, have you communicated your preferences to the donor and communicated to the donor? Why you prefer one model versus the other. So I’m really asking for boards to address this issue and not just let it go by as they receive money. [00:12:39.45] spk_1:
Right. Okay. We have an endowment. So we’ll just put it in a savings account. You know, there’s a lot more to it. All right. You said a lot there. We’re gonna unpack some of that first. Doesn’t, it doesn’t have to be one or the other. Couldn’t, couldn’t a nonprofit have both couldn’t have a permanent endowment and a quasi endowment [00:12:59.44] spk_0:
and most do, yeah, it’s time for a break. [00:14:24.54] spk_1:
Turn to communications. Crisis communications, you want to keep turn to in your back pocket so that when you have a crisis or if certainly I’m not hoping it on you, wishing it on you. Not at all. If you have a crisis, then you know, you need to be communicating consistently, but not identically with your employees. You’re bored, donors may be volunteers and possibly the public through the media. Now, all those messages are not the same. I’m sure your board doesn’t get the same message that the public gets. So you’ve got to be consistent, but different right turn to can help you. They do crisis communications. So if you need help in a bad situation, that’s why I’m suggesting you keep turn to in your back pocket, you’ve got something bad has gone down. You need help communicating with all your different constituencies turn to turn to right turn hyphen two dot c o. Now back to the time for endowment building is now. Now in terms of the policies, let’s talk about just how endowments generally both kinds are generally treated right the way the way we spend just a little and you know what, what, what, what do you see there? What are your recommendations around how much to spend each year? [00:15:37.54] spk_0:
There are averages that most organizations use. They come out of national organizations and what have you? I’ve seen them as low as 3% as high as six per 77% particularly during covid times they really increase because people wanted to get more money out to the respective communities and clients patrons however you want to call the users of the monies. Um, but what mostly happens is there’s a rolling average and the rolling average it video rolling average and that allows you or the organization to think about ah ha. We don’t want to take the most one year. When are we have great proceeds asset management. We’ve got great returns in the next year. We have bad returns. So they don’t do it according to the return. They do it according to a percentage and it evens out the kind of money that is going into the budget as opposed to high, low, high, low, high, low this way with a rolling average, you’re much more aware and you can be futuristic in terms of your budget allocations and creation of budgets. [00:17:16.54] spk_1:
So what we’re talking about is, you know, uh, let’s say a small mid sized organization has a $1 million. I like round numbers. They were, they’re easier for me to figure out as a $1 million endowment. And let’s say it’s a it’s a it’s a permanent endowment the way we’re describing. Yeah, it’s permanent endowment. And, and, and in in year one they spend they decided to spend 4%. So then $40,000 comes out of the endowment and that can be used for, You know, there may be restrictions on how it gets used if if people have like named programs that are part of their endowed that are they’re endowed funds, then part of that 40,000 has to go there to honor your promises to those donors. But then other other money may come out and be unrestricted. And so you’re you’re the presumption is that you’re spending less than what you earn Through investment management each year. So maybe you earned seven or 8% in the year, But you spent only 4% in year one so that the balance of what you learned goes back, in Does that sound right? [00:17:53.14] spk_0:
Yes. And the balance of what you were. And so in your example, 3% goes back into the corpus and 4% of the new number because now we’ve grown By 3%. So the next year you get that much more and that’s why it’s a rolling average because the corpus let’s say you don’t make 7% you make 2% and you’re spending 4% then you have a minus number. So the purpose of all of this is to somehow get what you receive every year to be predictable and not go up and down and down and up. [00:18:25.54] spk_1:
That’s a huge advantage to having an endowment. Exactly. You’ll know, you know, you’re trying to diversify your revenue streams and this is another revenue stream for you that you can count on. So when you do have a bad year and you lose money or only earn one or 2%, like you’re saying you still can count on The 4% or 5% whatever your board has determined for that year is going to come out and it will support you in the bad years and you’ll be profiting your end out. You’ll be growing your endowment in the good investment years. [00:18:58.94] spk_0:
But that is also a board decision. The board has to also mhm address that spending policy. It can’t just be, well, let’s see the CFO says this year, we’re going to spend 4% and now gee it’s wrong, let’s spend 5% next year. And so what if it’s going down. So in order to keep that money coming, we’ll do 6% again. The board has to wrestle with this decision making and not just let it be haphazard [00:19:22.44] spk_1:
and a lot of times they, the boards will board will get advice from the investment manager, what, what they predict will happen in the, in the next year or two. Uh, and how confident they are in that prediction, what we’ve learned over the past several years And what that tells us perhaps about the future, you know, so you can the board can get input often from an investment manager and you know, and this applies if you have $100,000 endowment and you’re looking at $4,000 or $5,000 coming out each year. You’re [00:19:37.98] spk_0:
still, you know, it [00:19:49.44] spk_1:
doesn’t matter the scale, the principles that you’re describing are all the same. The board needs to decide. It’s not just Let’s decide in December, what we’re going to take out on January 1st. There needs to be right. There needs to be a board evaluation of this and a policy around how your endowment is treated [00:19:58.24] spk_0:
Exactly 100%. [00:20:47.44] spk_1:
Okay, cool. Um let’s take a little higher level view. You you have, first of all, you have a chapter why we need an endowment or maybe we don’t. And I thought, well, I look back at the title of the book because the title of the book I thought was now is the Time for endowment building. So, alright, But it’s mostly a pro probably 90% of pro chapter. But let’s talk a little about some other advantages and then you you name a disadvantage and maybe maybe I missed other disadvantages in terms of equity across the years but acquainted. So aside from having a steady revenue stream, one of many, hopefully that we can count on through in the year. Why else might we want to have uh, an endowment either quasi or permanent [00:21:54.54] spk_0:
first. Let me go back to that title of that chapter. Do we need an endowment or maybe we don’t or whatever. A favorite chapter in the whole book. And I’m so glad you picked that out because I think that’s a very important issue. Do we even need an endowment with the Sunflower, the uniform prudent investment act there. It says you have to have it at the donor directs it. But what about all this other stuff? Do you really need an endowment? And I always believe you do because you can have a really bad year in the market or you can have donors? You can have a donor who’s really supported you for ages, especially if you’re a small or middle size organization. And all of a sudden that donor either has a bad economic year or the donor can have said, you know, I don’t like you anymore. I don’t like your exact or your development director really insulted me and didn’t handle me well. So you know what you’re done, You’re out of my gift giving. And if you or look at the federal government, it changes its allocations on a regular basis. So if you don’t have an endowment [00:22:14.84] spk_1:
and I just add one more foundation priorities, Foundation priorities change too. Or foundation may agree to fund you for three years and then that’s it. And that’s what they would extend another three years. And but they’re not, they’re keeping to what they said. So foundation can change as well. [00:23:31.64] spk_0:
Any donor. Let’s just look at it as any supporter, whether government, whether private, whether stay, it doesn’t matter can change their minds. And if you don’t have a fallback because it’s going to take time to recuperate the kind of money that you’re losing, then you’re in big trouble. So the endowment provides you with maybe not the total replication of the gift, but certainly it keeps you from losing sleep at night because, you know, as the board and exact that you have a cushion to help you through bad times. The other reason I like endowments. And this was what I always used when I worked with potential donors is we in the not not for profit sphere, particularly for a smaller mid level organization. We have no money for research and demonstration that’s really icing on the cake. And yet it’s fundamental to the work we do. So I like an endowment to give us a little leeway in the kinds of programs that we want to experiment with, I call that money risk taking, it allows us to think about what we’re doing in alternative ways. And if we lose, we don’t succeed. Okay. At least we tried a different pathway or we took took some risks and we’re not always being so safe in the not for profit sector, we have to change the way in which we do things. And an endowment allows us the wherewithal to do so [00:24:04.34] spk_1:
take a little risk. You know, we we we see a different way of doing something or something new that we can try uh $1000 behind a project project. [00:24:31.74] spk_0:
And as you say, hire an investment manager, want to go into some strategic planning or hire a new officer employee to do something in a different way. Anything that we want to do that isn’t in accordance with the way in which we’ve done it over the past. And the domino allows us the leeway to try new things. [00:24:38.14] spk_1:
How about the intergenerational Equity rationale, which cuts both ways. But let’s let’s deal with the pro the pro first you talk about it in the book. [00:27:01.64] spk_0:
Well, intergenerational Equity is really brought up by um Tobin, who is, I forget his first name, who is a Nobel prize winner economist at Yale and what he says is an Endowment provides the same services to the generation today as for the generations in the future. So that’s what’s called intergenerational equity. Well if I go to the Y W. C. A. And I can use the pool or I can have daycare or I can have services because I’m homeless. That those same level of services will be available for the next generation of women because the endowment will be growing and the value of the money will be equal. So that’s the intergenerational equity. Others argue that this generation is going to be richer than the next generation. So why should this generation supply for the future or the opposite? No one really knows who’s going to be richer and who’s going to be poorer. There was some like Henry Hanson who is I think now an emeritus professor at the Yale Law School and it was his work that really got me started and thinking about the economics of endowment and his thinking says, hey look at Harvard Yale, these big universities, these big museums are holding on to so much money in their endowments. Wouldn’t it be better that they spend more today? And some people say, yeah, he’s right. And others say no we have to have intergenerational equity and make sure there is there for the future what’s available today. So you can argue it either way. Um and of course the favorite argument is the impact argument, do we want impact today? Do we want to spend all the money we get today and get the biggest impact today, are we pushing the can down the road and saying, okay, if we don’t spend the money today, we’re just continue waiting the problems down the road. And so what is the impact? So that’s why they’re question is, do we want an undamaged for intergenerational equity or no? Should we spend all the money today and try to solve all our problems today? And that’s a decision that organizations have to make. [00:27:49.54] spk_1:
That was very interesting. I had never thought of it this way before. I read the book that that there are folks who say that uh, preserving endowment is actually, uh, antithetical to intergenerational equity because you folks now are doing what you just said, they’ll be pushing the can down the road, kicking it down the road. You’re you’re not investing enough and you’re you’re forcing the next generation to deal with the problem that you could solve if you would spend more so by spending less and preserving it for us, you’re actually hurting us because you’re levying a problem on us that you probably that, you know, the belief is you have a better chance of solving if you put more money toward it. [00:28:29.04] spk_0:
Exactly. And there’s another issue in this, we keep talking tony about the organisational to organisational decision making, that’s also a donor decision. I dealt with many, many doctors who said I don’t want my money put away for the future? I want to see impact today. So that’s why a board has to discuss what they really want. And once they make that decision, they have to be able to communicate the wise and the wherefore to the donor. But ultimately, it’s a donor decision as to how the gift is made. [00:32:11.84] spk_1:
Let’s talk a little about that donor. That’s, that’s, that’s excellent having these conversations with donors. You know, you said earlier, a lot of times, donors don’t even know that they have the choice to give a gift to endowment. A gift of, uh, yeah, that will last in perpetuity. And listeners, you’re just gonna have to get the book because Deborah talks about the phrase in perpetuity and what she learned about learned about it. But you know, we can’t, we can’t probe everything. Uh, you got, we scratched the surface, you gotta get the book. Um, but let’s say, but it is valuable to talk about, um, well, it’s all valuable to talk about, but we only have so much time. So, uh, your lackluster husted host is choosing to talk about the donor conversation, having, having a discussion with donors about an endowment gift. It’s time for Tony’s take to plant giving accelerator. So here we are talking about endowment building, right? Planned giving can be a great help in building your endowment. Lots of planned gifts come in unrestricted. I encourage you to put as much of that unrestricted money as possible into your endowment. The plan, gifts that come restricted. Those have to go into your endowment by law. So, uh, you could even take the show today. The time for endowment building is now, you could swap out endowment building with planned giving time for plan giving is now, which actually is ironic because something that, uh, Deborah and I are going to be talking about, you’ll hear the irony, just keep on listening. But for now, um, so you want to build endowment plan Giving an ideal for this Playing giving accelerator, I will help you get started in planned giving in 2022. The next class starts in January. I’ll teach you step by step, everything you need to get started. It’s a six month course, used to be a year now it’s down to six months learning exactly the same stuff exactly the same curriculum, but condensed and still only one hour per week, an hour a week. But I’ve taken out some of the free time and aside from learning from me, there’s this incredible peer support and peer learning. The existing class, the current classes existing sounds so jeez, existing sounds so I don’t know, So sterile the existing classes, the current classes, The members right now, you should hear the way they’re supporting each other, helping each other with questions about their board or individual board members. Um, donors, leadership questions. It’s a great supportive community and I have every reason to believe that the january class will be the same supportive. So there’s a lot of peer learning as well as learning from me. So you’ve got enormous support by no means are you on an island starting your planned giving? That’s, that’s antithetical to planned giving accelerator. So if you’d like to check it out, think about joining the january class, it’s all at planned giving accelerator dot com. I hope you will and I hope you’ll be with us if you want to get your plan giving program going next year. I hope youll be with me in planned giving accelerator. That is tony state too. We’ve got boo koo but loads more time for the time for endowment building. Planned giving is now [00:32:21.04] spk_0:
froze. Yeah, [00:32:43.54] spk_1:
we did freeze. Okay. Yeah. I made a little joke about lackluster host and I didn’t see, uh, you didn’t smile, was disappointed, but you’re frozen. So I’ll take that as a, as an, as an implied smile. So please, I’ll maybe I’ll edit this out or maybe not. It’s not really that bad. But talk about that donor conversation regarding an endowment gift. Mhm [00:33:38.84] spk_0:
There are all kinds of donor conversations. The point and I and you read about it constantly in the chronicle of philanthropy is the necessity to have the conversation because oftentimes people make a state gifts and they don’t even talk to The people in the development office. That’s one. So they’re really two conversations. There is the personal one on one conversation with the organization to which the donor is giving the money, but there’s also the printed conversation or the website conversation. And that’s why I feel it’s so important that organizations make the preference and tell donors either verbally or through written material what they want and why. But back to your question on the verbal conversation. Uh huh. I think it’s very important to listen to the donor first. Everybody in this field, you have to listen to the donor and hear what the donor wants and you said something earlier in this interview where I did not interrupt you, but I did. Um, [00:33:54.57] spk_1:
I’m like me. I just did right this second. [00:35:43.24] spk_0:
I did get the chills when you said if the donor has directed where the money goes. I think the biggest and the most important conversation that a donor can have is how they want the money used and the most important usage is unrestricted and what we have to explain to donors is what they sail it. See as a usage today may not even be in the cards in 20-50 years. We may have conquered breast cancer. We may have conquered homelessness. That would be wonderful. But and asked me very, very clear to a donor that they, they have to think broadly in terms of how they want to direct their money if they want to direct their money at all or if they do want to direct their money that they have to have a second purpose, which could be unrestricted if the first purpose becomes obsolete. So I was always the endowment officer, the fundraising officer to try to get the most money to be unrestricted because then we would have the flexibility if we wanted to use it for experimentation or if we wanted to use it for a particular program. And I’m not sure that we talked to our donors in a generic fashion. We listen to what they want. And then we fashioned the gift accordingly as opposed to communicating what this money is really going to be used for over time. And that’s an important conversation [00:35:50.24] spk_1:
about what our programs may look like in the future. Uh, but, but your point that we may not have some programs in the future. [00:36:53.43] spk_0:
Yeah. And you can direct your program, your direct. I remember a woman came to me and said, you know, I wanted to defend. My father was a violinist. I wanted to have an endowment for musical concerts. And the last thing we needed was any more money for musical concerts. We needed money for Children that were challenged and needed some educational programs. And I was real clear to her that that was the need. And I brought in our educational professional and we talked about it and she completely understood and was willing to make the change and educational programming couldn’t go on forever because it changes over time. But it’s broad enough that the function is not restrictive or just broadly restrictive. and her father’s name still went on the named endowment, but it was for something that the community needed as opposed to a program that we didn’t really need it all nor want. [00:37:01.43] spk_1:
And some of that unrestricted money could be put into endowment to, [00:37:05.13] spk_0:
oh, this is the endowment get. [00:37:39.03] spk_1:
Well, that was, yeah, that was, I’m going back to something you said earlier about, um, restricting restricted gifts, you know, being part of endowment, but, but unrestricted gifts, you know, you can put some of that into. I’m always advocating for clients put as much as possible, You know, I understand, you know, and it’s always a tension, of course, there are immediate needs. We got to keep the lights on, we got to pay the rent and the salaries. But you know, can we peel off anything? We peel off 15 2025% and put that into the endowment and, and spend 75% this month. [00:39:02.92] spk_0:
That’s a different conversation. That’s a different conversation. There’s the convert endowment conversation, which is the permanent endowment conversation, which could be through an estate gift, a future gift or a current gift. This woman was making a current gift, which is another issue. We don’t think, I think, um, widely enough about talking to donors about a permanent current endowment gift. So that’s a um, let’s say you have a capital campaign. I always want to peel off a percentage of a capital campaign gift to go into the permanent endowment for maintaining that which we are building because otherwise what happens is you put all this money into the capital into the building. Now, all of your costs have gone up, but you have no wherewithal to maintain those costs and you put the organization at some kind of risk. So it’s a very wide that’s the beauty of endowment conversations. They can be very, very wide. They can be very, very creative. And the less you restrict your fundraisers imagination and your donors imagination, the more impact current and future that a gift might have. [00:39:23.82] spk_1:
Let’s have a little fun with the phrase planned giving. I have a company called martignetti planned giving advisors. I run an online class called planned giving accelerator. But I mean, uh, there may be a common ground or maybe not, you know, that’s fine, but share your, your, the guests. So you go first. You share your thinking about the phrase planned giving. [00:40:23.71] spk_0:
As I said in the book, I never allowed either my staff or hopefully my consultant clients or even a donor to use the word plan giving. We all plan are giving whether it’s our annual distributions or our future distributions. So planned giving as it is perceived or understood by the experts in the field are primarily future gifts. And I, my my my problem with the language is a we all plan our gifts. So it’s a, it’s the phrase is really only for the expert experts in the field. And it’s sometimes more often than not turns off boards and donors because they don’t know what you’re talking about and they think it is so convoluted and so expensive and you need fancy you should excuse me, consultants to help you go through this. [00:40:39.24] spk_1:
You’re a consultant. [00:43:39.50] spk_0:
Yeah. And but I don’t ever use the word plan Giving in my consultancy. I use endowment development. So that’s my first issue with the words Plan Giving. The second issue with it is plan giving is a tool. And what we don’t say is why do we want to use these grand gifts? What is the ultimate purpose of the planned gift? Do we want the planned gift to be used today? Okay, so I’m going to make a quote unquote. I’m going to set up a charitable gift annuity. It’s a future gift when you the organization received the principal after I pass away. What are you going to do with it? So my feeling is that we should concentrate on the use of the tool. What do we want the gift to be used for as opposed to the tool itself? So that’s two, three fancy dancy plan gifts, charitable lead trust, charitable remainder trust? Charitable. What have you trust? Those are going to come to most organizations through a professional advisor. They’re not going to go from the donor to the organization. So I concentrate on the book in the book with what kinds of gifts are easy for an organization to do to pursue where no attorney is needed. And then on the other hand, I think it’s very important to have outside counsel so that if you do receive as an organization, they’re kind of two ways to look at it. If the organization is the trustee of the gift that the professional advisor constructs, then the organization needs an outside counsel to make sure that the organization’s interests are protected through the document. But we don’t need all these fancy attorneys in house and what have you, especially small to medium sized organizations. There are lots of things that they can get current and future endowment gifts that have no relationship to these trust gifts. But again, my my my argument is a, the language is scary to the non professional and even fundraisers get scared by the language so they don’t discuss these kinds of gifts with their donors and ultimately, what is the purpose of the sophisticated, so called tools and what do we want to do with it in the organization? And that comes back to the board discussion. [00:44:39.89] spk_1:
Okay. Yeah. I think we, I think we largely agree. You know, my, my use of the phrase planned giving is exclusive to those who are, I’m not even gonna say plan giving experts because I, I work with startup programs. So they’re not playing giving experts that they may never be, but they can have a, they can have a plan giving program. So I’m talking to folks who are inside nonprofits, but I understand your point to your right and I agree that it’s an off putting phrase for a lot of people. It’s just so well ingrained that my message constantly is don’t be intimidated by planned giving. Debunk the myths of planned giving. Planned giving is not a black box. You don’t, you know, I’ve got five myths, you don’t need an attorney. Like the things you ticked off debunked of top five minutes. You don’t the myth that you need an attorney, the myth that you have to offer complicated gift options, the myth that you have to spend a lot of money. I can’t remember the other two of my own debunked myths, but there’s a lot of mystique and mysteriousness and it does, it absolutely intimidates lots of non plan giving professionals and that those are the folks I’m talking to because I want to start up programs where its [00:45:20.89] spk_0:
endowment building. See again, the plan keeping is the tool, right? It’s that is why that’s my primary Um, complaint is AIDS, the tool. We don’t talk about the purpose of the planned gift, how it’s spent when we actually receive the proceeds a and b. I love Doug whites comment to me, he calls the phrase planned giving calcified. He was using it what 30 years ago. It’s old. It’s time for us to change that. [00:45:37.79] spk_1:
I’ve had, I’ve had dug on the show every time he publishes a new book, I have him on the show. Um, the fascinating one was the Robertson case at was at Yale. It was Yale. [00:45:39.69] spk_0:
I don’t think it was texas, I’m not sure. [00:45:43.17] spk_1:
All right. Maybe wasn’t really there, but it was, it was some time ago. He’s working on a new book now. So when he gets that one out, I’ll have him [00:46:36.88] spk_0:
again. My biggest compliment. tony was when, um, two things happened. I did write him about some of the ideas that I was thinking about and never dreamt. He would reply and he replied in this long, long email and supported everything. And what was even more interesting and what he wrote to me is even with that act that we began this conversation with the uniform prudent management act, that’s in all of these states, there’s so many organizations that don’t even pay attention to it. Even when they get donor designated gifts where the donor says I wanted to go into the endowment, the organization is either unaware of the act or tends to ignore the act. And that’s where I think consultants like you and me have even a larger role is to help the boards come to grips with what they are doing with these monies and what they want to do with these monies. [00:47:11.38] spk_1:
Yeah, It’s a, it’s an important conversation and, and the policies behind it that we talked about. Um, right. I’m, I agree, I agree. We uh, we, I guess what I’m, so you have a few things, you, you have a lot of footnotes to eat my emails with Doug White, you’re crediting Doug White and lots of cases email [00:47:21.44] spk_0:
with White. [00:47:24.48] spk_1:
Uh, he’s a gentleman, [00:47:25.27] spk_0:
he’s a gentleman, he’s starling, he’s the guru. And it was very important to me that he agreed with my arguments because my arguments are not run of the mill. They are outside of what we actually for most organizations actually operate today. And that’s the reason for writing a book because you’re trying to affect change in the way in which the field operates. [00:48:23.77] spk_1:
I would disagree with with you and Doug and playing giving. Being calcified, I would say it’s well known. It has been around for a long time. I had 60, 70 years or something like that back going to Robert Sharp senior, he was an early practitioner, uh, I don’t know who coined the phrase, I don’t know, he claims that, I mean he’s no longer with us, but um anyway, it’s a, it’s a timeworn phrase uh, calcified, Yeah, calcified, overstating, overstating. Its uh, its utility or lack of its lack of utility. I think it’s just a well well well known, well understood phrase, [00:48:33.17] spk_0:
professionals in the field, but not the people that really matters, which is the donor and the board decision [00:48:34.19] spk_1:
maker. That’s where we agree. Yeah, I absolutely agree with, not talking, not putting on your website planned giving options. You know, you [00:48:41.87] spk_0:
suggest a bunch of your professional. I am the director of planned [00:49:18.97] spk_1:
giving because that is an outward facing like that’s an outward facing title. You can know internally that the person works on planned gifts you want if you want to call them them internally, but outward facing. Yeah. Endowment development, long term, long term giving officer. You know, I tend to not like the silos anyway because I think the long term giving officers should be working a lot with the annual giving officer who’s working a lot with the peer to peer fundraiser of course, in some organizations, that’s all one person. Um All right. All right. Deborah, Why don’t you leave us with a little, um, endowment motivation? I think we’ve, you know, I feel like we’ve given a good justice. Uh, you know, but you wrap up with some final words on Endowment. [00:50:14.86] spk_0:
You didn’t warn me about that one. Come on, think about this for a year. You wrote a book about this for for 25 years. You’re going to book, Right? And that’s why I’ve concentrated it on it. And those of my colleagues through the field say it’s about time. You wrote about it because you believe in it so strongly. I believe in endowment is like a retirement fund. If you don’t put away money for the future, you’re not going to have a future and it’s the board’s responsibility to think, yes, we have to worry about today, but we have a responsibility to future generations and future clientele to make sure that this organization is healthy today and tomorrow. And that’s why I think endowment is so important [00:50:21.36] spk_1:
today and tomorrow. If you you see it on all the social networks and the nonprofit communities, sustainability, sustainability, well, if you if you want to live sustainability and [00:50:34.36] spk_0:
and be healthy and be healthy, it’s really not only sustainability but to be healthy and your sustainability to be healthy in your retirement, that’s why we have our iras we want to live a qualitative life and we want to make sure that our organizations have a qualitative future. [00:51:12.36] spk_1:
Mhm irish thought healthy was subsumed and sustainable. I just thought that meant, you know, not just not just starving, getting by, but you know, you’re you’re healthy, just sustainable. So if you want to walk the walk of sustainability, talk about, talk to your board about endowment development, Endowment growth. Do it correctly. And uh the book will help [00:51:15.59] spk_0:
you time [00:51:48.46] spk_1:
for endowment building is now there’s other chap, there’s a great, there’s a case study on a program called Life and Legacy of the Grinspoon Foundation. We didn’t get into that, but there’s a there’s a chapter on that could help you get started um you know, who are your best, your best prospects for for endowment type gifts and more about the titles. Uh and then the jargon. Just that’s the book. And the author of it is Deborah Kaplan Pahlavi, you’ll find her practice at Deborah Pahlavi dot com. And the book, the time for endowment building is now Debbie, thank you very much for sharing. Really [00:51:53.09] spk_0:
enjoyed it. Thank you Tony. It was a fun conversation. [00:51:56.18] spk_1:
I’m glad. My [00:51:57.05] spk_0:
pleasure. Good luck to you And your plan. [00:52:08.05] spk_1:
Giving consultancy. That’s very gracious of you. Thank you. See, and you didn’t say it to snarky either. Just a little bit, got a little bit of a pejorative tone, but I’m willing to overlook it Because it wasn’t, it wasn’t much, is only 10 or 15%. [00:52:10.75] spk_0:
It wasn’t snarking on. I detected a [00:52:14.40] spk_1:
little, we’re gonna play it back. [00:52:15.64] spk_0:
There was a little snarkiness, but it was a small percent. [00:52:44.15] spk_1:
No, no, look, okay, wait, I gotta finish up for our listeners because next week Jeanne Takagi returns with Risk Management Part two. And if you missed any part of this week’s show, I beseech you find it at tony-martignetti dot com. We’re sponsored by turn to communications pr and content for nonprofits. Your story is their mission turn hyphen two dot c o Our creative [00:52:44.64] spk_0:
producer is planned. Meyerhoff shows social [00:52:47.09] spk_2:
media is by Susan Chavez. [00:52:48.83] spk_1:
Mark Silverman is our web guy [00:53:00.95] spk_2:
and this music is by scott Stein, thank you for that information scotty be with me next week for nonprofit radio big non profit ideas for the other 95 [00:53:14.05] spk_1:
percent go out and be great, mm hmm.
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[00:01:00.54] spk_1:
Hello and welcome to Tony-Martignetti non profit radio big non profit ideas for the other 95%. I’m your aptly named host of your favorite abdominal podcast and oh, I’m glad you’re with me, I’d suffer the effects of Takayasu says arthritis if you inflamed me with the idea that you missed this week’s show. The time for endowment building is now. That’s Deborah Kaplan policies new book, She’s with me to explain why that title is a simple truth. I’m Tony state too planned giving accelerator. We’re sponsored by turn to communications pr and content for nonprofits. Your story is their mission turn hyphen two dot C o. It’s my pleasure to welcome Deborah Kaplan Pahlavi and before I continue with her official bio, I should have asked you before we started recording, but you’re suffering a lackluster host. Am I pronouncing your last name correctly?
I was just going to commend you, you were one of the few people that have pronounced it correctly. Good for you. [00:01:56.24] spk_1:
Oh, good. Thank you very much. All right. Deborah Kaplan Pahlavi ph D consultant and author. Her third book published in 2021 is the time for endowment building is now Why and how to secure your organization’s future. She’s been a frontline endowment fund raiser researcher, university teacher. She’s trained numerous boards and development professionals to achieve fundraising success. Her consulting practice is at Deborah Pahlavi dot com. Welcome to the show, Debbie, [00:01:57.74] spk_0:
thank you. My pleasure [00:02:10.24] spk_1:
to have you on nonprofit radio Yeah. Endowment the title of the book end out the time for endowment building is now why is that So [00:02:44.54] spk_0:
Well, we’ve all heard about the transfer of wealth uh, from baby boomers to whomever baby boomers choose to transfer their wealth to. And if we don’t capture that money now there is going to be, I don’t know, very little opportunity in the future. People are my age and younger, older are dying. We’ve made more money, particularly in the stock market and real estate than ever before. And if not for profits work hard. They can certainly do a good job in capturing this money for their own sustainability. [00:02:56.24] spk_1:
This transfer was originally documented by two, two professors at Boston College Havens and Schervish. Right, [00:03:00.57] spk_0:
yes, [00:03:19.74] spk_1:
I’ve had paul schervish on the show. I don’t know, I don’t know Professor Havens um say a little about you know, just summarize you you, by the way I admire as a former tony I love all your footnotes and thank you for putting them at the end of a chapter and not end notes at the end of a book where I have to flip all the way back there. Thank you for deciding to put footnotes at the end of each chapter [00:03:22.55] spk_0:
and author. An author makes no decisions. I have to, that’s what the publisher did not. Alright, well my graduate it, [00:03:32.34] spk_1:
my gratitude to them, I appreciate either the bottom of the page or um or the end of a chapter. So you you cite havens and Shellfish just say a little about their, about their research, the magnitude of this wealth transfer and, and we’re, you know, the trillions of dollars that were anticipated to see and we are starting to see, [00:04:54.14] spk_0:
right? Yeah. I’m not as familiar with their actual research. I’m quoting like other people quoted them when I began this book. It really wasn’t about the transfer of wealth. It was about trying to get people away from the language of planned giving toward endowment development. And then when I began to read and do my own research, I came across this study. I had heard about it years ago, but I was refreshed and doing or the research for this book and I realized that the timing was the factor. It wasn’t necessary, the language. It was, hey guys, and they say in their conclusions, nonprofits are going to get a lot of money from this transfer and then they say, if not for profits, work harder and are more aware and don’t do it in a serendipitous fashion, but do it in a very conclusive weigh in the decision making way that they’ll do a lot better than they ever imagined. And so that’s their conclusion. And I incorporated it in my book and in the book’s title. [00:05:11.14] spk_1:
And wasn’t the magnitude of that, something like 50, $59 trillion dollars [00:05:17.64] spk_0:
or nine trillion somewhere somewhere in that I have The numbers, but it’s 57, It doesn’t matter. It’s a lot of money, right? [00:05:25.01] spk_1:
What’s $2 trillion between friends? All right. It’s not in the thirties? It was I thought so. There was 50 59 you know, [00:05:31.54] spk_0:
hi [00:05:32.62] spk_1:
double high double digits of trillions of dollars. [00:05:49.04] spk_0:
And that was before the huge increase in the stock market and the huge increase of what’s happened in terms of asset value because of Covid. So the money really as you’re you’re right, who knows what we’re talking about? [00:06:42.44] spk_1:
Yeah. Yeah. Their research was like early 2000s was 1990s, early 2000. So it’s at least 20 years old. And yeah, the way the way asset values have increased since then I mean, I don’t know what you’re talking. A $100 trillion dollars from baby boomers to the next generation. I don’t know. But It’s huge. Even even if it was flat, it would still be 59 trillion, which is enormously big. So, uh, you know, as we as we sit here today, uh, Congress is debating whether to spend $1 trillion 20 times the order of magnitude, the larger end of that scale. So that spectrum, So a lot of money, let’s leave it at [00:06:43.78] spk_0:
that. You’re with that observation when you compare it to the congressional numbers. [00:06:59.54] spk_1:
Yeah. You know, the magnitude is enormous. Um All right. So let’s talk about, uh, types of endowment. Can we, can we make sure everybody’s got a baseline understanding of quasi versus permanent endowment. Can you take care of that for us please? [00:08:34.94] spk_0:
Yes, a permanent endowment is that in which money is invested and there is a spending policy. In other words, a certain percentage is distributed every year. The donor, according to the law, the donor determine what goes into a permanent endowment. The donor decides, hey, I don’t want my money spent today. I wanted to go into the permanent endowment and I have set up my gift and the verbiage in my gift accordingly. Now, many donors either are unaware that they have that choice or they don’t choose to put their money into the permanent endowment. So they say, okay, not for profit, you do with my money, what you want. And many organizations will spend that money doesn’t go into any endowment or they’ll put it in what’s called a board directed endowment or a quasi endowment, which means the board can use that money as it sees fit. What happens for the most part when boards pay attention is that they say, okay, we’ll put that money into a quasi endowment or aboard directed endowment, but we need X, Y Z votes in order to take it out. In other words, the board itself makes it difficult to spend that money so that it’s done quite judiciously as opposed to just spent every day and regular expenditures. [00:08:57.14] spk_1:
So we have different thresholds of spending capacity. So in one and we’re gonna flush this out, there’s a state law governing that you cannot spend principle of the endowment without going through enormous hurdles usually, or versus the board being able to approve spending of the principal or some folks, you know, you might call it the corpus. I don’t like to get too technical on nonprofit radio but the principle that, uh, so bored mechanism for spending [00:09:36.24] spk_0:
that, your first example, the law says, if a donor determines, uh, indicates that he or she wants the money or they want the money to go into permanent dominant. This is what the law subscribes. It’s the second one that’s really kind of equivocal because sports have great discretion over what they do with particularly a state. Yes, that come in without any their owner direction. [00:09:42.64] spk_1:
Yeah. All right. Let’s talk about that law a little bit, uh, to the uniform prudent management of institutional funds act. I wasn’t gonna ask you to the site of the acronym, but I like, [00:09:53.55] spk_0:
I can’t even pronounce it. I call it now. But [00:10:21.04] spk_1:
so it’s uniform prudent management of institutional funds acts. But it depends on whether your state has adopted. You have to, if you’re gonna embark on having a permanent endowment, you need to know what your state law says about that because this uniform law is not necessarily adopted in all the states. It was, it was a recommendation, uh, and, you [00:10:22.94] spk_0:
know, I think at this point in time it’s adopted by all states. Yeah. [00:10:28.45] spk_1:
On some states though, [00:10:30.22] spk_0:
modify [00:10:31.23] spk_1:
Based legislature might modify it. So it may not be identical? It’s probably not identical in all 50 states. [00:10:54.64] spk_0:
Right. But for more or less it is identical and it’s don’t correct it. And it was an attempt by state governments to, um, oversee the way in which non profits were using their requests in particular. But other future gifts, [00:10:55.72] spk_1:
endowment money, right? Money is placed in these permanent endowments. [00:10:59.62] spk_0:
Exactly. [00:11:27.04] spk_1:
Uh, you know, the basic state laws basically saying keep your promise correct. You got to keep your promise to the donor. And here’s a law that enforces that exactly forces your promise. Okay, Okay. And then the quasi, the board has some flexibility as you described. And I guess if they want to be very restrictive, then they would say like it takes a three quarters vote or maybe 100%. Maybe every board member has to agree to take money from our principal of our endowment. [00:11:35.74] spk_0:
But there’s a real difference in that in the former, the myth flower the uniform prudent management of institutional funds [00:11:41.29] spk_1:
there. [00:12:37.74] spk_0:
That’s a law Board has great discretion in terms of the board endowment. And that’s where I really focus. My book is hey, board, have you really analyzed what you’re doing with these monies? And do you have policies and guidelines? Do you have a preference whether you want permanent endowment or quasi endowment? And, and the most important thing, I think is once you have really determined what you want, really thought about it, talked about it, have you communicated your preferences to the donor and communicated to the donor? Why you prefer one model versus the other. So I’m really asking for boards to address this issue and not just let it go by as they receive money. [00:12:39.45] spk_1:
Right. Okay. We have an endowment. So we’ll just put it in a savings account. You know, there’s a lot more to it. All right. You said a lot there. We’re gonna unpack some of that first. Doesn’t, it doesn’t have to be one or the other. Couldn’t, couldn’t a nonprofit have both couldn’t have a permanent endowment and a quasi endowment [00:12:59.44] spk_0:
and most do, yeah, it’s time for a break. [00:14:24.54] spk_1:
Turn to communications. Crisis communications, you want to keep turn to in your back pocket so that when you have a crisis or if certainly I’m not hoping it on you, wishing it on you. Not at all. If you have a crisis, then you know, you need to be communicating consistently, but not identically with your employees. You’re bored, donors may be volunteers and possibly the public through the media. Now, all those messages are not the same. I’m sure your board doesn’t get the same message that the public gets. So you’ve got to be consistent, but different right turn to can help you. They do crisis communications. So if you need help in a bad situation, that’s why I’m suggesting you keep turn to in your back pocket, you’ve got something bad has gone down. You need help communicating with all your different constituencies turn to turn to right turn hyphen two dot c o. Now back to the time for endowment building is now. Now in terms of the policies, let’s talk about just how endowments generally both kinds are generally treated right the way the way we spend just a little and you know what, what, what, what do you see there? What are your recommendations around how much to spend each year? [00:15:37.54] spk_0:
There are averages that most organizations use. They come out of national organizations and what have you? I’ve seen them as low as 3% as high as six per 77% particularly during covid times they really increase because people wanted to get more money out to the respective communities and clients patrons however you want to call the users of the monies. Um, but what mostly happens is there’s a rolling average and the rolling average it video rolling average and that allows you or the organization to think about ah ha. We don’t want to take the most one year. When are we have great proceeds asset management. We’ve got great returns in the next year. We have bad returns. So they don’t do it according to the return. They do it according to a percentage and it evens out the kind of money that is going into the budget as opposed to high, low, high, low, high, low this way with a rolling average, you’re much more aware and you can be futuristic in terms of your budget allocations and creation of budgets. [00:17:16.54] spk_1:
So what we’re talking about is, you know, uh, let’s say a small mid sized organization has a $1 million. I like round numbers. They were, they’re easier for me to figure out as a $1 million endowment. And let’s say it’s a it’s a it’s a permanent endowment the way we’re describing. Yeah, it’s permanent endowment. And, and, and in in year one they spend they decided to spend 4%. So then $40,000 comes out of the endowment and that can be used for, You know, there may be restrictions on how it gets used if if people have like named programs that are part of their endowed that are they’re endowed funds, then part of that 40,000 has to go there to honor your promises to those donors. But then other other money may come out and be unrestricted. And so you’re you’re the presumption is that you’re spending less than what you earn Through investment management each year. So maybe you earned seven or 8% in the year, But you spent only 4% in year one so that the balance of what you learned goes back, in Does that sound right? [00:17:53.14] spk_0:
Yes. And the balance of what you were. And so in your example, 3% goes back into the corpus and 4% of the new number because now we’ve grown By 3%. So the next year you get that much more and that’s why it’s a rolling average because the corpus let’s say you don’t make 7% you make 2% and you’re spending 4% then you have a minus number. So the purpose of all of this is to somehow get what you receive every year to be predictable and not go up and down and down and up. [00:18:25.54] spk_1:
That’s a huge advantage to having an endowment. Exactly. You’ll know, you know, you’re trying to diversify your revenue streams and this is another revenue stream for you that you can count on. So when you do have a bad year and you lose money or only earn one or 2%, like you’re saying you still can count on The 4% or 5% whatever your board has determined for that year is going to come out and it will support you in the bad years and you’ll be profiting your end out. You’ll be growing your endowment in the good investment years. [00:18:58.94] spk_0:
But that is also a board decision. The board has to also mhm address that spending policy. It can’t just be, well, let’s see the CFO says this year, we’re going to spend 4% and now gee it’s wrong, let’s spend 5% next year. And so what if it’s going down. So in order to keep that money coming, we’ll do 6% again. The board has to wrestle with this decision making and not just let it be haphazard [00:19:22.44] spk_1:
and a lot of times they, the boards will board will get advice from the investment manager, what, what they predict will happen in the, in the next year or two. Uh, and how confident they are in that prediction, what we’ve learned over the past several years And what that tells us perhaps about the future, you know, so you can the board can get input often from an investment manager and you know, and this applies if you have $100,000 endowment and you’re looking at $4,000 or $5,000 coming out each year. You’re [00:19:37.98] spk_0:
still, you know, it [00:19:49.44] spk_1:
doesn’t matter the scale, the principles that you’re describing are all the same. The board needs to decide. It’s not just Let’s decide in December, what we’re going to take out on January 1st. There needs to be right. There needs to be a board evaluation of this and a policy around how your endowment is treated [00:19:58.24] spk_0:
Exactly 100%. [00:20:47.44] spk_1:
Okay, cool. Um let’s take a little higher level view. You you have, first of all, you have a chapter why we need an endowment or maybe we don’t. And I thought, well, I look back at the title of the book because the title of the book I thought was now is the Time for endowment building. So, alright, But it’s mostly a pro probably 90% of pro chapter. But let’s talk a little about some other advantages and then you you name a disadvantage and maybe maybe I missed other disadvantages in terms of equity across the years but acquainted. So aside from having a steady revenue stream, one of many, hopefully that we can count on through in the year. Why else might we want to have uh, an endowment either quasi or permanent [00:21:54.54] spk_0:
first. Let me go back to that title of that chapter. Do we need an endowment or maybe we don’t or whatever. A favorite chapter in the whole book. And I’m so glad you picked that out because I think that’s a very important issue. Do we even need an endowment with the Sunflower, the uniform prudent investment act there. It says you have to have it at the donor directs it. But what about all this other stuff? Do you really need an endowment? And I always believe you do because you can have a really bad year in the market or you can have donors? You can have a donor who’s really supported you for ages, especially if you’re a small or middle size organization. And all of a sudden that donor either has a bad economic year or the donor can have said, you know, I don’t like you anymore. I don’t like your exact or your development director really insulted me and didn’t handle me well. So you know what you’re done, You’re out of my gift giving. And if you or look at the federal government, it changes its allocations on a regular basis. So if you don’t have an endowment [00:22:14.84] spk_1:
and I just add one more foundation priorities, Foundation priorities change too. Or foundation may agree to fund you for three years and then that’s it. And that’s what they would extend another three years. And but they’re not, they’re keeping to what they said. So foundation can change as well. [00:23:31.64] spk_0:
Any donor. Let’s just look at it as any supporter, whether government, whether private, whether stay, it doesn’t matter can change their minds. And if you don’t have a fallback because it’s going to take time to recuperate the kind of money that you’re losing, then you’re in big trouble. So the endowment provides you with maybe not the total replication of the gift, but certainly it keeps you from losing sleep at night because, you know, as the board and exact that you have a cushion to help you through bad times. The other reason I like endowments. And this was what I always used when I worked with potential donors is we in the not not for profit sphere, particularly for a smaller mid level organization. We have no money for research and demonstration that’s really icing on the cake. And yet it’s fundamental to the work we do. So I like an endowment to give us a little leeway in the kinds of programs that we want to experiment with, I call that money risk taking, it allows us to think about what we’re doing in alternative ways. And if we lose, we don’t succeed. Okay. At least we tried a different pathway or we took took some risks and we’re not always being so safe in the not for profit sector, we have to change the way in which we do things. And an endowment allows us the wherewithal to do so [00:24:04.34] spk_1:
take a little risk. You know, we we we see a different way of doing something or something new that we can try uh $1000 behind a project project. [00:24:31.74] spk_0:
And as you say, hire an investment manager, want to go into some strategic planning or hire a new officer employee to do something in a different way. Anything that we want to do that isn’t in accordance with the way in which we’ve done it over the past. And the domino allows us the leeway to try new things. [00:24:38.14] spk_1:
How about the intergenerational Equity rationale, which cuts both ways. But let’s let’s deal with the pro the pro first you talk about it in the book. [00:27:01.64] spk_0:
Well, intergenerational Equity is really brought up by um Tobin, who is, I forget his first name, who is a Nobel prize winner economist at Yale and what he says is an Endowment provides the same services to the generation today as for the generations in the future. So that’s what’s called intergenerational equity. Well if I go to the Y W. C. A. And I can use the pool or I can have daycare or I can have services because I’m homeless. That those same level of services will be available for the next generation of women because the endowment will be growing and the value of the money will be equal. So that’s the intergenerational equity. Others argue that this generation is going to be richer than the next generation. So why should this generation supply for the future or the opposite? No one really knows who’s going to be richer and who’s going to be poorer. There was some like Henry Hanson who is I think now an emeritus professor at the Yale Law School and it was his work that really got me started and thinking about the economics of endowment and his thinking says, hey look at Harvard Yale, these big universities, these big museums are holding on to so much money in their endowments. Wouldn’t it be better that they spend more today? And some people say, yeah, he’s right. And others say no we have to have intergenerational equity and make sure there is there for the future what’s available today. So you can argue it either way. Um and of course the favorite argument is the impact argument, do we want impact today? Do we want to spend all the money we get today and get the biggest impact today, are we pushing the can down the road and saying, okay, if we don’t spend the money today, we’re just continue waiting the problems down the road. And so what is the impact? So that’s why they’re question is, do we want an undamaged for intergenerational equity or no? Should we spend all the money today and try to solve all our problems today? And that’s a decision that organizations have to make. [00:27:49.54] spk_1:
That was very interesting. I had never thought of it this way before. I read the book that that there are folks who say that uh, preserving endowment is actually, uh, antithetical to intergenerational equity because you folks now are doing what you just said, they’ll be pushing the can down the road, kicking it down the road. You’re you’re not investing enough and you’re you’re forcing the next generation to deal with the problem that you could solve if you would spend more so by spending less and preserving it for us, you’re actually hurting us because you’re levying a problem on us that you probably that, you know, the belief is you have a better chance of solving if you put more money toward it. [00:28:29.04] spk_0:
Exactly. And there’s another issue in this, we keep talking tony about the organisational to organisational decision making, that’s also a donor decision. I dealt with many, many doctors who said I don’t want my money put away for the future? I want to see impact today. So that’s why a board has to discuss what they really want. And once they make that decision, they have to be able to communicate the wise and the wherefore to the donor. But ultimately, it’s a donor decision as to how the gift is made. [00:32:11.84] spk_1:
Let’s talk a little about that donor. That’s, that’s, that’s excellent having these conversations with donors. You know, you said earlier, a lot of times, donors don’t even know that they have the choice to give a gift to endowment. A gift of, uh, yeah, that will last in perpetuity. And listeners, you’re just gonna have to get the book because Deborah talks about the phrase in perpetuity and what she learned about learned about it. But you know, we can’t, we can’t probe everything. Uh, you got, we scratched the surface, you gotta get the book. Um, but let’s say, but it is valuable to talk about, um, well, it’s all valuable to talk about, but we only have so much time. So, uh, your lackluster husted host is choosing to talk about the donor conversation, having, having a discussion with donors about an endowment gift. It’s time for Tony’s take to plant giving accelerator. So here we are talking about endowment building, right? Planned giving can be a great help in building your endowment. Lots of planned gifts come in unrestricted. I encourage you to put as much of that unrestricted money as possible into your endowment. The plan, gifts that come restricted. Those have to go into your endowment by law. So, uh, you could even take the show today. The time for endowment building is now, you could swap out endowment building with planned giving time for plan giving is now, which actually is ironic because something that, uh, Deborah and I are going to be talking about, you’ll hear the irony, just keep on listening. But for now, um, so you want to build endowment plan Giving an ideal for this Playing giving accelerator, I will help you get started in planned giving in 2022. The next class starts in January. I’ll teach you step by step, everything you need to get started. It’s a six month course, used to be a year now it’s down to six months learning exactly the same stuff exactly the same curriculum, but condensed and still only one hour per week, an hour a week. But I’ve taken out some of the free time and aside from learning from me, there’s this incredible peer support and peer learning. The existing class, the current classes existing sounds so jeez, existing sounds so I don’t know, So sterile the existing classes, the current classes, The members right now, you should hear the way they’re supporting each other, helping each other with questions about their board or individual board members. Um, donors, leadership questions. It’s a great supportive community and I have every reason to believe that the january class will be the same supportive. So there’s a lot of peer learning as well as learning from me. So you’ve got enormous support by no means are you on an island starting your planned giving? That’s, that’s antithetical to planned giving accelerator. So if you’d like to check it out, think about joining the january class, it’s all at planned giving accelerator dot com. I hope you will and I hope you’ll be with us if you want to get your plan giving program going next year. I hope youll be with me in planned giving accelerator. That is tony state too. We’ve got boo koo but loads more time for the time for endowment building. Planned giving is now [00:32:21.04] spk_0:
froze. Yeah, [00:32:43.54] spk_1:
we did freeze. Okay. Yeah. I made a little joke about lackluster host and I didn’t see, uh, you didn’t smile, was disappointed, but you’re frozen. So I’ll take that as a, as an, as an implied smile. So please, I’ll maybe I’ll edit this out or maybe not. It’s not really that bad. But talk about that donor conversation regarding an endowment gift. Mhm [00:33:38.84] spk_0:
There are all kinds of donor conversations. The point and I and you read about it constantly in the chronicle of philanthropy is the necessity to have the conversation because oftentimes people make a state gifts and they don’t even talk to The people in the development office. That’s one. So they’re really two conversations. There is the personal one on one conversation with the organization to which the donor is giving the money, but there’s also the printed conversation or the website conversation. And that’s why I feel it’s so important that organizations make the preference and tell donors either verbally or through written material what they want and why. But back to your question on the verbal conversation. Uh huh. I think it’s very important to listen to the donor first. Everybody in this field, you have to listen to the donor and hear what the donor wants and you said something earlier in this interview where I did not interrupt you, but I did. Um, [00:33:54.57] spk_1:
I’m like me. I just did right this second. [00:35:43.24] spk_0:
I did get the chills when you said if the donor has directed where the money goes. I think the biggest and the most important conversation that a donor can have is how they want the money used and the most important usage is unrestricted and what we have to explain to donors is what they sail it. See as a usage today may not even be in the cards in 20-50 years. We may have conquered breast cancer. We may have conquered homelessness. That would be wonderful. But and asked me very, very clear to a donor that they, they have to think broadly in terms of how they want to direct their money if they want to direct their money at all or if they do want to direct their money that they have to have a second purpose, which could be unrestricted if the first purpose becomes obsolete. So I was always the endowment officer, the fundraising officer to try to get the most money to be unrestricted because then we would have the flexibility if we wanted to use it for experimentation or if we wanted to use it for a particular program. And I’m not sure that we talked to our donors in a generic fashion. We listen to what they want. And then we fashioned the gift accordingly as opposed to communicating what this money is really going to be used for over time. And that’s an important conversation [00:35:50.24] spk_1:
about what our programs may look like in the future. Uh, but, but your point that we may not have some programs in the future. [00:36:53.43] spk_0:
Yeah. And you can direct your program, your direct. I remember a woman came to me and said, you know, I wanted to defend. My father was a violinist. I wanted to have an endowment for musical concerts. And the last thing we needed was any more money for musical concerts. We needed money for Children that were challenged and needed some educational programs. And I was real clear to her that that was the need. And I brought in our educational professional and we talked about it and she completely understood and was willing to make the change and educational programming couldn’t go on forever because it changes over time. But it’s broad enough that the function is not restrictive or just broadly restrictive. and her father’s name still went on the named endowment, but it was for something that the community needed as opposed to a program that we didn’t really need it all nor want. [00:37:01.43] spk_1:
And some of that unrestricted money could be put into endowment to, [00:37:05.13] spk_0:
oh, this is the endowment get. [00:37:39.03] spk_1:
Well, that was, yeah, that was, I’m going back to something you said earlier about, um, restricting restricted gifts, you know, being part of endowment, but, but unrestricted gifts, you know, you can put some of that into. I’m always advocating for clients put as much as possible, You know, I understand, you know, and it’s always a tension, of course, there are immediate needs. We got to keep the lights on, we got to pay the rent and the salaries. But you know, can we peel off anything? We peel off 15 2025% and put that into the endowment and, and spend 75% this month. [00:39:02.92] spk_0:
That’s a different conversation. That’s a different conversation. There’s the convert endowment conversation, which is the permanent endowment conversation, which could be through an estate gift, a future gift or a current gift. This woman was making a current gift, which is another issue. We don’t think, I think, um, widely enough about talking to donors about a permanent current endowment gift. So that’s a um, let’s say you have a capital campaign. I always want to peel off a percentage of a capital campaign gift to go into the permanent endowment for maintaining that which we are building because otherwise what happens is you put all this money into the capital into the building. Now, all of your costs have gone up, but you have no wherewithal to maintain those costs and you put the organization at some kind of risk. So it’s a very wide that’s the beauty of endowment conversations. They can be very, very wide. They can be very, very creative. And the less you restrict your fundraisers imagination and your donors imagination, the more impact current and future that a gift might have. [00:39:23.82] spk_1:
Let’s have a little fun with the phrase planned giving. I have a company called martignetti planned giving advisors. I run an online class called planned giving accelerator. But I mean, uh, there may be a common ground or maybe not, you know, that’s fine, but share your, your, the guests. So you go first. You share your thinking about the phrase planned giving. [00:40:23.71] spk_0:
As I said in the book, I never allowed either my staff or hopefully my consultant clients or even a donor to use the word plan giving. We all plan are giving whether it’s our annual distributions or our future distributions. So planned giving as it is perceived or understood by the experts in the field are primarily future gifts. And I, my my my problem with the language is a we all plan our gifts. So it’s a, it’s the phrase is really only for the expert experts in the field. And it’s sometimes more often than not turns off boards and donors because they don’t know what you’re talking about and they think it is so convoluted and so expensive and you need fancy you should excuse me, consultants to help you go through this. [00:40:39.24] spk_1:
You’re a consultant. [00:43:39.50] spk_0:
Yeah. And but I don’t ever use the word plan Giving in my consultancy. I use endowment development. So that’s my first issue with the words Plan Giving. The second issue with it is plan giving is a tool. And what we don’t say is why do we want to use these grand gifts? What is the ultimate purpose of the planned gift? Do we want the planned gift to be used today? Okay, so I’m going to make a quote unquote. I’m going to set up a charitable gift annuity. It’s a future gift when you the organization received the principal after I pass away. What are you going to do with it? So my feeling is that we should concentrate on the use of the tool. What do we want the gift to be used for as opposed to the tool itself? So that’s two, three fancy dancy plan gifts, charitable lead trust, charitable remainder trust? Charitable. What have you trust? Those are going to come to most organizations through a professional advisor. They’re not going to go from the donor to the organization. So I concentrate on the book in the book with what kinds of gifts are easy for an organization to do to pursue where no attorney is needed. And then on the other hand, I think it’s very important to have outside counsel so that if you do receive as an organization, they’re kind of two ways to look at it. If the organization is the trustee of the gift that the professional advisor constructs, then the organization needs an outside counsel to make sure that the organization’s interests are protected through the document. But we don’t need all these fancy attorneys in house and what have you, especially small to medium sized organizations. There are lots of things that they can get current and future endowment gifts that have no relationship to these trust gifts. But again, my my my argument is a, the language is scary to the non professional and even fundraisers get scared by the language so they don’t discuss these kinds of gifts with their donors and ultimately, what is the purpose of the sophisticated, so called tools and what do we want to do with it in the organization? And that comes back to the board discussion. [00:44:39.89] spk_1:
Okay. Yeah. I think we, I think we largely agree. You know, my, my use of the phrase planned giving is exclusive to those who are, I’m not even gonna say plan giving experts because I, I work with startup programs. So they’re not playing giving experts that they may never be, but they can have a, they can have a plan giving program. So I’m talking to folks who are inside nonprofits, but I understand your point to your right and I agree that it’s an off putting phrase for a lot of people. It’s just so well ingrained that my message constantly is don’t be intimidated by planned giving. Debunk the myths of planned giving. Planned giving is not a black box. You don’t, you know, I’ve got five myths, you don’t need an attorney. Like the things you ticked off debunked of top five minutes. You don’t the myth that you need an attorney, the myth that you have to offer complicated gift options, the myth that you have to spend a lot of money. I can’t remember the other two of my own debunked myths, but there’s a lot of mystique and mysteriousness and it does, it absolutely intimidates lots of non plan giving professionals and that those are the folks I’m talking to because I want to start up programs where its [00:45:20.89] spk_0:
endowment building. See again, the plan keeping is the tool, right? It’s that is why that’s my primary Um, complaint is AIDS, the tool. We don’t talk about the purpose of the planned gift, how it’s spent when we actually receive the proceeds a and b. I love Doug whites comment to me, he calls the phrase planned giving calcified. He was using it what 30 years ago. It’s old. It’s time for us to change that. [00:45:37.79] spk_1:
I’ve had, I’ve had dug on the show every time he publishes a new book, I have him on the show. Um, the fascinating one was the Robertson case at was at Yale. It was Yale. [00:45:39.69] spk_0:
I don’t think it was texas, I’m not sure. [00:45:43.17] spk_1:
All right. Maybe wasn’t really there, but it was, it was some time ago. He’s working on a new book now. So when he gets that one out, I’ll have him [00:46:36.88] spk_0:
again. My biggest compliment. tony was when, um, two things happened. I did write him about some of the ideas that I was thinking about and never dreamt. He would reply and he replied in this long, long email and supported everything. And what was even more interesting and what he wrote to me is even with that act that we began this conversation with the uniform prudent management act, that’s in all of these states, there’s so many organizations that don’t even pay attention to it. Even when they get donor designated gifts where the donor says I wanted to go into the endowment, the organization is either unaware of the act or tends to ignore the act. And that’s where I think consultants like you and me have even a larger role is to help the boards come to grips with what they are doing with these monies and what they want to do with these monies. [00:47:11.38] spk_1:
Yeah, It’s a, it’s an important conversation and, and the policies behind it that we talked about. Um, right. I’m, I agree, I agree. We uh, we, I guess what I’m, so you have a few things, you, you have a lot of footnotes to eat my emails with Doug White, you’re crediting Doug White and lots of cases email [00:47:21.44] spk_0:
with White. [00:47:24.48] spk_1:
Uh, he’s a gentleman, [00:47:25.27] spk_0:
he’s a gentleman, he’s starling, he’s the guru. And it was very important to me that he agreed with my arguments because my arguments are not run of the mill. They are outside of what we actually for most organizations actually operate today. And that’s the reason for writing a book because you’re trying to affect change in the way in which the field operates. [00:48:23.77] spk_1:
I would disagree with with you and Doug and playing giving. Being calcified, I would say it’s well known. It has been around for a long time. I had 60, 70 years or something like that back going to Robert Sharp senior, he was an early practitioner, uh, I don’t know who coined the phrase, I don’t know, he claims that, I mean he’s no longer with us, but um anyway, it’s a, it’s a timeworn phrase uh, calcified, Yeah, calcified, overstating, overstating. Its uh, its utility or lack of its lack of utility. I think it’s just a well well well known, well understood phrase, [00:48:33.17] spk_0:
professionals in the field, but not the people that really matters, which is the donor and the board decision [00:48:34.19] spk_1:
maker. That’s where we agree. Yeah, I absolutely agree with, not talking, not putting on your website planned giving options. You know, you [00:48:41.87] spk_0:
suggest a bunch of your professional. I am the director of planned [00:49:18.97] spk_1:
giving because that is an outward facing like that’s an outward facing title. You can know internally that the person works on planned gifts you want if you want to call them them internally, but outward facing. Yeah. Endowment development, long term, long term giving officer. You know, I tend to not like the silos anyway because I think the long term giving officers should be working a lot with the annual giving officer who’s working a lot with the peer to peer fundraiser of course, in some organizations, that’s all one person. Um All right. All right. Deborah, Why don’t you leave us with a little, um, endowment motivation? I think we’ve, you know, I feel like we’ve given a good justice. Uh, you know, but you wrap up with some final words on Endowment. [00:50:14.86] spk_0:
You didn’t warn me about that one. Come on, think about this for a year. You wrote a book about this for for 25 years. You’re going to book, Right? And that’s why I’ve concentrated it on it. And those of my colleagues through the field say it’s about time. You wrote about it because you believe in it so strongly. I believe in endowment is like a retirement fund. If you don’t put away money for the future, you’re not going to have a future and it’s the board’s responsibility to think, yes, we have to worry about today, but we have a responsibility to future generations and future clientele to make sure that this organization is healthy today and tomorrow. And that’s why I think endowment is so important [00:50:21.36] spk_1:
today and tomorrow. If you you see it on all the social networks and the nonprofit communities, sustainability, sustainability, well, if you if you want to live sustainability and [00:50:34.36] spk_0:
and be healthy and be healthy, it’s really not only sustainability but to be healthy and your sustainability to be healthy in your retirement, that’s why we have our iras we want to live a qualitative life and we want to make sure that our organizations have a qualitative future. [00:51:12.36] spk_1:
Mhm irish thought healthy was subsumed and sustainable. I just thought that meant, you know, not just not just starving, getting by, but you know, you’re you’re healthy, just sustainable. So if you want to walk the walk of sustainability, talk about, talk to your board about endowment development, Endowment growth. Do it correctly. And uh the book will help [00:51:15.59] spk_0:
you time [00:51:48.46] spk_1:
for endowment building is now there’s other chap, there’s a great, there’s a case study on a program called Life and Legacy of the Grinspoon Foundation. We didn’t get into that, but there’s a there’s a chapter on that could help you get started um you know, who are your best, your best prospects for for endowment type gifts and more about the titles. Uh and then the jargon. Just that’s the book. And the author of it is Deborah Kaplan Pahlavi, you’ll find her practice at Deborah Pahlavi dot com. And the book, the time for endowment building is now Debbie, thank you very much for sharing. Really [00:51:53.09] spk_0:
enjoyed it. Thank you Tony. It was a fun conversation. [00:51:56.18] spk_1:
I’m glad. My [00:51:57.05] spk_0:
pleasure. Good luck to you And your plan. [00:52:08.05] spk_1:
Giving consultancy. That’s very gracious of you. Thank you. See, and you didn’t say it to snarky either. Just a little bit, got a little bit of a pejorative tone, but I’m willing to overlook it Because it wasn’t, it wasn’t much, is only 10 or 15%. [00:52:10.75] spk_0:
It wasn’t snarking on. I detected a [00:52:14.40] spk_1:
little, we’re gonna play it back. [00:52:15.64] spk_0:
There was a little snarkiness, but it was a small percent. [00:52:44.15] spk_1:
No, no, look, okay, wait, I gotta finish up for our listeners because next week Jeanne Takagi returns with Risk Management Part two. And if you missed any part of this week’s show, I beseech you find it at tony-martignetti dot com. We’re sponsored by turn to communications pr and content for nonprofits. Your story is their mission turn hyphen two dot c o Our creative [00:52:44.64] spk_0:
producer is planned. Meyerhoff shows social [00:52:47.09] spk_2:
media is by Susan Chavez. [00:52:48.83] spk_1:
Mark Silverman is our web guy [00:53:00.95] spk_2:
and this music is by scott Stein, thank you for that information scotty be with me next week for nonprofit radio big non profit ideas for the other 95 [00:53:14.05] spk_1:
percent go out and be great, mm hmm.