For Guidance, Would-Be Philanthropists Turn to Peers

TROY WILLIAMS, an entrepreneur in health care technology, had no problem in figuring out the type of philanthropy he wanted to do: to give a small group of students at Brigham Young University the same type of full scholarship that paid his way there some 25 years ago.

“For me, it made such a big difference,” Mr. Williams, 44, said. “That was a moment that made a big impact on me.”

But he struggled, he said, with the logistics of philanthropic giving. He didn’t know how to set up a foundation or how to invest the money to ensure that the foundation would continue to have enough scholarship money to pay for eight students a year to attend Brigham Young. And he had to figure out how to navigate Internal Revenue Service rules so that he could give the money directly to the students.

It turns out Mr. Williams’s experience is fairly typical for new philanthropists. In a recent survey of its members, Foundation Source, which provides administrative support to family and private foundations, found that most philanthropists with small foundations do not know the best ways to give effectively.

The report, released on Friday, found that just 12 percent felt comfortable turning to their financial adviser for advice on giving. Instead, they sought out a “philanthropic peer” (35 percent) or asked no one at all (28 percent), preferring to make their philanthropic decisions on their own. Just 16 percent of philanthropists turned to the people who call themselves philanthropic advisers.

“It’s interesting, but not surprising, that the main source is people’s philanthropic peers,” said Robert Chartener, chief executive of Foundation Source. “You might think philanthropic consultants are the best source of information, but they won’t have worked with some of those charities. They won’t have visited the principals and seen the work. Other private philanthropists will have met the people.”

The need for advice is clear, but so, too, is the desire to try to figure out philanthropy on your own. Devon Cohn said she and her husband, whose wealth derived from Google stock, set up a family foundation with assets in the mid-seven figures about a decade ago, but let the money sit there for years because they didn’t know what to do with it.

“We had been academics living on tight budgets,” she said. “We didn’t know how to do good things. We started the foundation so we could put the money away and it wouldn’t be burning a hole in our pockets. It was clear you don’t just multiply the giving you do as a grad student or in your first job.”

Instead of talking to their financial adviser or friends, they took a course offered by The Philanthropy Workshop. She said it helped them define what they wanted to do. “We had no theme or focus,” she said. “We felt like we got hit by the golden meteor.”

Today, some seven years after taking the course, the Cohns’ family foundation focuses on conflict avoidance and education. They recently made their largest grant to build a student center at Ashesi University in Ghana.

The gift was 20 times the size of any of their previous gifts and represented about 15 percent of the foundation’s assets. “At some point, we felt it wasn’t risky enough or satisfying enough,” she said. “We’re scientists — we wanted to know, did we make a difference?”

Going so big on one institution may not be the type of guidance that philanthropic or financial advisers would typically give, which may be why philanthropists ask their friends or no one for advice.

“If you’re a high-net-worth individual, you’re in a bubble, particularly if you’re seeking advice on giving your money away,” said Chris Addy, a partner at the Bridgespan Group, a philanthropic consultant. And part of that is based on fear, he said. “People are going to want to get some of that money.”

This desire for privacy — or concern over exposure — often leads philanthropists to give to traditional outlets, like universities, hospitals and religious organizations. That’s fine, but it may run counter to a foundation’s stated mission.

Mr. Addy said research showed that 80 percent of organizations put social change on their websites as a goal, but only 20 percent of their grants went to those types of organizations. The bulk of the grants went to institutions.

“Giving to an institution has little downside risk and all upside — acclamation of your peers, name on a building,” said William Foster, who runs the consulting practice at Bridgespan. “It’s a 100 percent chance of accomplishing your goal. If you’re doing it in social change, the risks of not succeeding are much higher.”

Mr. Foster added: “Our sense is there is widespread frustration that people don’t know where to put their money to create change in areas they care about. Where do you turn to for advice and how do you get there is the limiter. It’s not the desire.”

Henry L. Berman, chief executive of Exponent Philanthropy, which helps foundations with small staffs and also connects philanthropists, said another issue was determining if the person offering advice is truly qualified.

“No one certifies you as a philanthropic adviser the way you pass the bar or become a C.P.A.,” he said. “I could give you philanthropic advice, but I couldn’t give you legal advice.”

He said experienced philanthropic advisers, however, could offer great value in guiding people to organizations that meet their goals.

When philanthropists with smaller foundations seek out advice, it is often for help on the administrative and compliance issues of giving. “There is a lot of documentation with the I.R.S.,” Mr. Williams said. “It was stuff we knew nothing about. We set up the endowment at the end of 2012, but it took a good year to work through the I.R.S. to get that designation and get it set up.”

He also talked to his financial adviser about giving eight scholarships to students at Brigham Young University versus only two or three at the more expensive University of Pennsylvania, where he did graduate work. “Eight felt better,” he said.

Financial advisers can also be helpful in aligning investments with the foundation’s mission, structuring major gifts and helping with conversations about philanthropy among different generations, Mr. Chartener said.

“When you think about it, it’s a philanthropic decision, but it’s also a financial-planning decision,” he said.

Community foundations can also be a source of advice on a broad range of opportunities. Peter Detkin, a former executive at Intel who was one of the founders of Intellectual Ventures, an intellectual property investor, said he preferred to keep his giving local, which means the Silicon Valley area.

These include the Law Foundation of Silicon Valley, which gives free legal advice to people in the area, and the Humane Society.

But when it came time to find a way to discuss his financial situation with his children, Mr. Detkin bypassed a financial firm and turned to the Silicon Valley Community Foundation, where he has a fund that he uses to make smaller donations, apart from his family foundation.

The Next Generation “programs at these big firms focus on family wealth and not the child and giving,” he said. “They all assume the family foundation will have a certain focus and you’ll just run that. I want my kids to develop their own values. I don’t want them to follow mine.”

As some of these philanthropists are finding, making these decisions, with or without advice, is not easy.