2 Fund-Raising Groups Denounce Commission Payments to Gift-Annuity Advisers

Two influential fund-raising groups have joined forces to discourage a national charity from paying commissions to financial advisers who help donors set up charitable gift annuities. The organizations say the practice is unethical — and could lead state and federal regulators to impose new rules on charities that offer gift annuities.

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The full text of the joint resolution

The National Committee on Planned Giving and the American Council on Gift Annuities together issued a statement urging charities to refrain from offering commissions as an incentive for insurance agents and other fund raisers to assist donors in setting up gift annuities. Officials from the two groups said that the measure was aimed at the National Community Foundation, in Nashville, though that organization was not named in the statement.

In creating a gift annuity, a donor gives cash or other assets to a charity and in exchange receives a fixed income for life; after the donor’s death, the charity retains whatever assets are left.

It is extremely rare for the National Committee or the American Council to take a stand against a fund-raising practice conducted by a charity. But officials of the organizations said they became concerned about the National Community Foundation after it placed an advertisement in Trusts & Estates magazine, which is widely read by estate planners and other financial advisers.

The ads offered to pay insurance agents and other financial experts commissions of up to 8 per cent, based on the fair market value of the assets that a donor used to set up a charitable gift annuity.

“You are finally going to get your commissions!” the ad promised. “And it was worth waiting for.”

Officials of the National Community Foundation, which raises money for humanitarian causes and has distributed $4.8-million in grants this year to domestic and overseas groups, said they have paid commissions in about a dozen cases. They said they will continue to do so because commissions are an effective way to compensate experts who otherwise might not take the time to speak to clients about charitable annuities. And, they added, commissions are cheaper than paying salaries to fund raisers that the foundation would otherwise have to hire.

But if commissions are cheaper, they also constitute a worrisome precedent, say some fund raisers. Paying commissions could subject a charity’s gift-annuity fund to regulation by the federal Securities and Exchange Commission, said Terry Simmons, president of Charitable Accord, a coalition of charities that works to promote charitable giving.

Under the Charitable Protection Act of 1995, gift annuities are exempt from such Security and Exchange Commission regulation — as long as the fund raiser receives no commission or other compensation based on the value of assets donated to the annuity, according to lawyers who worked with the S.E.C. to help draft the law. By paying a commission, they said, the foundation could lose that exemption for its own gift-annuity funds, while also inviting federal scrutiny and the possibility of new regulation being imposed on other charitable annuity programs.

Officials at the National Community Foundation, however, said that they disagreed with that interpretation of the 1995 law. They said their lawyers believed that the issue of commissions was irrelevant to the gift-annuity exemption.

The foundation’s practice of paying commissions also disturbs some fund raisers who are concerned about the possibility of increased state regulation. In recent years, state officials who regulate annuities have been trying to decide how best to monitor gift annuities. Last week, the National Association of Insurance Commissioners released two different model laws on gift annuities for the states to consider.

In general, states have held that gift annuities do not compete with the sale of commercial ones — and should therefore be exempt from requirements such as registration and commercial licensing fees.

However, some fund raisers speculate that if charities offer commissions, state regulators will hold charities to those same requirements. That could make it too expensive for many charities to offer gift annuities, they said.

In response, officials at the National Community Foundation said that simply paying a commission is unlikely to cause state or federal regulators to see commercial and charitable gift annuities as identical.

For a free copy of the joint resolution, contact the American Council on Gift Annuities, 233 McCrea Street, Suite 400, Indianapolis 46625; (317) 629-6271.