March 26, 1998 | Read Time: 4 minutes
A revision in the National Society of Fund Raising Executives’ ethics code may cause some charities to miss out unfairly on big gifts, some fund raisers fear.
The change was designed to clarify the society’s longstanding policy against paying or accepting finder’s fees to financial advisers and others who are pivotal in steering gifts to charities. The society expects all 17,000 of its members to follow its code of ethics.
Some fund raisers fear that the new standard may rule out many types of deals between charities and the financial advisers who help their clients make charitable gifts. Those arrangements include:
Allowing a donor’s broker to sell the stock that the donor has given to a charity, thus collecting a commission on the sale.
Permitting a donor’s money manager to continue to manage the donor’s assets — thus earning money from the investment income — even after those assets have been transferred to a charity.
Irwin Brod, chairman of the fund-raising society’s Ethics Committee, would not say whether or not such arrangements would be considered proper under the new standard. But, he says, in response to inquiries from society members, the ethics panel plans to take up the issue at its meeting next month.
The revised standard states that members of the group “shall not pay, seek or accept finder’s fees, commissions or percentage-based compensation for obtaining philanthropic funds and shall, to the best of their ability, discourage their organizations from making such payments.”
The standard, which was approved in November, is substantially the same as the old policy, just with some more specific language, Mr. Brod says. For example, he says, the words “commissions or percentage-based compensation” were added to clarify that those kinds of payments are also considered a type of finder’s fee.
Mr. Brod, who is a fund-raising consultant at Brakeley, John Price Jones in Stamford, Conn., says that above all else the standard is meant to keep financial advisers from “shopping their clients” around to charities. In those cases, the advisers — lawyers or insurance agents, among others — often offer to arrange donations to charities in exchange for a finder’s fee amounting to a substantial percentage of the gift.
“The intent of the revision was to deal with abuses, not to eliminate legitimate business relationships,” says Mr. Brod.
It is those business relationships, say some fund raisers, that help attract gifts to charities. While most agree that outright finder’s fees are improper, they argue that financial advisers should not automatically be cut out of deals involving contributions. If so, the advisers will be less likely to recommend such gifts to their clients, they say.
“The new guidelines may be unduly limiting,” says Barbara McGill, vice-president of development and donor relations at the Pittsburgh Foundation. “We as a field of charitable giving need to look at what harm we may be doing by not accepting that these competent professionals make their living on commissions and fees. We can’t afford to keep providing more disincentives to these people who control a lot of wealth.”
The new rule may also lead some donors themselves to shy away from gifts, says Jack Miller, director of planned giving at the United Way of Allegheny County in Pittsburgh.
Mr. Miller says that his group would have had to pass on a $1-million gift last year if it had not been allowed to keep the donor’s money manager involved in the process. He declined to provide details about the gift but says that it was made by an elderly man who said he preferred to have his own adviser continue to look after his gift.
“As long as there is full disclosure, the donor’s preferences are clear, and the money manager meets other criteria — like the ability to meet benchmark investment returns — what can be construed as unethical?” Mr. Miller asks.
James I. Luck, president of the Columbus Foundation, in Ohio, doubts that the fund-raising society’s revised standard was meant to rule out all the relationships that charities arrange with donors’ financial advisers. But, he warns: “If you implement a restriction that anyone who refers clients can not receive fees or do work for us, then the only people that we could work with would be incompetent, or uninterested, or lack charitable intent.”
The full text of the fund-raising society’s ethics code is available on its World-Wide Web site at http://www.nsfre.org.
