Personal Gains Can Mean Losses for Charity

Charity fund raisers are not the only ones who sometimes benefit personally from relationships with

wealthy donors. Often financial advisers and others reap personal gains, and charity ends up as the loser.

Wayne Olson, associate director of planned giving at the University of Richmond, says that a gift annuity he tried to help a donor set up in his previous job at one of the nation’s largest health charities was “hijacked” three years ago by the financial adviser to the donor, a woman in her 90s. (Mr. Olson agreed to talk about the matter on the condition that neither the charity nor the adviser be named to protect the identity of the donor.)

The donor, who had about $2-million in assets, wanted to set up a $200,000 charitable gift annuity that would provide her with $24,000 in annual income, paid in quarterly installments. At her death, the remainder would go to the charity.

Following several conversations with the donor, Mr. Olson says, he and his colleagues met with the woman and her financial planner, who was employed by a well-known financial-services company. At the meeting, the donor told her adviser to move forward with the annuity.

Instead, without telling the donor, Mr. Olson says, the financial planner put her $200,000 into a charitable pooled-income fund offered through his company. (Such funds provide donors with financial benefits similar to those offered by gift annuities.) He then invested the donor’s money in stocks that paid him a commission but lost money, Mr. Olson says. That meant that the donor received no income and the charity ultimately could have received less.

“The pivotal moment came when she called me and said, ‘Where’s my first check on that annuity?’” Mr. Olson recalls. When the donor heard that no gift annuity had been created, he says, she was furious. “She said to me, ‘How could my financial planner do that, especially when I’ve made him the sole beneficiary of my will?’”

The donor’s revelation about her will, Mr. Olson says, “came as a shock.”

Mr. Olson and his colleagues debated whether to tell the financial planner’s employer what the donor said about her will and the creation of the pooled-income fund instead of an annuity, but ultimately decided against it. The donor grew difficult to deal with and increasingly angry at both her adviser and the charity over what had happened. At one point, Mr. Olson says, she seemed to think that the charity might have been involved somehow in her financial planner’s actions, which was not the case. He says that the donor ultimately forced her adviser to take her money out of the pooled-income fund, but he and his colleagues had little stomach for continuing to solicit her for a gift.

“We just thought it was better to walk away from the whole thing,” Mr. Olson says.