Thought Leaders: Philanthropy
Schwabification of Philanthropy
Carla E. Dearing
02/01/2007

Competition in the philanthropic marketplace has lowered prices for donor-advised funds and improved the online services that make them easier to use, both of which have helped spur their rapid growth. This has substantially increased the number of wealthy Americans making philanthropy a conscious component of their financial planning. That’s the good news. The bad news is that the market has not responded to this growth by providing tools that engage this demographic more deeply.

Today, donors bring increasing expectations to their philanthropy, including the need for complete information, varied opportunities for involvement and full accounting of outcomes. As a result, a new philanthropic strategy is emerging. In a nutshell, it concerns itself with the question: What does it take to leverage limited charitable resources in ways that address the overwhelming needs we face as a global community? For many individual donors, it includes the question: How do I apply the same level of savvy that enabled me to amass wealth in the first place to my charitable giving?

In theory, foundations should be obvious allies for donors who want to develop their own philanthropic strategies. According to the Foundation Center, the U.S. is home to more than 67,000 grant-making foundations, which gave away $31.8 billion in 2004 alone. This group has honed approaches to address diverse challenges and communities over many decades. While foundations have undoubtedly produced great triumphs, they have also produced mistakes that neophytes could avoid. Unfortunately, even the best foundations tend to operate in tightly closed systems where such comprehensive information sharing is not valued.
 
Over the past five years, Community Foundations of America has been working with a handful of foundations to capture information about the impact of their grants and grantees in ways that can more deeply engage donors. Among other things, we have learned that determining the success of individual grants is costly and time-intensive.

I have heard countless reasons why the charitable marketplace cannot be driven by user-friendly, well-packaged, relevant, searchable data sources and analytics that high-net-worth donors could use to inform their charitable strategy. But mark my words: This market void will be filled, because wealth management providers and savvy public charities are coming to understand that it is absolutely essential to their value equation.

Ironically, the blueprint for how philanthropy will serve affluent donors tomorrow comes from financial services models as we know them today. At the risk of oversimplifying, I would boil it down to two components:

The “Schwabification” of Philanthropy: It is only a matter of time before some entrepreneur or institution takes a page from Charles Schwab and empowers people with information in the philanthropic marketplace. While the Fidelity Charitable Gift Fund and its imitators are making donor-advised funds cheaper, the next round goes to the company whose infrastructure delivers real value to philanthropic strategists. Schwab revolutionized the financial market by disintermediating stockbrokers, who had been able to charge high prices by hoarding information. Look for the same principles to apply, especially within public charities.

New entrants to the philanthropic marketplace that could expand to scale using this model include GlobalGiving, which provides giving opportunities from 262 intermediary partners, and DonorsChoose, which matches project needs posted by public school teachers in five local markets with donors willing to directly fund those needs.
 
Goldman Sachs-style Philanthropy: As we know from watching the Schwabification of the financial services industry, there will always be demand for value-added intermediaries. If, for example, you want to know where the best deals are being made, you go to Goldman Sachs. The same will become true for players in the philanthropic market that add unique value by demonstrating better investment processes, research and relationships. Such guidance is imperative for larger charitable investments. A handful of leading community foundations and other public charities, such as the Acumen Fund and the Tides Foundation, have begun retooling to focus on these value-added elements, but the dominant player has yet to emerge. 
 
Together, these models create the potential to scale meaningful donor engagement among a greater portion of the 430,000 households in this country now worth $10 million or more. For my money, the future of philanthropy can’t come a moment too soon. 

Carla E. Dearing is the president and CEO of Community Foundations of America, a national nonprofit based in Louisville, Ky., that works to enhance the scale and impact of philanthropy.