Cayce Powell: What if the financial future of your organization depends on support from people you have visited only once, if ever? Would that change your focus? In today's episode, Russell and Eddie dig into the uncomfortable math behind major gifts. Why the donors most likely to transform your organization are typically the ones most fundraisers spend the least time with. I'm Cayce Powell, President of Thompson & Associates, and this is the Fundraising Pair-a-Docs Podcast, where the science and the real-world experience of major gift fundraising collide and reveal the same surprising truth. Here's Dr. Eddie Thompson and Dr. Russell James.

Russell James: Well, welcome in, folks. Today we're going to be talking about the idea of having wealth conversations with wealth holders and, understanding a little bit about how that's different than a normal fundraising conversation. Of course, I'm always glad to be joined by my colleague, Eddie Thompson. Welcome in. Good to see you, Eddie.

Eddie Thompson: Thank you, Russell. I'm looking forward to this topic.

Russell James: I want to jump into this because it is such a powerful topic for fundraising, for philanthropy in general. And there's a couple of things that I think cause frustration for me. Okay? Let me explain the first one. The first one is that there are a lot of fundraisers that don't even understand that wealth is not income, that income is not wealth. And I like to explain it this way. Look, you can have really high income and build no wealth. There's famous celebrities and athletes often go bankrupt. You can also have really high wealth and little income. You see the wealthy often buy low and sell never, so they're not reporting a lot of that income. Here is my second source of frustration. I know, and we'll look at some of the data that shows this, that the most powerful concept in fundraising is to have wealth-sharing conversations, not disposable income-sharing conversations. And because I teach in a school of financial planning what I see is we've got two different groups of professionals. We've got financial planners who are super comfortable talking about wealth, but they're afraid to talk about philanthropy. And we've got all these fundraisers, they're super comfortable talking about philanthropy, but they're scared to death to start talking about wealth and assets. Because of that, nobody is talking about wealth sharing.

Russell James: What are your thoughts on all that, the differences between the two and what you see happening?

Eddie Thompson: You know I go back to when we wrote similar dissertations, as I remember, but one of the things I learned was that there's a major difference between asking for gifts of discretionary income, at least the nomenclature I use, and asking for gifts of net worth. When I first got into this industry, I was intimidated by wealth. I'd come out of graduate school. I'd gone to college for 12 years, two master's degrees, a doctorate. We were so poor. I couldn't imagine anybody being wealthy. At least I couldn't... I'd never experienced it. Having that conversation, I felt out of place. Didn't feel like I belonged in that room, like an imposter. Asking for that check was much easier than asking for a gift of net worth because frankly, I wasn't wealthy. I didn't know how it felt, and I think we're intimidated. But I think you're exactly right. Investment advisors, wealth counselors are used to having that topic. Fundraisers run from it, there may be a couple reasons.

Eddie Thompson: One is that we're valued and measured by how much we bring in by year-end. And that's not... If you really want to be successful, Harvard didn't become Harvard because people wrote checks. And I think you're really onto something, Russell. One of the great gifts you've given the industry is getting people to think about major gifts of major assets.

Russell James: Well, and you make a great point there, Eddie, because it is the case that wealth is not held in cash.

Eddie Thompson: That's right.

Russell James: If you are having cash conversations, you're generally having disposable income conversations. Just to kind of give you a few statistics with that using some data from the US Census Bureau, depending on how you define it, between one to three percent of household financial wealth is held in checking accounts, saving accounts, money market deposit accounts, and similar. This is important psychologically. One of the courses that I teach at Texas Tech is behavioral finance. And one of the things that we know from those kinds of studies is that people respond to relative comparisons. They treat money differently based upon what's called mental accounting, where they put wealth in different categories and they treat those separately. When you are asking for cash, my natural psychological reference point is other things I spend cash on, right? What I just spent at Starbucks, right? If we instead ask for a gift from an asset, a non-cash asset, maybe that's stocks or business interests or real estate or, you know, variety of other things. It is psychologically powerful because of two reasons. One, it changes the reference point for the gift. See if I write a check out of my checking account, my disposable income, that's my reference point for what is a reasonable size of gift. But if I am making a transfer of shares of stock out of my stock portfolio, that's a very different reference point, and it's going to change what feels like a comfortable size of a gift. This is a reason why and I'm interested in your thoughts on this. I will tell people, if you've got a donor of capacity who already cares about your cause, the single biggest transformation that you can make with that donor is to get them to consider their wealth, not just their disposable income, as donation relevant.

Russell James: What have you seen in practice related to this idea?

Eddie Thompson: Well I think you've nailed it. Which is better for the donor, to write a check or to give some highly appreciated asset like stock or whatever it might be? Which is better for the donor? And which has the greatest impact? When you shift from writing a check to making gifts of net worth, there's an epiphany for the donor, because most likely they've never been asked to do that, and it's easier, and it's a better return on value for them. They can keep their cash and they can get rid of maybe some stock they've held for a long time. The charity feels the same. The truth is, that's a great entry into giving a gift of major assets. When they make that first gift, it becomes educational. It opens the door for bigger gifts, more institutional changing gifts. And I would be curious, Russell, I know you got a statistic somewhere for this. What happens to a donor who makes a gift of appreciated assets? Does their giving go down as many nonprofits fear, or does their giving increase?

Russell James: Yeah, we've got some good data on this to show just how powerful this is and even the impact over time. I'll give you one example. We did a study looking at over a million nonprofit tax returns from every 501(c)(3) in the country filing, electronically filing their Form 990s. And what we looked is a six-year period to see what predicted long-term contributions growth, so in other words, over five years.

Russell James: And here's what we found. If there's an organization... Now let's say we've got two organizations that are starting out raising the same amount of money, okay? One organization raises 100% of that money from cash. Five years later, they're still raising 100% of that money from cash. On average, that organization's contributions over that five-year period grew 11%. Now, that's the same as the inflation rate. Basically, over five years, cash-only organizations, they're just treading water. Now, you compare that to organizations that are starting out raising the same amount, but they're raising it from both cash and securities. Well, those organizations, five years later, who are still raising their money from cash and securities, their average growth rate was not 11%, it was 66%.

Russell James: That's a six-fold increase. Now, we can see this in other ways. For example, for most donors, honestly, the first time they will ever commit to a gift from their wealth is when they do that in the estate plan. Because one thing I can tell you about a gift in a will, that is not a gift of disposable income. That, that is wealth sharing. And what we see is that after people add charity into their estate plan. The average current giving goes up seventy-seven percent. And what is actually even more powerful about this is that that bump in giving, it's sustained two years, four years, six years, even eight years later. It's like this permanent transformation. Once a donor starts to think of their wealth as donation relevant. We do see some really powerful results from that. And, you know, aside from that, just the reality of you can ask a fundraiser, "Hey, are you interested in a, a big gift?" They'll all say, "Oh yeah, I'd like a big gift." Well, there was a study done by CASE on principal gifts made, so these are the larger gifts made to every level of college or university, from community colleges all the way up to national research universities. And it was just looking at the bigger gifts for that organization. And of those principal gifts, sixty percent didn't include even one dollar of cash. They were entirely asset gifts. The data definitely backs that up.

Eddie Thompson: You know, it seems so a practical suggestion for our viewers and our listeners is I think the way to if you're really uncomfortable with that discussion, you're new in your career, or you've just spent all your time on going after gifts of discretionary income. I think a great way to educate donors is to start with a QCD (Qualified Charitable Distribution) because that's something they've been hearing about. And something we've been educating. That is a great initial gift for a gift of net worth because it's coming out of their retirement accounts. But I think that's the beginning point, not the ending point. We don’t just want to go after QCDs.

Russell James: Right. And one of the things that I would suggest that is super easy to do for fundraisers is just share stories. Now, you already know how to share donor stories. Just share asset donor stories. And if you're saying, "Well, we don't have any of those," they don't have to be stories of your donors. You could just give examples of how donors were able to make a gift, but also to do it smarter, to make a bigger impact because, oh, they got a double tax benefit because they gave an appreciated asset, or they avoided paying income taxes from that QCD, qualified charitable distribution, out of their IRA.

Russell James: This is something anybody can do, is sharing stories. But let me make another suggestion that I think can be really powerful for fundraisers. The idea is we want to actually have asset conversations with donors. We want to have conversations about their assets and for a lot of fundraisers, that can feel super scary. And one of the reasons I think that it feels so scary is that the fundraisers have the wrong destination in mind for the conversation. Let me explain what I mean by this. Oftentimes you will get fundraisers that say “Well I don’t even want to start talking about this because they will me ask some hyper-technical question. This is like passing the CPA exam on the fly.” That fear comes from having the wrong destination in mind. The destination for that conversation is not to be quick with the right answer even if you know the right answer. The destination for this conversation is to get permission to share valuable options at the next meeting.

Russell James: Let me get practical on this. Ultimately, when we're having an asset conversation with a donor, we want to get to a place where we say something like this. "You know, you remind me of another donor. He was in a similar situation. I remember he used some creative planning. It avoided taxes and helped him make a big impact. Would you mind if I put together some ideas for you to look at?" Now, notice two things about this. If you understand that that is your destination, what happens if you get that hyper-technical question? The truth is, you're super happy to get that because that question is a motivation to set up that next meeting, right. I might say, "Oh, that's a great question. Now, I want to talk with some of our technical experts first, so you'll be sure to get all the best options. But I know others in your situation have been able to use some smart solutions here. Would you be willing to get together in a couple of weeks and see some of the different possibilities?" Now, notice what happens here. Two things that make this super powerful. One, when you have the right destination in mind, it de-stresses that conversation. You're not supposed to come up with solutions on the fly. You're not supposed to impress them with your massive tax law expertise. You’re supposed to get the next meeting. Because once you get the next meeting that allows you to do two things. One, once they agree, now you can be super blunt with your questions about the asset. Okay just so I have all the details right, “tell me a bit more about that. When did you buy it, and about how much do you think it's worth? And give me, give me all the details," right?

The other thing is that now you've got time. You can reach out to people you know, experts in the industry that can help you when you say, "Here's the details of the asset. Here's the donor. Here's the things they care about. What ideas do you have?" That's the recommendation that I have that I think can de-stress that conversation a little bit. What are your thoughts on that approach?

Eddie Thompson: Perfect. I think you've been through our solicitation training. That's exactly how we approach it. We ask, "Would it be helpful to make this gift out of appreciated assets?" because I want to ping them to see where they are as far as their wealth accumulation. And then I always... The goal is the second meeting. The goal is to come back, and the way I phrase it, "You know, that is really interesting. Do you mind if I go back to the quiet space of my office and do some research? And let me come back." And I try to go ahead and schedule. The second thing, Russell, I tie to that, "Would it be helpful to make this gift in memory or honor of someone?” I know that you've recently lost your father or, or your mother," whatever it might be. I have found that helps solidify the gift. You tie it to something that's emotional. So in every meeting, I want them to feel something, learn something, and do something. I want to tag with that, the technical expertise, the emotional part of it as well.

Russell James: You know, that's so powerful. And what you're talking about there is an interesting entry point because you're talking about a donor who is already thinking about making a gift, or maybe they've already decided to make a gift, and now you are taking that extra step to shift them from the cash mindset to the asset mindset. And in fact, you could do this... Let's suppose, look, let's suppose you've got a donor who's already made a pledge, right? You could actually pick up the phone, or if you meet them at an event, and you could say, "I noticed your last pledge payment that you paid that with cash. A lot of our donors giving at your level, they like to make their gifts with appreciated assets instead of cash because they get a double tax benefit. Is that something you've ever thought about doing?" Now, notice how safe and soft and comfortable that is for the donor. You're not asking them for another gift. You're not asking them for more money. You're asking them to make the gift in a way that is better for them, that is smarter for them. Now, don't tell your CFO you're doing this because, she might say, "Uh, no, we just want the cash. We don't want to deal with assets." But you understand two things. Number one, you are supposed to be there as the donor's helper, and this is how you can help them. And number two, you know that it is massively beneficial for your nonprofit long term to shift the donor into the wealth-sharing mindset rather than disposable income sharing.

Russell James: Now, I want to mention a different entry point into the conversation. Let's suppose you're talking with a donor. They've not made a gift, so we're not talking about now how the smartest way to make this gift. They're not even close to that point in the process, the development process. How do we, in a social setting or other setting, just open up a conversation about the donor's assets? And let me share with you what I recommend, and I'm interested in your thoughts on this. What I want the fundraiser to understand is that what you're trying to do is to elicit from the donor the past, present, and future asset story. Now, now look, assets have stories, and donors who are wealth accumulators, they spend a lot of their time focused on wealth management, asset management, and they have life stories that go along with those assets, and many of them are very interested in sharing about those life stories. Now, let me walk you through, like, what that might be. It could be something as simple as starting out a conversation with, you know, "How's business?" or "How's the market been treating you?" But ultimately, we can go through this past, present, and future sequencing. So, you know, maybe, "Well, what's the story of your business? How did you get started?" Right? That's the past. "Well, what are you most excited about at the current time? Any challenges?" Right? We do the past and the present to get to the punchline. The punchline is the future question. "What are your future plans for your business?" And the reason that's the punchline is, and Eddie, I'll give you a bit of a spoiler alert, there's only two answers to that question.

They're either going to sell it or they're going to die with it. That's it. And both of those are excellent opportunities for charitable planning. So let's say they say they're going to sell it, right? We'll ask about that. "Well, what would that mean to you? Have you thought about using the sale or transition of your business as an opportunity to achieve some of your charitable goals in addition to your financial goals?" Or if they're not going to sell it, then they're going to die with it. Well, you know, ask about that. "Oh, so will your heirs continue running the business? Uh, I know there are some smart ways to avoid taxes for people like you who want to include a gift to charity in their plans. Have you ever considered that?" Now, I've given that example of talking about a business, but you can do this with any asset, right? We can ask about, "Are you a collector, art, stamps, coins, et cetera? What's the story? How did you get started? Oh, do you invest in real estate? How did you get started? Where do you vacation? Do you own a home there?" So again, the idea is to ultimately just get from the past to the present to that charitable future. You know, "Have, have you considered making gifts with assets instead of cash?" Eddie, what are your thoughts about eliciting that kind of a conversation with the donor?

Eddie Thompson: Well, you're actually asking permission to provide them greater information, in reality helps them. Again, this is you're providing a service to them that helps them achieve their goals and objectives. And I think you're exactly right. There's only two answers, they may be conflicted on which one's best. It may be the circumstance where I remember one donor I was working with who wanted to leave his business to his son, but he was fearful on whether or not his son had the ability to manage that business. And it gets you into deeper conversation and you become a helper. And I love, one of the things I love about your approach Russell which I find incredibly practical. Is that great fundraisers as questions, and then listen. I believe every donor has some problems that we can help them with. They have challenges, we have answers. The great thing is that if you really can do a great job in working with them and their heirs, you may have the next generation of donors as well. I find philanthropic people have philanthropic heirs, if you develop that relationship. I think you’re right on target, and again, asking probing question that are thoughtful “you got a plan for this” you have to practice it before you go into the meeting, but its really important we have these type of conversation. We have a podcast somewhere Russell we talked about how to convince CFOs to invest in this effort and we have to start speaking their language, as we also have to speak the language of our donors.

Russell James: Very, very powerful. Well, Eddie, I think we're about out of time for, this episode, but it's been great to talk with you about some of these ideas on how to open up that wealth sharing, that asset sharing conversation, with, donors. Thanks everybody for joining. I hope some of this has been helpful for you, and looking forward to seeing you next time.

Cayce Powell: That's a wrap on episode four of the Fundraising Pair-a-Docs podcast. If you walk away with only one thing from this episode, I hope it's this: . Remember to explore the free resource library assembled by Dr. Russell James at encouragegenerosity.com. And explore the Thompson & Associates website at ceplan.com. We'll see you in our next episode.