Even after donors have found a cause they want to support, they still need to make strategic decisions about the type of funding they want to provide. Figuring out the objective of their philanthropy can help them evaluate restricted funds, unrestricted funds, and endowments. To more deeply understand each type of giving, SSIR Publisher Michael Voss speaks with Lisa Spalding, partner at The Philanthropic Initiative (TPI), and Stephanie Diamond, managing director of Charitable Planning Strategies at Schwab Charitable. The full transcript of the episode can be read below.
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MICHAEL GORDON VOSS: Welcome to season two of Giving With Impact, an original podcast series from Stanford Social Innovation Review, developed with the support of Schwab Charitable. I’m your host, Michael Gordon Voss, publisher of SSIR. In this series, we hope to create a collaborative space for leading voices from across the philanthropic ecosystem, to engage in both aspirational and practical conversations around the relevant topics at the heart of achieving more effective philanthropy.
So you’re a thoughtful impact-focused donor, and you’ve done your homework and identified some nonprofits that you would like to support. But deciding what type of gift to make can sometimes be as challenging as knowing what cause to fund in the first place. Restricted gifts, unrestricted gifts, endowments, what are the differences and what are the benefits of each type of gift? How can you ensure that your giving is helping to accomplish your overall philanthropic goals, your purpose for philanthropy as it were.
Joining me today to help answer these questions are two speakers with extensive experience serving the donor community. Lisa Spalding is a partner at The Philanthropic Initiative or TPI, and works with clients to increase the impact of their giving through strategic planning, facilitation, in-depth issue research, and design and evaluation of philanthropic strategies and initiatives. Lisa is a seasoned facilitator and convener, having led retreats and trainings for a wide range of foundations and families across the country, focused on planning, succession, governance, and evaluation. She conducts trainings and workshops on engaging the next generation, the power of family philanthropy, finding a focus and exploring your legacy. Lisa also partners with professional advisors to help their clients to reflect on how strategic philanthropy can play a greater role in their lives.
Prior to first joining TPI in 2009, Lisa spent 10 years in the environmental field. She has a master’s degree from University of Michigan’s School of Environment and Sustainability and a bachelor’s degree in Environmental Studies from Oberlin College.
Joining us, as well, is Stephanie Diamond, Managing Director of Charitable Planning Strategies at Schwab Charitable. Stephanie partners with wealth managers and clients on the US east coast to explore and implement charitable planning strategies. She brings more than 18 years of financial services experience, working directly with investment advisors, work that is supported by her background developing educational programs for family offices and advisor practices at Charles Schwab & Company.
Before joining Schwab Charitable, Stephanie served as a vice president at Goldman Sachs. She recently completed training with the philanthropic consultancy 21/64 in developing a philanthropic identity, as well as foundations of family therapy at the Ackerman Institute for the family. Stephanie recently served on the Board of the Madison Square Boys & Girls Club. She holds a bachelor’s degree in Economics from the University of Pennsylvania.
So let me welcome both of you to today’s podcast. And, Stephanie, let’s start off with you. Before we get into some of the deeper questions related to giving, it might be helpful to clarify some of the basic types of gifts that donors can make. Can you explain the differences between unrestricted funds, which are often referred to as general operating funds and restricted or program or project funds?
STEPHANIE DIAMOND: Thank you, Michael. I’ve been really looking forward to this podcast with you and Lisa today. This topic of ways to give is important to our donors, as they have been trying to address the pressing needs, and, at the same time, reflect their values. And so let’s start with that definition.
One way to make a charitable gift to a nonprofit is to have it be unrestricted, and an unrestricted gift allows an organization to use the funding for any of its programs and operations. And the management of the nonprofit has the discretion on how to use these funds, and, typically, they will base it on their spending policy. When a donor makes the gift to the organization, they will indicate that they’re making an unrestricted gift by typically including a note stating that the gift is for general operating support, or sometimes I like to say, wherever it’s needed most.
Alternatively, some donors prefer to fund a special program or a project. The program might be one that a nonprofit creates, but a donor may also create a program or a project in conversation with that nonprofit, and it might be based on what the goals of the donor are, as well as the needs of that nonprofit. And with a project-related gift, the donor then would want to specify that project name along with their gift.
MICHAEL: And, Stephanie, any concrete examples of project funding that come to mind that you thought were particularly helpful for an organization?
STEPHANIE: Absolutely. One was a family that really was looking to fund medical equipment to… take care of cancer. And so they funded a hospital to be able to purchase a piece of medical equipment.
And then another client we had, she was also interested in medicine, but on the research side, and the school that she was funding, the medical school, was interested in doing a research project, hiring a professor. And I know they wouldn’t have been able to do that research project without her funding. And it was something she was really passionate about. And it was really interesting because she actually funded a portion of it, and she wanted to see how the first year went, and then decided to fund a follow-up year, as well.
MICHAEL: So those are some good examples of what program or project funds might cover. Lisa, let me turn to you now, since we’re talking about funding. We’ve often written in SSIR about the idea of the nonprofit starvation cycle with regards to overheads and operating costs. Can you talk a little bit about the importance of providing unrestricted funds to nonprofits and why they’re so crucial in order to avoid that starvation cycle?
LISA SPALDING: Yeah. Thanks so much for having me in this conversation. This is such an important topic. The nonprofit starvation cycle is based on a myth that has been prevalent in philanthropy, that nonprofits should be lean, should be scrappy, should be incredibly efficient, and all the money should be going directly to programs. It’s based on a self-fulfilling cycle, where funders can have somewhat unrealistic expectations about what it actually costs to run an organization, keep it strong and resilient, to achieve its mission, keep it healthy, achieve its goals. And then because there are those unrealistic expectations, nonprofits sometimes feel pressure to conform to them. So they might underinvest in certain vital systems. That means that funders aren’t necessarily seeing the full story, and they’re not learning from the nonprofits about what it costs to have the technology, have the staff training, the HR systems, the recruitment, some really critical things that any organization, company, institution needs to be able to be strong.
So giving unrestricted funds, general operating funds, gives an organization the discretion to allocate funds where they need the most, to invest in things that might be longer-term needs. There’s nothing particularly exciting sometimes about a Salesforce database until you have a really good one, and then you realize the power that can really bring to your organization in terms of its reach, its efficiency, its communication. that’s an example of what some unrestricted funding might be used to support.
MICHAEL: So, Lisa, we’ve talked a lot about the benefits of unrestricted funding, in one of our conversations, you were also sharing a great example with me of how restricted funding can actually be beneficial for an organization. Can you talk to that idea a little bit?
LISA: Yeah, it’s a great question. You know, nothing is one size fits all, and some funders actually go out of the way to ask an organization, ‘Would you prefer unrestricted funding or would you like us to restrict this for any particular reason,’ perhaps it’s a very large institution and there are some team members who are getting ready to run a small pilot project that’s really innovative, and it’s been maybe challenging to make the case internally to have the organization invest in it. That’s a great example of when a funder can step in, provide a restricted gift that really gives them the go ahead to do that work. And that could potentially be the seed that’s planted for a whole new initiative and a whole new way of doing things.
MICHAEL: Yeah. I love what you just said about, it’s not one size fits all and it’s not so clear cut and dry all the time.
We’ve spoken over the past few months with other funders and nonprofits, but I’d be interested in hearing, Lisa, whether you’ve seen any shifts in the types of gifts that donors have been making as a result of the COVID pandemic? For instance, are we seeing an increase in general operating support?
LISA: Yeah, that’s a great question. There really has been a shift. I mean, first of all, there’s been more support there. There’s just has been a tremendous philanthropic response to the COVID-19 pandemic. And there was a lot of dialogue within the philanthropic community about how important unrestricted funding was in that moment where all of us were going home and setting up remote offices. And we were worrying about technology, and IT security, and how our teams are going to be able to do our work and do it differently.
So a few things happened. There was a lot of new unrestricted giving to both current grantee partners that funders are working with, but also to new grantees that were addressing some of the challenges that COVID-19 was revealing and creating. But, also, there was a big movement within the philanthropic community to reach out to grantee partners and say, ‘Hey, you know, that grant I gave you within the last year that was specific to a project or a program, let’s unrestrict it. You do what you need to do right now. You invest it where it needs to go, and then let’s have a conversation, let us know how you’re doing, and we can figure out what else you might need going forward to continue to be resilient, to continue to be adaptive.’
MICHAEL: I think that in other conversations we’ve had, we’ve heard a lot of foundations saying that, this will be an opportunity to see if maybe some of the hurdles that they had put in place for nonprofits, really weren’t proving to be that much better than trying to lower those hurdles and make things more streamlined.
LISA: Yeah, I will say, it really has accelerated a movement that was already underway towards trust-based philanthropy, and stronger relationships and partnerships between those that are giving the money and those that are receiving the money, and just seeing how intertwined the whole system is. And if you think about some organizations that really relied on earned revenue, that was always something that we encouraged to be self-sufficient, to have earned income so that you weren’t fully supported by philanthropy.
A lot of organizations lost that funding stream, and having unrestricted gifts and a lot of trust with how to use those gifts and how to allocate it has helped some organizations survive through this time, and then figure out ‘What’s our new operating model? How are we going to fund ourselves going forward in whatever this new normal continues to be?’
MICHAEL: Absolutely. Stephanie, let me change tracks slightly and go back to something I mentioned in the introduction. Sometimes this can seem a bit overwhelming but I’d like to get to the idea of endowments. Can you briefly explain what an endowment is and how it can help support a donor’s long-term goals?
STEPHANIE: I can. I’m not sure I can do it briefly. It is a term that has a lot of meaning. But in the case that we’re talking about today, the endowment can also be a fund that is very much restricted to a particular program, and so the organization wants to keep those funds separate from its other operating funds at the nonprofit, so it creates something separate for the donors and then in that account, along with those investments, there’s typically a policy of how much will be a payout each year for those programs, and then how much needs to be in as the corpus.
So when a donor wants to actually create a specific program, themselves, the organization may say, ‘Well, for us to name your program or for this to be sustainable for a certain number of years, we require you to set up an endowment of a certain amount with a certain payout rate percentage, so that we know that there will be enough funds to have available for those designated years and to fulfill those programs at a certain dollar amount.’
MICHAEL: When we’re talking about endowments, one of the things that comes to my mind is university endowments. And that started me thinking about the question of scholarship grants. So, Stephanie, we know giving to higher education is one of the largest pools of total giving in the US. So how are donors funding scholarships from their donor-advised fund? Are there any needs or special considerations when they’re thinking about providing scholarships?
STEPHANIE: It’s a great question because this has become such an important topic, and I get asked about scholarships on a frequent basis. And one of the interesting questions, is what’s your objective with your scholarship? Do you actually want to fund a scholarship at a certain university because you have an allegiance to that university, or do you want to fund a scholarship to help a specific population?
And the important thing when it comes to a donor-advised fund is that the money from a donor-advised fund has to go to another 501(c)(3) public charity. In either of those cases, whether you’re funding a university that has its scholarship program or another 501(c)(3) for example, it might be something like the Boys and Girls Club, or there’s organizations like Scholarship America… that will still work. But the scholarship program has to be at that 501(c)(3), and those that are deciding on the students that are receiving those scholarship funds, ultimately, need to be controlled by that organization.
The donor who is funding that program, they may fund into just a general scholarship program, but they also might say, ‘I want to create my own,’ and that goes back to the endowment piece we were talking about before. So if they decide that they want to create their own program, then they can certainly specify qualifications like a major, they can say that they want to fund tuition, as well as books. They can be part of a committee that chooses the recipients, but in order to have the funds come from a donor-advised fund, they can’t be the controlling voice to select that recipient. So they have to be the minority in the actual committee.
And I’ve also learned a lot about what you need to think about like you want to give enough, but you don’t want to spoil the ability for students to also receive financial aid. Additionally, you want to think about undergraduate scholarships, where there is an opportunity to receive financial aid versus graduate scholarships, where in many cases students are getting loans.
So there’s a lot of different, considerations that you want to think about, as well as your objectives and what you’re trying to achieve. And I think it’s always good to work with somebody that understands those considerations when you’re looking to set up your own program versus just putting it into an existing scholarship program at an organization.
MICHAEL: That’s an excellent point. Lisa, Stephanie talked about figuring out what’s your objective with your philanthropy, and then the specific considerations with different types of giving. So thinking of it more tactically, when do you think it’s most useful for donors to seek additional guidance on their philanthropy or their grant-making?
LISA: Yeah, it’s a great question. You know, it’s interesting, donors get input and ideas from so many places, from their peers, from their friends, from people in their community, from their families, spouses talk a lot about philanthropy, from the trusted advisors, maybe their financial advisor that they work with, or some estate planning attorneys. But sometimes there comes an inflection point where they want some additional advice, support, someone to mentor them through things. And that’s often when we at TPI end up hearing from funders.
And related to this conversation, a big question that they often come to us with is, ‘How do I deepen the impact I’m having on these issues that I care about? You know, I’ve been funding for a while, I’ve learned some things, but I’m not really sure what the impact of it has been, and, honestly, at this stage in my life, I’d like to go a lot deeper, and I’d like someone to partner with me on that.’ And that can look like a lot of things. It could be really digging in and learning a lot more about a specific issue that they care about, starting to understand the dynamics within that space, the education, or climate change, certain areas of the arts, disabilities, democracy.
And so to really have someone walk that path with you, and talk to experts, and talk to people in the field to understand who’s doing what? How are they interacting and collaborating? Where are their gaps? What are things that funders aren’t necessarily paying enough attention to? And how can that donor add some real value in that space, so that, five years later can feel like they were part of that field and made an important contribution?
Another thing is that we’ll have donors come to us and say, ‘I don’t really know who’s in a particular issue area that I care about. I’m having trouble finding partners.’ We often help… donors talk to various experts in the field, talk to organizations, dig deep and really understand what about that particular issue is resonating for them and why, and then start to find those potential partners out doing the work that they care about and helping them launch those relationships.
And then a big one is having a co-pilot to help you do that giving, and to help you get a grant proposal, review it, have that conversation with a prospective grantee partner, and really listen and understand what their world is like and how you can best support them, uncover opportunities to make a big difference. Those are some examples of when a donor says, ‘Yeah, you know, I think I’d like to have some expertise along this journey’ either for a short period of or sometimes, to serve as proxy staff.
MICHAEL: Stephanie, let me go deeper with you specifically around donor-advised funds. How can donors reach their giving goals better, or more efficiently or effectively through their donor-advised fund?
STEPHANIE: I definitely think there are a lot of ways that combine this idea of the financial piece and being really tax-efficient, using your best assets, timing, so that, again, you can be tax-efficient with your giving and the most organized.
I think as we’re talking about purpose and thinking about connecting what you hope to achieve and then what the organization also needs, especially as we think about, what’s going on today, the idea that as a donor, I can say I have a purpose as simple as I want to honor someone with my gift, and I can designate that when I recommend my gift from my donor-advised fund. Or I want to do something like create a specific program with an organization, and I can indicate that I’m doing that, and I can give a gift that’s a multi-year gift for a specific program through my donor-advised fund. And then as we’ve been talking about, I can choose to give an unrestricted gift that can be used any way that an organization needs. And, certainly, we have so many donors that recognize that that’s an important way to give and… and a need by so many nonprofits.
Donors tell us that they love this about the donor-advised fund… they get to choose how they are specifying and indicating where their gifts should go, along with the organization that they’re giving to, and then how they want to be acknowledged for that gift. So I think that just within that few clicks of a button and writing those few words, there’s that opportunity to really reflect their goals in that way and connect to the causes that they really care about.
MICHAEL: Well, I think that’s a good place to kind of jump off for my last question, Lisa, to you. Stephanie mentioned support the causes they really care about. You talked about how to go deeper. Any other thoughts on ways that donors can be more involved in supporting the nonprofits while working on issues they care about?
LISA: Yeah, you know, every year it becomes clearer to me how much relationships matter. And my number one advice, particularly, right now, for donors, is to reach out to either the partners that you already support or partners that you’re interested in potentially supporting, and ask them to set up a call, and… and ask them what they’re seeing. And then really, really listen. Like sit on your hands and just listen. Ask them how they’re doing. How are their teams doing? How are the communities that they serve doing? What are they seeing that emerging needs are? What has it been like to have to adapt on an ongoing basis? And how are they approaching planning for the future?
And while they’re doing that, also offer up a little bit of yourself and share what it is that matters to you, and what your interests and goals are, why you sort of found them in the first place. Ask questions. Help them understand the things that you’re trying to learn about. And become really true partners in the work.
LISA: You know, more and more we’re finding that funders are willing to ease up on some of the burdensome paperwork that has been such a strong tradition in philanthropy, and take on some of that work themselves. I’m thinking even just in the last couple of weeks, our team has been doing a reporting process, a new kind of reporting process with some summer youth programs that a client of ours supported. And we’re having one-hour phone calls with each grantee partner to learn about how the summer went, how their organization is doing, how the young people they serve are doing, and how they’re starting to think about planning for next year. And we’re taking all the notes, and we’re formatting and writing up the report for the foundation. And those organizations are sending us anything… any additional things they might want us to know about as a supplement. We encourage them to give us perhaps something that they’ve already created for another funder, or sometimes the phone call was just enough.
And so for our team, we’re putting in the time, and for that grantee, hopefully, it’s just one hour of work for them, instead of who knows how long grantees sometimes have to put into creating a report, specifically a different tailored report in a different format for every funder that they work with.
MICHAEL: I love that idea of sitting on your hands, and listening and learning, and doing what you can’t lower barriers for nonprofits. And I applaud that tremendously.
MICHAEL: I think there’s, obviously, so much more we could keep discussing with regards to how to bring donors into giving, and help them realize their objectives and provide support. Unfortunately, we’re out of time. So I’d like to thank Stephanie, Lisa, both of you, for joining me today.
STEPHANIE: Thank you.
LISA: Thank you so much.
MICHAEL: Thank you for listening. We hope you’ve enjoyed this episode. Please consider leaving us a review on Apple Podcasts or your favorite listening app, as it helps others discover the show. We encourage you to listen to other episodes in the series, as well as other podcasts from SSIR. This podcast series is made possible with the support of Schwab Charitable, who played an important role in the selection of topics and speakers. For important disclosures and a transcript of this episode, visit SchwabCharitable.org/ImpactPodcast.
