Giving drops despite advisors’ best efforts

Written on Jun 28, 2019

Almost every metric monitored by the Fundraising Effectiveness Project (FEP) decreased during the first quarter of 2019, leading to concerns about the growth of charitable giving for the rest of the year. It mirrors reports from the first quarter of 2018.

Meanwhile, a study by Fidelity Charitable shows that the Tax Cuts and Jobs Act (TCJA) altered how financial advisors are thinking of charitable giving and bringing philanthropy into conversations with clients.

The FEP’s 2019 First Quarter Report, which reviews giving data from January through March 2019 and compares it to the same time period in 2018, found that across the board almost every key metric declined — with the exception of revenue produced by donors giving $250 or less.

 “We’re seeing the exact same situation that we experienced in the first quarter of 2018, right down to the only metric that increased,” said Mike Geiger, MBA, CPA, president and CEO of the Association of Fundraising Professionals (AFP). “What’s so significant about these numbers? By the end of the year in 2018, our quarterly reports showed that the growth in annual charitable giving dropped tremendously, from roughly 8% in 2017 to just 1.6% in 2018.”

Geiger said it is difficult to forecast at this point for the rest of the year, but if the same scenario happens again, growth in giving could continue to drop in 2019, perhaps to the point where overall annual giving actually decreases.

Data in the 2019 first quarter report shows the total number of donors decreased by 5.7% during the first quarter of 2019 compared to the first quarter of 2018, while overall revenue dropped 2.2%. The overall retention rate, a critical metric for charities as it measures the number of donors who continue to give to the same organization from one year to the next, also decreased by 0.9%.

Perhaps the most troubling figure is the number of new donors, which plummeted by 10.5% for the quarter, according to Geiger. The lack of new donors exacerbates another problem for the charitable sector: relying on fewer donors overall for more money. With the number of donors decreasing by 5.7%, but giving revenue dropping by 2.2%, the charitable sector continues to see fewer, typically wealthier, donors accounting for more and more of giving, according to the report’s authors.

Data in the report is based on 90.8 million gift transactions from 4,456 organizations from 21.2 million individuals. Organizations included in the report have raised $5,000 or more from 25 or more donors in each of the last six years. Revenue figures have been adjusted for inflation.

“One of the more interesting findings is that donations from donors giving less than $250 is the only metric to increase in the first quarter for the second year in a row,” said Geiger. “While we don’t have any hard data to suggest why this continues to occur, one possibility is that donors who give smaller amounts are less influenced by tax concerns at the end of the year. Many may wait to see what their financial situation is after the holidays and then decide to make ‘year-end’ gifts in January and February.”

The figures show that almost 30% of all donor transactions occurred in the first quarter of the year during 2018, although the revenue from those gifts only accounted for 20% of the annual giving total.

On the other end of the giving spectrum, according to Fidelity Charitable, advisors are increasingly embracing and promoting charitable strategies to their clients. Nearly half of advisors report that following more than 10 years of a bull market and a major overhaul of the tax system, many or most of their clients adjusted their charitable giving strategy in response to tax reform. Specifically:

- 47% of advisors say that many or most clients increased giving overall due to the loss of other deductions

- 46% say they established a donor-advised fund (DAF)

- 46% say they donated appreciated securities to maximize deductions

- 44% say they employed a bunching strategy to maximize charitable deductions

In the wake of tax reform, advisors have adapted their recommendations and increased their conversations with clients about charitable planning. More than one-third of advisors recommended that the majority of their clients adjust their charitable giving strategy post-tax reform. Additionally, advisors seem to have recognized that charitable giving has become a more prominent part of providing holistic financial and wealth management services and are having more philanthropic conversations with their clients. Since 2015, the number of clients with whom advisors discuss giving has risen from 46% to 58%.

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