Ethics of Fund Development – why it is worth the gains.

Several years ago, two board members, one a Banker the other an Insurance Agent, of the nonprofit I was working for approached me with an interesting concept. Debt Equity financing for a short-term life insurance policy. As it was explained to me – most of us have some leverage for accessing the equity of what may be thought of as a line of credit from unused debt. Simply put, the unused equity of a personal credit limit to pay for a life insurance policy.

We would be able to offer financing through a bank to our donors who wished to support our non-profit (NPO) with a Planned Gift. In this case, Life Insurance with the NPO as a partial or sole beneficiary of the policy that would be paid for over a short period of time.

For example:

Our donor takes out a $5 million life insurance policy, naming our NPO as the beneficiary. The premiums, totaling $50,000 annually, are financed through a loan. The nonprofit services the loan with donations from the donor which come from a term of years loan based on their debt equity and eventually receives the $5 million benefit, less any outstanding loan balance, upon the insured’s death.

Wow! An opportunity to engage donors with a fool proof opportunity to deliver large Planned Gifts to my NPO – what a boon this would be for the NPO, and I would lead the charge to bring in all this unfound revenue…  Hero status, indeed.

After cooling my excitement, I delved deeper into the process. The donor would, basically, take out a loan to finance a life insurance policy which I found out would be sold by the insurance company, just like a commodity. 

Hmm, something was not sitting right. What if the donor became ill, needed emergency assets or their income changed? Things which happen every day. Or worst-case scenario – the terms of the loan are variable and re-evaluated every year and in year two we suffer an economic downturn resulting in an increase in the FOMC rate set by the federal government resulting in an increase of 7 points?

Where would my donor, my friend, be then? My friend who trusts me would have to increase their yearly payment. And if they could not afford it, and the NPO didn’t pick up the premiums – the policy would be terminated.

After taking more time to review the plan with my mentor, we agreed this was not something we would pursue. Perhaps, if it sounds too good to be true … it is.  Sure, a life insurance policy is a good planned gift –but using debt equity to finance it is not.

So how do we sift through the perils of professional fundraising while always remaining true to our Code of Ethics, ourselves and – of course – those whom we serve? Not those who sign our paychecks – those we serve – our donors, our friends.

Building Mission Centric Focus

As a preamble to your gift acceptance policies, you should have a Principles and Practices guide.

This guide should incorporate your mission statement, governance, operations, and donor cultivation/relationship policies. Contained therein:

Commitment to Impact

Never fail to understand that your role is to engage donors with their philanthropic investment. We are not salespeople – we cannot sell a person’s very real and personal philanthropy. We are trusted guides who put forth opportunities which may or may not resonate with donors.

At the core, we are in the business of service. Service to your NPO’s mission, service to your donor’s philanthropic vision and service to yourself in knowing you are in the business of moving the needle – the business of changing the world. You are a Professional Fundraiser.

Transparency and Accountability

We have all seen horror stories about this or that NPO which used funds to pay for exorbitant Executive salaries, lavish events, and private jets to hop about the country. Some very prominent “household name” organizations have had their reputations tarnished of late. All have suffered greatly and continue to struggle as they changed their policies and corrected their unethical practices. When trust is lost it is very hard to regain this foundational element of our work. 

But what about the little things which may erode a donor’s confidence and trust?  Such as slow response times after making a gift, only contacting them when you need another gift, failure to engage them in the progress their gift has made and showing them how, through innovative partnerships with them, you are able to improve your NPO’s reach and effectiveness.

Whereas you are under no legal obligation to disclose an individual donor’s files to them, you may wish to consider making this a policy. Perhaps safely sharing it with them to illustrate your partnership, along with your long list of transparency policies to your donors, might set a precedent.

Create a trend with all the donors you work with in asking permission – it lets them know you work for them, and it builds trust:

• “Do you mind if I take notes about our conversation? It is important that I get this right” ….

  • Circle back at the end of the meeting to clarify important points

  • Always add and edit your notes – immediately – after the visit. Yes, if you don’t, you will forget

• “May I circle back on our conversation with a personal proposal tailored from this conversation?”

• “We have come so far in developing your personal philanthropy. May I come back with three levels of support that I think match your goals?”

• “Is it okay if I call periodically to report on how your philanthropy is moving the needle?”

• “May I invite you to our quarterly meetings with special donors like you?”

Clear concise performance reporting detailing public benefit

Is your annual report clear and does it include ALL performance metrics? Yes – push forward how many meals were served, animals not destroyed at your no-kill shelter, women assisted in your shelter…  But what about your cost per dollar raised? For all your activities? You should be able to publish them. That’s a hard pill to swallow because we all know donors don’t want to pay for utilities, salaries team benefits or … “shhh” - Marketing.  But, if you show the measurable positive outcomes of a well-paid, trained, enthusiastic team you should be fine.

Accountable leadership

Sorry folks, when you signed on to this profession you understood you would meet the most amazing people and you would be a critical component in moving the needle in our society – but, like teachers, you also agreed that you would never get rich.  When spending, think about how you might push that needle forward if you opted for the economy seat instead of business class.

Your C-suite and Board members should be encouraged to engage in the process as the “face of” your NPO and its leadership. You are the Professional Fundraiser but including your leadership in donor contacts helps create value for them.

The inclusion of C-suite and Board members’ personal mission to your NPO and your work is a commitment to you and your profession and helps your donors to understand the process and reinforces the immense value you place on maintaining successful relationships.

Honesty and clarity in all communications

When I sit down to write an appeal, CASE STATEMENT content or marketing piece I always set my mind around one thought – “What would my daughter think of the words I am writing and speaking?”   

This keeps me grounded with absolute focus to be honest and empathetic in my work. My secret . . . make it personal because - it is.

Honesty and clarity. This seems so simple, but why don’t we see it more? Why do we continue to see (and use) the same old tired tactics that fail to engage our donors? Why does our average donor fall off after their third gift? Why are metrics of giving trending down for so many?

A colleague on the service side once referred to my donor communication work as “Poverty Porn.”  I was really puzzled by this comment. My conclusion was this, perhaps, the most important quality we have as professional fundraisers is our ability to tell a story.  This is what we do. We impart stories which show profound need and how our organizations, with help from donor friends, have been able to solve issues and problems and elevate our mission.

But here is the thing, stories are always second hand to some degree. Therefore, we must always be vigilant to ensure that the recipients of our messaging see and hear the same things we impart. And how do we do this?

Get the heck out of your office and go help on the service side! See, feel, smell and touch what it means to be homeless, a victim of abuse, a forgotten child, a teacher who buys classroom materials with her own money, a senior couple who eat one meal a day because the medications which keep them alive are too expensive. 

And then tell the story full of your empathetic understanding and commitment to your organization’s mission and vision. Include the very real parts of the story – in and around your case that asks for support.

For example:

“My friend, Saber Tooth.”

I met Jeremiah Neil, the artist who painted the self-portrait here, in 2011. We were conducting our initial feasibility study for the $2M plus capital campaign for the homeless shelter I was working with.

Jeremiah was an alcoholic and addict who had been living on the streets for over 15 years. When I met him, he had been clean and supporting himself for nearly three years.  He volunteered at the shelter as his way of paying it forward by working with those who were still trapped in the emptiness of their lives on the street.

In listening to Jeremiah, I learned and understood what it was like to be a slave to the next drink or fix. I learned about grief, anger, and hopelessness through the stories he shared with me. He explained the daily priorities of his life in addiction. Wake up and secure – by whatever means – his next drink. Second, maybe, something to eat and third a place to sleep where he would not freeze to death overnight. Addiction was always first and things like self-respect, family, love of himself and others were never attainable.

He taught me what it was like to be oh so very comfortable in lying to yourself first and everyone else later.

And then he told me about hope. After he trusted me, he shared that one night while sleeping in a doorway in which some heat slipped through the crack at the bottom of the door, he awoke to a loving hand placed on his face. He explained that this hand was full of light and love. He opened his eyes and clearly saw not so much an image but a feeling from this “person” that was full of love and acceptance – empathy and understanding but most important . . .  Forgiveness . . .  for all the horrible things he had done.

As he sat up the image, the feeling was gone but he was left with what he described to me as power. Power to take control of his life in fully understanding that he had no control of his life. He knew it would be hard. Harder than anything he had ever done but that he would never be alone again.

Jeremiah entered a rehab program at the shelter and followed the steps needed to change his uncontrollable life. I was there when he celebrated his three years of sobriety and picked up a chip.

My friend who called himself “Saber Tooth,” partially because he had lost most of his teeth but more so, because of the power, agility, and strength he was given that night and proved again, one day at a time. He gave me the painting here as a symbol depicting the destination he had achieved on his tortuous journey. He reunited with his family and was able to hold his grandchildren in his arms – he found love.

He also gave me the understanding and ability – through true empathy – to impart his story in my work to help others who fight addiction and homelessness. I was able to tell the very hard story of what it is like to die on the streets, night after night after night and the hope that some people receive and the personal power to change their lives.  To fully understand . . .  that they are never alone.”

                                                                     ***

“Poverty Porn”? To some, perhaps. To me, truth, honesty through empathy, along with powerful storytelling will move the needle. I am so okay with this!

Avoid exploitative practices

See above regarding Debt Equity Financing of Life Insurance

Partner with a regional mental health organization to create a training program for everyone on your Fund Development team to:

• Recognize signs of dementia due to age

• Recognize signs of a mental health crisis

• Recognizing signs of addiction

• Recognize signs of abuse

Respect for Donors … Always

Dignity leads to empowerment. Empowerment of your donors through respect equates to your success. Four words, Respect for Donors – ALWAYS, which, if practiced, is all you really need to be successful in your career.

Respect that you are an intermediary who connects a person’s feelings for improving our world, under their terms, with - if you prove merit - your NPO.

• Personalize all engagements

  • Use first name in all communications

  • Add personal notes in all communications in your handwriting when possible

  • Send cards with a note for

    • Birthdays

    • Thanksgiving

    • Holidays personal to them

    • Beginning of summer

    • Just because…

• Acknowledge all contributions

  • Instantly or at least within 48 hours - listing the gift with a personal thank you using their name and gift amount with a connection to your mission

    • Your finance department should also send a receipt within 48 hours and before January 10th of the new year

  • Customize updates in program reports, annual reports and updates linked to their contributions

  • Celebrate giving anniversaries with a connection to the mission and impact

  • Ask if you may make public their gift and how it affects your mission

  • Exclusive attention based on giving levels:

    • ¼ reports from the CEO

    • Round table discussions on program success

    • Donor forums discussing strategic planning

    • Donor forums discussing strategic partnerships

    • Advocacy groups to engage with new donors and prospective donors

    • Legacy Donors exclusive ¼ reporting

• Invite participation

  • Donor group communication coffee and conversations

  • Involving donors in decision making for additions or adjustments to programs

  • Engage them in volunteer opportunities

• Communicate with full transparency

  • Clear financial reporting connected to positive movement of the mission

  • Share personal stories, photos, or data on their impact through giving

  • Be honest and transparent in all conversations

    • Utilize the Cost to Value analysis

    • Utilize the Cost Per Dollar Raised formula

• Identify communication preferences and frequency

If you follow all the above statements, you will provide dignity for everyone you work with. And in doing so … you empower your donors to change the world! And when you manage in this manner, you will find that your donors, fundraising team, and leadership are empowered by your dignity too.

You will be empowered to go out there tomorrow and start your day knowing – beyond any doubt – that you are fully capable of being the best Professional Fundraiser you may become.

What are the gains? Your donors will give more to you and organizations and people like you that they trust. And when you tuck your little girl in at night … you will know, without any hesitation, that you are a person of great character.

Proof positive?

What does our friend Dr. Russell James say about building ethical and personal relationships with our donors?

Russell has advocated for relationship fundraising practices for years drawing on empirical evidence which clearly shows that there are positive gains to be had through consistent engagement practices which build the relationship status with our donors by connecting them to their personal value to your NPO’s mission and vision. Russell consistently shows us that this is never a transaction-based industry.

• Increased donor retention

  • Stronger relationships lead to higher donor loyalty leading to a reduction of churn and a lowered Cost Per Dollar Raised

• Higher Lifetime Gift Value of your donor’s philanthropy

  • Average Lifetime Gift Value in the USA – between $500 and $5,000

  • Average Recurring donors - $1,500 to $4,000

  • Average Major Gift donors - $75,000 to $500,000

  • Average Bequest - $87,000

  (according to Giving USA $45B was gifted in 2023)

• Strong relationships based on ethics and accountability lead to higher donor loyalty which leads to, on average, 4 times the donor retention rate

• Increased giving overtime

• Increased trust which leads to a higher success rate in planned giving overtime

• More predictable revenue streams

  • See Passing Lanes Strategic Pathways which creates a predictable model for:

    • Donor retention

    • Donor lifetime value

    • Predictable model for planned and major gifts

    • Predictable model for budgets and yearly revenue goals

    • Predictable models scaled for future acquisition strategies

• Improved donor advocacy. Satisfied donors are three times more likely to volunteer for your programs and become ambassadors in your acquisition programs and act as “Lynch Pin” donors in your solicitation activities

At Passing Lane Consulting, we get it. Because we have all been in your shoes. We understand that you are under immense pressure to secure the next best major/planned gift, corporate gift, and legacy gift. If you follow the above practices, we are certain your numbers will go up along with your job satisfaction and security.