Building Your Practice by Serving Foundations and Endowments
The Opportunity
The above quote from Thomas Jefferson indicates a twofold opportunity for financial advisors to work with charitable organizations, including foundations and endowments. First, there is an opportunity to help affluent households fulfill this duty and desire to support causes about which they are passionate; and second, there is an opportunity to provide guidance to managers of foundations and endowments to fulfill their fiduciary responsibility by ensuring these assets are managed appropriately to achieve stated objectives.
The number of affluent households continues to grow, and as their level of wealth increases, research tells us they also become more charitably disposed and are inclined to seek guidance on philanthropic strategies such as foundations and endowments. This philanthropic initiative is expected to continue over the next 50 years, as $50 trillion is projected to be donated to US nonprofits. This interest has led to significant growth in the ranks of foundations and endowments. Between 1990 and 2014, the number of private foundations in the United States more than tripled and their assets grew to over $865 billion.
As assets in nonprofits have grown, so has the scrutiny of their management by the Internal Revenue Service, state and federal regulators, and even family members who may feel the family foundation is being mismanaged. New laws and regulations continue to be passed impacting how nonprofits, foundations, and endowments are run, and how their assets are managed.
For financial advisors, working with foundations and endowments can be very rewarding, both personally and professionally, but it is a complex market to penetrate. Just providing investment solutions is not sufficient to be truly successful. To successfully engage these clients, advisors must first understand the mission and motivation of the foundation or endowment, as well as the administrative issues they face, including how they operate, the composition of their board and how investment decisions are made.