The Ins and Outs of Gift Capacity Ratings: Panel Session

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1 The Ins and Outs of Gift Capacity Ratings: Panel Session Kimberly Ordunio Director, Prospect Research, LMU Sara Butchenhart Assistant Director, Prospect Research, LMU

2 Focus of Panel Discussion Loyola Marymount University & Biola University Case Studies: Our Experience Working with Gift Capacity Ratings Brief Review of Standard Gift Capacity Rating Formulae & Sources Our Experience Verifying and Managing Vendor Screening Rating Results Slide 2

3 GIFT CAPACITY RATINGS Gift Capacity Ratings - in 10 minutes or Less If you can t explain it simply, you don t understand it well enough. Albert Einstein Slide 3

4 A Few Key Resources: GIFT CAPACITY RATINGS Prospect Rating for Fundraising Success. Lisa Howley. APRA Connections, Vol. 19, No. 2, Summer Boston College, Center on Wealth & Philanthropy articles, including New Findings on the Patterns of Wealth and Philanthropy, Paul G. Schervish and John J. Havens. Social Welfare Research Institute, Boston College, Chestnut Hill, MA, IRS Statistics of Income Division (SOI) 2004 Personal Wealth Tables Top Wealth Holders & Personal Wealth Bulletin Slide 4

5 GIFT CAPACITY RATINGS Gift Capacity Rating Defined Objective estimate of the amount a constituent can give, based upon their public assets and/or philanthropic history. Slide 5

6 GIFT CAPACITY RATINGS Gift Capacity Ratings are: Objective Formulated Estimates / Educated Guesses Often Conservative The Tip of the Iceberg Slide 6

7 GIFT CAPACITY RATINGS What We Can Find & Evaluate Real Estate Public Company Insider Stockholdings Private Company Ownership Annual Giving & Published Philanthropy Income Private Foundation Assets Luxury Items Slide 7 Wealth Indicators What We Can t Find or Evaluate Trusts / Estate Planning Specifics Non-Insider Stockholdings Liabilities (Loan Balances; Debt; Credit Cards, etc.) Bank Account Balances Complete Income Picture (rental income, child or spousal support, inheritance/family wealth, etc.) Insurance Policies Complete Investment / Retirement Portfolio Source: Christina Pulawski, Evaluating Wealth Indicators for Philanthropic Giving, APRA Virtual Seminar, 11/3/04

8 GIFT CAPACITY RATINGS Deborah Miller s Rating Rules of Thumb Guide If You Know Total Wealth Rule of Thumb (Gift Capacity =) 2 to 5% of visible assets.5% - 1.5% of liquid assets = giving ability. 5% of total known assets (real estate + stock holdings + annual income for 5 years) = giving ability (5 years). 10% of total wealth if above $50M; 7% if $25-50M; 6% if $10-25M and 5% if less. Comments and References Where primary residence represents a large portion of visible assets, use 5%: CASE Annual Conference for Development Researchers, New Orleans, LA, CASE Annual Conference, % to 5% of net worth. Dave Kent, et al 2002, Conducting a Successful Development Services Program. Slide 8

9 GIFT CAPACITY RATINGS The 5% industry adage is attributed to many national wealth studies and surveys that show that U.S. charitable donors generally give between 1% to 2% of their adjusted gross income annually. (Lisa Howley, APRA Connections, Summer 2008) High-earning households ($90,000+ annual income) spend 5% of income on charitable giving (Source: Spending Patterns of High Income Households, Issues in Labor Statistics, Bureau of Labor Statistics, Summary 98-10, November 1998) < > Slide 9

10 GIFT CAPACITY RATINGS Mr. Richie Rich Total Wealth/ Cumulative Asset Formula Sample Real Estate (Combined Market Value of 4 properties) = $4,591,392 Direct Stock Holdings = $30,590 Total Published Assets = $4,621,982 Formula: Total Assets ($4,621,982) X 5% = $231,099 (Estimated Gift Capacity Over 5 Yrs) Slide 10

11 SAMPLE 5% CAPACITY RATING TABLE A = the capacity to give $100M+; assets of $2B+ B = the capacity to give between $50M-100M; assets of $1B - $2B C = the capacity to give between $25M-50M; assets of $500M - $1B D = the capacity to give between $10M-25M; assets of $200M - $500M E = the capacity to give between $5M-10M; assets of $100M - $200M F = the capacity to give between $1M-5M; assets of $20M-$100M G = the capacity to give between $500K - $1M; assets of $10M-$20M H = the capacity to give between $250K-500K; assets of $5M-$10M I = the capacity to give between $100K-250K; assets of $2M-$5M J = the capacity to give between $50K-100K; assets of $1M-$2M K = the capacity to give between $10K - $50K; assets of $100K - $1M Slide 11

12 GIFT CAPACITY RATINGS Deborah Miller s Rating Rules of Thumb Guide If You Know Real Estate Rule of Thumb (Gift Capacity =) Real estate = 20 30% of total wealth. Total real estate holdings x 3 = estimated net worth. 3% of estimated net worth = estimated giving capacity. Comments and References From IRS tables. Avoid using with a single real estate holding use for multiple holdings. CASE Annual Conference. The Prospector, 1998, Development, UVA. Slide 12

Assets $6,549,193.2 = $32,745,965 (estimated high range of total wealth) $6,549,193.

13 GIFT CAPACITY RATINGS Real Estate Formula Sample Ms. Hetty Green 3 properties w/ combined market value of $6,549,193 Formula: Real Estate = 20% - 30% of One s Total Wealth / Assets $6,549,193.2 = $32,745,965 (estimated high range of total wealth) $6,549,193.3 = $21,830,643 (estimated low range of total wealth ) $32,745,965 x 5% = $1,637,298 = high range of estimated gift capacity over 5 years $21,830,643 x 5% = $1,091,532 = low range of estimated gift capacity over 5 years Slide 13

14 GIFT CAPACITY RATINGS Deborah Miller s Rating Rules of Thumb Guide If You Know Annual Giving Rule of Thumb (Gift Capacity =) Gift Capacity = 20x consistent annual giving. 20x level of consistent annual giving = giving ability (over 5 year period). Standard Formula: 5x the total of four annual gifts to charities in the community (including your institutions). Comments and References CASE annual conference. The Prospector, 1998, Development, UVA. Dave Kent, et al 2002, Conducting a Successful Development Services Program. Slide 14

15 GIFT CAPACITY RATINGS Annual Giving Formula Sample Mr. and Mrs. Tetrazzini President s Circle Members for the past 7 years President s Circle = $10,000 unrestricted gifts annually Formula: 20 x $10,000 = $200,000 estimated gift capacity over 5 years Slide 15

VENDOR RATINGS WEALTH SCREENING Wealth Screening Benefits Mass Rating & Segmentation (Capacity & Attachment) Campaign Planning Bells & Whistles

16 VENDOR RATINGS WEALTH SCREENING Wealth Screening Benefits Mass Rating & Segmentation (Capacity & Attachment) Campaign Planning Bells & Whistles Special Products Data / Results Can Be Imported Wealth Screening Challenges Cost - $$$$$$ Verification Required Time Consuming Process Slide 16

17 VENDOR RATINGS WEALTH SCREENING Records Criteria LMU 2008 Screening Stats All Alumni Current Parents: Classes of Faculty-Staff Friends with campaign gift and lifetime giving of $1,000+ Past Parents from 2008 and older with campaign gift and lifetime giving of $1,000 or more. Records Sent to Vendor = 68,831 * Alumni - 59,620 * Current Parents - 6,185 * Faculty-Staff - 1,242 * * Friends * Past Parents: 838 * Slide 17

18 VENDOR RATINGS WEALTH SCREENING Initial Results from Vendor Initial Results Returned from Unverified Capacity Vendor Top 10% Major Gift Capacity $1Million+ 181 Major Gift Capacity ($500K - $999K) 246 Major Gift Capacity ($250K - $499K) 729 Major Gift Capacity ($100K - $249K) 2,739 Major Gift Capacity ($50K - $99K) 3,467 Major Gift Capacity ($10K - $49K) 3,248 TOTAL 10,610 Slide 18

19 VENDOR RATINGS WEALTH SCREENING Screening Implementation Worked w/ upper management on initial segmenting; Decision to Verify: unassigned constituents w/ $250k+ gift capacity unassigned constituents rated $100k - $249k with 1 Attachment unassigned Echelon 1s new parents Verify managed constituents on an as needed basis Meet w/ each Development Officer to go over screening definitions and initial results and inform them of our plans for the verification process Slide 19

20 SCREENING VERIFICATION PROCESS Verification Segments Unmanaged Constituents Number of Constituents UNVERIFIED Number of Constituents VERIFIED $500,000+ Gift Capacity Rating Echelon 1 s with Gift Capacity Rating less than $500,000 $250,000 - $500,000 Gift Capacity Rating Attachment 1 s with $100,000 - $249,000 Gift Capacity Rating Class of 2013 Parents with $250,000+ Gift Capacity Rating TOTAL 1,442 1,098

21 VERIFICATION CHALLENGES Vendor s Match Criteria - Home Address The Young Alumni Problem Property Record Mailing Address Issue Slide 21

22 VERIFICATION CHALLENGES Asset Issues Real Estate and Stock Some real estate uncovered by the vendor had been sold; some recently acquired real estate was missed. Assessed Value (Vendor) vs. Market Value (Verification Process) Divorced constituents Crusty Data - historic stock sales of long ago... Attachment Issues Slide 22

VERIFICATION CHALLENGES Vendor System Bugs Private company valuation issue: small business owners in the computer services sector registered with billionaire or multi-millionaire ratings

23 VERIFICATION CHALLENGES Vendor System Bugs Private company valuation issue: small business owners in the computer services sector registered with billionaire or multi-millionaire ratings (inflated / errant valuation percentage for one specific SIC code). Unable to create a private company record; vendor was able to provide a back-door method for us to create new records. Slide 23

24 Original Results vs. Current Verified Pool Original Results Returned from Vendor VERIFIED CAPACITY Major Gift Capacity $1 million Major Gift Capacity ($500K - $999K) Major Gift Capacity ($250K - $499K) *Major Gift Capacity ($100K - $249K) 2, *Major Gift Capacity ($50K - $99K) 3, *Major Gift Capacity ($10K - $49K) 3, Total 10,610 1,291 Verified Pool under Management and on PMATS = 669 Verified Pool Unmanaged = 622 (with 487 at $100K+ level)

25 VERIFICATION CHALLENGES Challenges of Frontline Dissemination RUSH FOR RESEARCH! Slide 25

26 VERIFICATION CHALLENGES Creation of New Tools to Address Demand Level 1 Identification Profile Focused Strategy Sessions DMQ Data Mining Query Report Slide 26

27 VERIFICATION CHALLENGES New Tools Level 1 Profile Slide 27

28 VERIFICATION CHALLENGES New Tools Data Mining Query DMQ Slide 28

29 & NOW.THE BIOLA TEAM! THANK YOU! Kimberly Ordunio Sara Butchenhart Slide 29

30 SOURCES Prospect Rating for Fundraising Success, Lisa Howley, APRA Connections, Vol. 19, No. 2, Summer New Findings on the Patterns of Wealth and Philanthropy, Paul G. Schervish and John J. Havens. Social Welfare Research Institute, Boston College, Chestnut Hill, MA, ** Today s Wealth Holder and Tomorrow s Giving: The New Dynamics of Wealth and Philanthropy, Paul G. Schervish, Journal of Gift Planning, Vol. 9, No. 3, 3 rd Quarter 2005 (pp ). **Available through Boston College site above. IRS Statistics of Income Division (SOI) 2004 Personal Wealth Tables & Personal Wealth Bulletin, 2004 by Brian G. Raub 00.html Christina Pulawski, Evaluating Wealth Indicators for Philanthropic Giving, APRA Virtual Seminar, 11/3/04. Elizabeth Crabtree, Guiding the Way: Rating Wealth, Capacity, and Potential for Philanthropic Giving, CARA Conference presentation, 10/24/08. Center on Wealth and Philanthropy Giving Model: Forecast for 2009, John J. Havens and Paul G. Schervish. In Advancing Philanthropy Magazine, January/February **Available through Boston College site above. Wealth, Income, & Power, by Professor G. William Domhoff, Sociology Department, U.C. Santa Cruz, September 2005 (updated April 2010). tml Lisa Howley, Capacity Ratings, APRA International Conference presentation, 2004 Spending Patterns of High Income Households, Issues in Labor Statistics, Bureau of Labor Statistics, Summary 98-10, November 1998) Slide 30

The Interplay of Treasure and Heart: New Findings on Wealth Transfer, the Patterns And Spiritual Meaning of Philanthropy

The Interplay of Treasure and Heart: New Findings on Wealth Transfer, the Patterns And Spiritual Meaning of Philanthropy Paul G. Schervish paul.schervish@bc.edu Professor of Sociology, Director of Center