When Great Expectations Falter

Fundraising professionals and financial advisors to nonprofits know the Wealth Transfer as shorthand for estimates by two academics at Boston College's Social Welfare Research Institute, who predicted in an October 1999 report that $41 trillion- at the very least-would be transferred between generations over a 55-year period. Previous sentence and this next sentence seem contradictory if it's between

Fundraising professionals and financial advisors to nonprofits know the “Wealth Transfer” as shorthand for estimates by two academics at Boston College's Social Welfare Research Institute, who predicted in an October 1999 report that $41 trillion- at the very least-would be transferred between generations over a 55-year period. Previous sentence and this next sentence seem contradictory‥ if it's “between generations” then it's not to charities… do you mean in previous sentence “would be transferred in bequests over a 55-year period, primarily because of the deaths of the WWII generation“? Most tantalizing, $6 trillion of that was to come in bequests to charity. “Our general conclusion is that a golden age of philanthropy is dawning,” pronounced the report's authors, John J. Havens and Paul G. Schervish.

The numbers took on a life of their own over the years-prompting some planned giving offices to be built out in anticipation of the windfall-and some other nonprofit advisors to wringi their hands with worry that the great hopes could not possibly be met. Then the stock market bubble bust and the 2001 recession hit. ButHavens and Schervish responded with a new report in January 2003 reasserting their original estimates.

Now the debate has reached a tipping point of sorts: On April 6, the Chronicle of Philanthropy ran a cover story cover that seemed to prove Havens and Schervish's projections could not be met because bequests so far are simply not on track to reach those goals.

Reporter name please let's give credit compared the Wealth Transfer projections with figures from Giving USA (which publishes a yearly report on charitable giving) on bequests to charities from 1998 through 2004, the last year for which data was available. The newspaper no? compared the money that has already been bequeathed to charities to the estimates that Havens and Schervish prophesied for first 20 years of their horizon: By 2017, the academics claimed, the Wealth Transfer would yield at least $1.7 trillion in charitable bequests.

But only $127.6 billion has come into the coffers of charities thus far, according to Giving USA's numbers. That's a mere 7.5 percent of the much-ballyhooed $1.7 trillion. The Chronicle did the math: To hit $1.7 trillion, charitable bequests “would have to average $120.9-billion annually for 13 years straight, beginning in 2005.” And this seems highly unlikely, as that would be six times more than the annual amount received in 2002-$20.9 billion: the highest sum since Giving USA began making its estimates in 1955.

The Chronicle story was published just as the Association of Fundraising Professionals was gathering for its annual conference in Atlanta. This is the biggest gathering of the year for charitable giving fundraisers, and Schervish was one the schdedule as one of just a few “distinguished speakers.” But Schervish is unabashed. He and Havens concede that their 20-year figures will never prove true, they still believe their long-term estimates remain valid. “What was missed was the bigger picture,” says Schervish of the Chronicle's story. “We now believe that the 20-year prediction will not occur; but it's not as off as the article indicated because of these other forms of giving,” he said.

Meanwhile, advisors to nonprofits believe the Chronicle story will relieve some of the great expectations that the Wealth Transfer report put on planned giving officers. At the same time, others are wondering what all the fuss is about: a great transfer of wealth is under way, they say. And at any rate, financial advisors call the report just one data point among many.

“We're still really early in this time line,” says Douglas Bauer, senior vice president at Rockefeller Philanthropy Advisors in New York, which has worked with Rockefeller family members on strategic planning for philanthropy since 1891 and opened that service to others in 2001. “We all need to see how this plays out. I'm willing to be patient on this one.” The Wealth Transfer report made a big splash when it was published, Bauer says. “Did we pay attention to it? Absolutely. We are well aware that people have put a lot of emphasis upon it.” At the same time, Bauer is seeing “a lot of dollars” going to charitable causes.

“Tremendous amounts of money has been opened up and dedicated to philanthropy,” he says. Anecdotally, Bauer has seen a lot of philanthropic deals made by high net worth individuals-a significant group given that Havens and Schervish predicted that two-third of the $41 wealth transfer will come from 7 percent of the nation's estates, in other words, only the very wealthiest. When Bauer read the Chronicle article, he had one gut reaction: “I think they are kind of saying the sky is falling a little too early.“

Not Dead Yet

A macabre reality comes with the waiting: Since the bulk of the wealth transfer will come when baby boomers begin to die, most of the fundraisers who have been put under great pressure to deliver results for their planned giving programs based on Havens and Schervish's predictions of a “Golden Age of Philanthropy” will have died before the prophesy comes to pass. “The baby boomers are just going to have to get over it,” says Robert F. Sharpe Jr. of the Sharpe Group in Memphis-based planned giving advisor to nonprofits. “The big money is going to come in 2020. The baby boomers have to die themselves: That's the big joke.“

There is more than a touch of black humor, intended and not, in this debate. Leo Arnoult, another Memphis-based consultant to nonprofits, told the Chronicle that it would be impossible to meet the 2017 estimates for charitable requests, that is: “Short of an avian epidemic, or some other major dislocation of population.” In the wake of the Chronicle article, Arnoult says he's heard from many friends and colleagues in the nonprofit world. “There's an open and strong debate going on right now,” says Arnoult. The upshot? Relief. Why? Well, there's time, after all. “Boomers probably have a good 10 to 15 years before they are going to start to die off,” says Arnoult.

“My advice as a consultant to nonprofits is chill out-chill out!” says Arnoult. “Chill out, take a breath, and continue what you are doing…Patience is called for. And let nature take its course, study or no study.” The Chronicle's article and the buzz generated by it comes as a welcome relief for Arnoult's clients. “In the wake of the [Havens & Schervish] report, a lot of groups geared up,” he says. Board members at nonprofits have been “looking at staff and wondering if they have enough staff,” he says. And the failure to produce charitable bequests predicted by the report “has put a bad light on them.“

Just how much did the Havens/Schervish study raise expectations for those in planned giving? Arnoult serves on the board of Christian Brothers University in Memphis. He says he was approached recently by someone on the finance staff who was interested in increasing CBU's fundraising staff, especially its planned giving officers, in order to capture its part of the phantom that has become the Great Wealth Transfer. Arnoult says he advised against it. “That would be a waste of money,” he says. “In my opinion, it's not going to happen.“

And the notion that Havens and Schervish stand by their long-term estimates of $41trillion transferring hands, with $6 trillion going to charity, offers cold comfort to Arnoult and his clients. He's encouraging them to continue their work, but to lower their standards. “We are just putting the breaks on this expectation,” Arnoult says, emphasizing the need to warn nonprofits not to have the “grandiose” notion of a windfall anytime soon. The report's long-term expectations are “probably reasonable,” Arnoult allows. On that score, he's quick to invoke a line from a famous liberal economist: “As John Maynard Keynes said, “In the long run, we are all dead.' So who cares in 2006?”

Money Men

For their part, nonprofit consultants like Arnoult and Sharpe view Schervish as a master marketer who may now be getting his comeuppance. Sharpe is particularly colorful in his allusions. The report was akin to building a National Football Stadium in Debuke, Iowa and expecting crowds to come. “They built these big machines to get the wealth,' says Sharpe. Trouble is, at least in Sharpe's view, the money never came: “Schervish built a sand castle and has been collecting the rent on it and now the water is washing away the castle,” he says. “He's done a wonderful job marketing his report,” says Arnoult. “They geared up mightily because of that.“

Schervish, a former Jesuit priest, is a professor of sociology and the director of Boston College's Center on Wealth and Philanthropy (formerly the SWRI.) Word of mouth in the non-profit world has it that Schervish has made a fortune consulting with the financial powerhouse Merrill Lynch, a relationship that brought Schervish a nice profit and a ramping up of Merrill's efforts in planned giving, only to see a rapid scaling back.

Schervish, for his part, says his work for Merrill Lynch amounted to giving one speech and authoring one white paper. But Schervish's Wealth Transfer report, which used a computer model he developed that covered all Americans 18 years or older as of 1998, arrived at just the right moment: Financial service firms like Merrill Lynch were exploring ways to get into the trusts and charitable giving practices that had traditionally been the province of banks. Schervish crowed, “they are drooling,” in an interview with the Saint Paul Pioneer Press in June, 2000.

David Luckes was a senior philanthropic consultant at Merrill's Wealth Management Services Division and Trust Company from 1999 to 2001 and witnessed the ramp up and ramp down of the firm's effort to launch business in philanthropy. Now president of the Greater St. Louis Community Foundation, Luckes chuckled heartily at the notion that Merrill ramped up its efforts purely on the basis of the Wealth Transfer figures. “That is some inane not-for-profit person's perspective,” he says. “The wealth transfer study is just one data point: To make the impression that they were going to get rich as a result of this stuff is just absurd.“

Financial advisors treat the Havens/Schervish report as part of the atmosphere, but not a determining one. “Everyone throws around those numbers,” says Charles Slamar Jr., a senior vice president with the Bank of America's charitable trust division in Chicago. “I think it sort of misses the point to focus on what the actual numbers were,” says Charles Gordy, managing director of planned giving services at the Bank of New York. When the Wealth Transfer study was released, Gordy was the planned giving director at Yale University. “There was a great deal of buzz around the report, and people started talking about this intergenerational wealth transfer a tremendous opportunity for charitable giving.” But planned giving officers are more concerned with behavioral changes as the in giving as the baby boomer generation grows older. “Baby boomers have other financial interests,” he says. People are living longer, worrying more about their healthcare costs, and taking care of their own children. “The wealth is going to be a lot stickier intra-family, which could mean less for charity,” Gordy says.

Gordy's clients include the Salvation Army, where gifts from bequests in wills and trust over the last 30 years have averaged $470,000. “I don't think we ever put much stock in it or geared up our program on the basis of it,” says Lindsay Lapole, who manages planned giving Salvation Army's region in the southeastern United States. “Our observation of this situation is that the wealth transfer is in fact taking place.“

At the Bank of New York, the Wealth Transfer report “really doesn't affect how we do business,” says Gordy. More important is cultivating the donor base of any charitable cause, “rather than simply saying, “hey, there's a lot of money out there and we're going to get it.” In the brouhaha churned up by the Chronicle article, Gordy sees “a cautionary tale in how people overly emphasize good news, or what is perceived as a golden opportunity.“

More Number Crunching

Havens is back to the drawing board, gathering data on methods of charitable giving triggered by death that do not necessarily show up in bequests. They cite the rise in formation of foundations and donor-advised funds, and charities that show up as beneficiaries of a person's IRA or life insurance policy: all forms of giving that suggest a change people's behavior. Havens is gathering the data and plans to make it available at on the center's web site at www.bc.edu/research/swri.

Havens is also examining data he learned about since his correspondence with the author of the Chronicle article --- a Federal Reserve analysis of the Survey of Consumer Finances. The 2004 survey showed more than $1 trillion in inheritances from 1998 to 2002. “If that pattern were to continue, we would be very close to the mark” on the Wealth Transfer report's 20-year horizon, says Havens. And if that's so, Havens wants to quantify the means of charitable giving that do not show up in statistics for charitable bequests.

Ironically enough, Havens, who along with Schervish and Sharpe sits on the advisory committee that decides the methods for the GivingUSA estimates, disagreed with Sharpe over figures for the 2005 yearbook, which comes out in June. Sharpe pressed for an estimate that was $15 billion higher in charitable bequests from people of modest means, while Havens believed that longer lives and increased healthcare costs were limiting charitable bequests at he lower end of the spectrum.

“I give Paul and John credit for putting a stake in the sand and saying maybe the world is far more abundant than we thought,” says Luckes. “And the academic question is, “how deep is the well?” The study of rates of charitable giving is an “incredibly immature” field, he says. “The last thing we need to do in our sector is to start a pissing contest that starts to bemoan the fact that academic research has any merit or not.“

When Havens and Schervish publish their new data, that last thing may just happen.

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