The Investment Mentality: What Nonprofit Leaders Need To Know

Created By: Stephen K. Orr
January 31, 2022

Orr Group collaborates with nonprofit organizations to propel the business of philanthropy. The financial world is a big part of that. Many of our client partners are concerned about recent volatility in the stock market, along with sweeping changes in our society and how investors view the world. Every situation is different, and the Orr Group team is always available to discuss the particulars, but here are a few important points to keep in mind.

1. Influential investors are thinking beyond profit. Jean Case and the Case Impact Network embrace “a longer-term, more inclusive approach to value creation that recognizes the need to do a better job of serving employees, customers, and communities.” Paul Tudor Jones and the Just Capital investing research nonprofit rank the top 100 companies in terms of Environment, Society, and Governance (ESG). This outlook, which Blackrock’s Larry Fink calls “stakeholder capitalism,” is a large and growing influence on investors. “It is through effective stakeholder capitalism,” Fink writes, “that capital is efficiently allocated, companies achieve durable profitability, and value is created and sustained over the long-term.” This trend makes it more important—and, I would argue, easier—to connect your mission to a donor’s investment goals.

Read more: The ESG Opportunity for Nonprofits: It Starts with Looking in the Mirror.

2. Volatility drives giving. Wild swings in the stock market may have some donors spooked, but remember the tax ramifications of investor decision-making: In light of the dramatic gains of the past decade, it is likely that the current value of most entries in a donor’s portfolio is significantly higher than when they made the purchase. By donating long-term appreciated stock to a charity, they may be eligible to take a tax deduction for the fair market value of the contribution, potentially eliminating the 20% capital gain tax rate and the 3.8% Medicare surtax. (Read more from Fidelity.)
3. Major gift officers need to think like financial advisors. The point above is an example of the level of understanding an organization’s development staff needs to have in order to maximize donations. Of course, a passion for the mission is indispensable, but basic financial literacy will help you to put yourself in the shoes of a donor—especially one in the financial services industry, but, in my experience, almost any donor in a position to make a six-figure gift is probably spending considerable time in the company of investment professionals and estate advisors. You have to understand the mentality.

Read more: Philanthropy Is a Financial Activity: Nonprofit Executives Need to Speak the Language.

4. Planned giving is an investment decision with an emotional dimension. Successful investors strategize with their heads and not their hearts, but even the most rational ones get emotional when it comes to planning their legacies. What kind of impact do they want to leave after they’re gone? What values and priorities do they want to demonstrate to their children and grandchildren? This is where nonprofit organizations provide a more valuable service than yacht makers or real estate agents. We provide the opportunity to craft a meaningful legacy. Charitable remainder trusts and other vehicles for planned giving can be complex, but they are a critical stewardship tool. Not only do some institutions report that their typical bequest is 2,500 times their average annual gift, but the research indicates that planned gifts correlate with increases in annual giving.
5. We can’t ignore cryptocurrency anymore. As a seasoned investor, I will admit that the initial reports about Bitcoin made my head spin, but a decade into the phenomenon, ignorance is no longer an option. A new generation of donors is well versed in NFT (nonfungible tokens) and other blockchain matters. If your nonprofit doesn’t already hold a Coinbase account or other means of accepting these gifts, you may be leaving money on the table. My colleague Amanda Nelson recently had a conversation with The Giving Block co-founder Pat Duffy. He recommends that nonprofits organically integrate crypto into their gift acceptance strategies and into their presence on Twitter, Reddit, and other platforms this audience frequents.

It takes a financially competent, well-informed nonprofit professional to form productive, sustainable relationships with major donors. Organizations that appreciate the investment mentality are ahead of the game.