Steve Hirsch has been giving to charities since the early 1960s, when he joined Wall Street brokerage firm Bear Stearns & Co. While working there, he recalls, he felt that he had to support the charities favored by his boss. As Hirsch's career progressed and he went on to work in a variety of businesses, his charitable giving followed a familiar and predictable pattern: Like most of his peers, he doled out a modest percentage of his income to a range of worthy local causes, feeling a general obligation to support them for business, social and community reasons but no real sense of connection. "It was a ritual, not a commitment," he says. His passion was reserved for travel to remote locales ranging from Laos to Mali, and for studying traditional arts and cultures.

A few years ago, Hirsch's passions and philanthropic activities merged. He received a phone call from Irma Turtle, founder of a small boutique travel company in Arizona, who had organized his trip to the Dogon tribal regions in Mali. Turtle was planning to set up a nonprofit organization called Turtlewill that would formalize charitable work she had already begun--helping to dig wells and funding mobile medical clinics and bush schools for nomadic communities in Niger, Mali and Ethiopia. Would he help? Hirsch instantly said yes.

Today, the 66-year-old chairman of Astro Communications, a Chicago-based lighting business, cheerfully devotes the bulk of his free time to helping Turtlewill raise funds and expand its operations. "The big contrast for me was that here I knew exactly where each dollar of my money was going: to the programs," Hirsch says. "My travels had shown me that these programs were absolutely critical; we here in our comfortable lives just don't understand how poor those countries are in material terms."

Nationwide, thousands of wealthy individuals like Hirsch are similarly transforming their involvement with giving. They are thinking about becoming more philanthropic, either because they now have meaningful amounts of free cash to give away or because they are seeking meaning in a pursuit outside of their careers. But for these new donors, "checkbook philanthropy" is passe. Big donors are turning toward a giving style that's much more direct.

Call it "high-impact philanthropy": The wealthy want to see, hear, touch and steer the changes their charitable dollars are making in the world. "There is a backlash against being targeted' as a potential major donor by traditional institutions; people now want to be proactive rather than reactive donors," says Peter Karoff, founder of Boston-based The Philanthropy Initiative (TPI), a philanthropic advisory firm. Nor, he adds, does this new style of charitable giving revolve around ego or social status. His clients are more interested in ensuring that their dollars make a difference than they are in ensuring that buildings or scholarships bear their names.

GIFTS THAT CAN CHANGE THE WORLD

Rather than following the well-trodden path of supporting a church, alma mater, local arts group, hospital or medical cause, high-impact philanthropists are devoting time and energy to figuring out exactly what societal problem or issue they feel most strongly about. Then they set about trying to address that in as targeted and effective a manner as possible, giving to causes rather than institutions and seeking out organizations that will transform the world rather than just address immediate needs. A case in point is the effort by Microsoft founder and billionaire philanthropist Bill Gates to eradicate diseases like AIDS and malaria, rather than just treating the afflicted, through vaccination programs funded by the Bill and Melinda Gates Foundation. One new-style nonprofit that has grown like wildfire--albeit at a much, much lower price point--is Heifer International, which allows donors to thumb through a catalog and "buy" livestock ranging from bunnies to water buffalo for communities in the world's poorest nations. Donors can relate both to the nature of the gift and its potential impact to transform a family and a community, as livestock recipients are coached in animal care and must promise to share the animals' offspring with their village.

One form of high-impact philanthropy has become known as "venture philanthropy." In practice, this can mean anything from funding for-profit microlending businesses in poor communities to alleviate poverty, to ensuring that a nonprofit organization is run as efficiently and effectively as possible. There has been a backlash against some of venture philanthropy's tenets, with veteran nonprofit organizers arguing that sometimes it's just not possible to measure change or improvement quantitatively. But the trend continues to gain momentum.

"Basically, if you invested in stock, you would do your research and ensure your money was well spent," says Eric Thurman, CEO of Geneva Global, a philanthropic adviser specializing in helping clients who want to support overseas projects. "This is much the same thing: looking for confirmation that you are putting your philanthropic dollars to work and that they are generating results."

Thurman expects his clients to channel some $30 million in 700 or so grants to a wide variety of projects this year, up from about $19 million and 478 grants in 2005. One of the programs funded by Geneva Global clients has helped some 1,200 former child soldiers in Uganda--now heads of families orphaned by AIDS--complete their schooling. Other projects sponsor microfinance firms and combat human trafficking.

A CHALLENGING NEW ROLE FOR ADVISERS

But while this new approach to philanthropy has caught on among donors, financial advisers have been slow to pick up the baton. When asked about how they help clients with their philanthropic activities, many advisers talk about tax issues, deciding which giving vehicles to employ and determining the overall amount to be donated to philanthropic causes. But clients like Hirsch say they are hungry for advice and guidance when it comes to designing a philanthropic giving program that is related to their personal interests and goals.

Many aren't getting that level of help. At best, their adviser may refer them to a website like Guidestar.org, which offers detailed reports on organizations' goals, structure and finances. (Reports with basic information are available at no charge.) That's helpful--but only after the client has identified a particular nonprofit as a potential recipient of support. "I can help somewhat, but frankly, identifying charities is not something we profess to be experts in," says Jack Harmon, an Atlanta-based planner whose Harmon Financial Services firm oversees some $240 million in assets for more than 200 clients. One issue may be the lack of a financial incentive: Studies done by Karoff and his associates at TPI reveal that while 75% of advisers surveyed say that discussing philanthropy in detail with their clients is "good for business," only 8% claim that it generates more revenues.

But advisers who focus on the narrow cost/benefit issues may be missing the boat, say some private bankers, financial planners and other consultants. "Donors have told us they are frustrated by their advisers' reluctance to move beyond the technical ... and the adviser's seeming unwillingness or inability to assist the client in realizing her philanthropic objectives," the TPI team wrote in a report on the advisory firm's initiative to reach out to financial planners.

Comments like Harmon's remain a familiar refrain, however. Some planners are wary of recommending particular philanthropic programs or approaches; others lack the necessary knowledge. Many will argue that there isn't enough time to tackle these issues. "If we research a nonprofit organization like the Red Cross or try to go beyond our core competency of advising on the tax dimensions of a gift, that is one less large-cap growth manager we can research for our clients," says Chris Wheaton, an adviser at Litman/Gregory Asset Management in Larkspur, Calif., which oversees about $800 million in assets for its private clients. "Perhaps one in 20 of our clients could benefit from greater advice, and we try to offer seminars for them or referrals to local community foundations."

A SURFEIT OF VEHICLES

Planners' concerns are well-grounded. The world of philanthropy has become more complex and difficult to navigate. Nonprofit agencies have multiplied dramatically; as of last year, more than 800,000 different organizations had registered with the Internal Revenue Service, double the number that existed in 1990. Many, like Turtlewill, are tiny organizations tackling niche causes on shoestring budgets. Meanwhile, the number of philanthropic vehicles, such as family foundations and donor-advised funds, has soared. Donor-advised funds established with financial services firms like Fidelity, Vanguard and Schwab and at community foundations are growing at double-digit rates, while nearly six new personal or family foundations are launched every day.

That leaves wannabe philanthropists baffled and confused, says Heather Hiles, a principal at IFF Advisors in Chicago, who has provided philanthropic consulting services to financial planners and their clients at nearly two dozen firms nationwide. Her services range from providing consulting at a nominal hourly fee, to drawing up a philanthropic plan for a $10,000 flat fee. IFF can even oversee the operations of a family foundation, for which the group's charge is based on the number of grants the foundation issues per year. "We see a lot of people who feel that their advisers don't understand what is really important to them," says Hiles, who has spoken to Litman/Gregory clients and has interviewed both planners and donors for TPI's studies. "Sometimes the planner may introduce the client to one or two particular charities, but even then, they don't always help the client identify their passions or interests. So the client gets disheartened and discouraged."

Hiles recalls one client who oversaw the management of $125 million in her own and her father's portfolios, but was making only "extremely modest" charitable donations. Referred to Hiles by her financial planner, the client had issues that she cared deeply about, ranging from women's issues to microfinance. But she had no confidence in her ability to translate those interests and beliefs into philanthropic action. Two years later, Hiles says, the client has joined five different donor networks, sits on the board of a nonprofit and has increased her giving by about 500%. "Most important, she feels happy that she is making a solid contribution," says Hiles.

As confidence and faith in traditional recipients of philanthropic largesse wanes in the wake of controversy surrounding the way they deploy funds or govern themselves, the demand for more in-depth guidance on charitable giving will only increase. "Look at all the questions surrounding an organization like the Red Cross, and you can see why we are facing greater demands on our own resources," says David Diesslin, of Diesslin & Associates, a planner based in Fort Worth, Texas. "Now my clients realize that they have many more options when it comes to giving, and much more ability to insist that their gifts be used responsibly and in a way that will effect change. Back in the 1980s, I remember, the attitude of the organizations that accepted gifts was give us the money and then get out.' "

Diesslin, alongside his clients, is taking a more proactive approach to understanding the rapidly evolving philanthropic world. "We pull up the IRS forms and discuss them with our clients, evaluating what they are trying to achieve and what they are actually achieving," he says. "We also help them shape their philanthropic mission." He sees his job as helping his clients fulfill their goals, whether these are investment-related or charitable. "The more I become involved in my clients' thinking about their philanthropy, the more insight I have into their priorities and the better I understand their objectives overall."

That is the kind of framework that Eileen Wilhem hopes financial advisers at Wachovia Corp. will integrate into all of their client dealings. Wilhem, who is managing director of Wachovia's national philanthropic practice, provides guidance to in-house planners as well as to independent advisers who build relationships with Wachovia. "They are still too quick to move from the big philanthropy question--what a client is interested in--to discussing tax vehicles," Wilhelm says, sighing.

Advisers don't have to venture out of their comfort zone and start recommending individual nonprofits that fit into their client's area of interest, Wilhelm says. By the same token, they can go further than they do now into the "soft stuff" by helping clients define the general areas in which they want to make a difference and then connecting them with a wide range of peers, giving networks, philanthropic advisers and other organizations that can help clients implement their giving.

BEGINNING THE CHARITABLE CONVERSATION

The starting point is expanding the range of questions a planner asks clients about philanthropy. Today's donors are likely to respond more positively to questions about what changes they want to create in their community or in the world, than to questions about how much they want to give. Financial advisers can help clients to clarify their ideas by asking about pivotal moments in their own history, or by asking what they would do if someone handed them $1 million on condition that they give it away.

Wilhelm, for instance, traces her own involvement in helping indigenous peoples to her childhood, when her second-grade class "adopted" two Latin American children through one of the several overseas child sponsorship programs still available today. "Understanding these soft issues can actually reinforce the relationship between adviser and client," Wilhem says.

That doesn't mean that financial advisers should transform themselves into philanthropic advisers overnight. "I want my adviser to understand what I am doing and help me, but not at the cost of core expertise," explains Turtlewill patron Hirsch. Instead, it's possible to steer a middle course. For instance, Laurie Kamhi, vice president of Merrill Lynch's Private Banking & Investment Group, will work with attorneys and tax advisers to determine what kind of structure makes economic sense for philanthropically minded clients--and then moves on to help them discuss how they intend to make an impact. "We can't tell clients what their cause should be, but we can act as a sounding board," she says. Merrill Lynch planners convene gatherings that allow wealthy clients to share their stories of how they identified causes, listen to experts talk about the relative merits of donor-advised funds, network with their peers and tap into outside expertise. "These issues, we find, are taking up more and more of our time," Kamhi says.

Financial planners can play a vital role in helping a client conceive a charitable giving plan and ensure that the gift is effective. "One thing I bring to the table is my knowledge of what makes a business well run, and that does have some utility in understanding when a nonprofit is well run," says Diesslin. When a client asks a private banker or adviser to cut a check to a nonprofit institution, the adviser can use that opportunity to ask questions about what the client hopes the gift will achieve and how it fits into an overall philanthropic plan.

"An adviser can become very valuable simply by writing a letter to accompany the gift that spells out the donor's intentions and asks for specific feedback on how successful the recipient was at putting the donation to work," says Virginia Esposito, president of the National Center for Family Philanthropy. "Advisers may not be experts on nonprofits, but if they think of these donations as a kind of contract, it's logical that they would follow up to ensure that their client is getting back what they expect--even if that isn't a financial return."

A financial adviser can also bring common sense and discipline to the giving process just as readily as a philanthropic adviser can, Esposito adds. For instance, one side-effect of the new high-impact approach is that many donors are reluctant to fund organizations' operating expenses, preferring to fund programs, instead. "It's quite acceptable for a financial adviser to point out that if that organization can't keep a roof over its head or pay the electricity bill, it won't be able to offer programs," she says.

As greater numbers of potential donors are drawn to high-impact philanthropy, demands on their financial advisers to offer more customized and thoughtful guidance in this area is likely to increase. As Geneva Global's Eric Thurman points out, "the more advisers know about what is out there, the more they are familiar with all the resources available in the philanthropic world, the better they serve their clients. Donors are just waking up to the fact that this is something they can ask their planner to help with; the adviser is just waking up to the fact that this isn't a distraction but something that can add value to a relationship with their client."

At a time when advisers are increasingly aware that financial management is evolving into a commodity service, providing substantive help with philanthropic giving may be one of the measures that puts the final seal of loyalty on a relationship with a high-net-worth client. "This is inevitable," Thurman concludes. "Advisers who don't find a way to address philanthropy will miss out on an opportunity and leave dissatisfied clients behind them. The winners will be those that understand these new trends and know how to incorporate them into their services."

SIDEBAR:
Gone Missing: Art Patrons

In the new world of high-impact philanthropy, there are winners and losers--and the biggest losers have been traditional arts organizations. Art museums, orchestras, opera companies, ballet troupes and the like have struggled to hang on to donors' attention.

True, there have been some headline-grabbing gifts, such as pharmaceutical heiress Ruth Lilly's $100 million bequest to the Poetry Foundation. "But in the last five years, poverty, homelessness, illness and death have become less abstract to many of our traditional donors," says Joanne Cossa, executive director of the America Music Center, an organization that promotes contemporary music. "We've had 9/11, hurricanes, tsunamis. And we've always recognized in the arts that it's impossible for donors not to give to hunger."

This dollar drain is more than a temporary redirection of funds. Too often, potential donors see fine arts organizations as less directly relevant to their lives. Some of this lack of interest may be generational: today's donors may have had little or no exposure to the so-called high arts since their parents stopped taking them to "The Nutcracker." Cossa traces that, in part, to cutbacks in public school arts education. "For us to create a new pool of donors, we first have to create new audiences," she argues.

"The smartest arts groups have found ways to connect donors to their activities," says Peter Karoff, founder of the advisory firm The Philanthropic Initiative. For instance, Eileen Wilhem, managing director of Wachovia's national philanthropic practice, says her local symphony has been making its programming less intimidating, thus winning support from donors who traditionally favored educational causes. One recent program, entitled "Czech, Please," featured Dvorak and other Czech classical composers as well as a group of folk musicians playing spoons.

Still, Cossa observes, "I don't think any of us have found the magic formula yet." Her own hope is that as donors address the need for food, shelter, healthcare, freedom and economic opportunity, they will realize that "they and the people they are trying to help need the arts to make sense of their lives. That's how they will see the relevance."

Suzanne McGee spent nearly 14 years as a reporter for The Wall Street Journal in Toronto, London and New York. She is now a freelance writer covering business, investing, philanthropy and the arts. She is a frequent contributer to Financial Planning.

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