What’s Better for Philanthropy than Zuckerberg’s $45 Billion Gift?

What’s Better for Philanthropy than Zuckerberg’s $45 Billion GiftMr. Zuckerberg’s pledge to give away 99% of his wealth – $45 billion – over his lifetime is getting lots of attention as a game-changer for nonprofits.  What if I told you that nonprofits can also change the game?  That by making one simple shift, they could generate up to $80 billion more each year without increasing their donations!

We can get this by eliminating waste. 

In my experience, most nonprofits are wasting money on two types of investing fees that don’t serve the interests of their organization. For an organization with $1 million in assets, this amounts to $20,000 in annual fees. For the nonprofit sector overall, with $4 trillion+ in assets, this is roughly $80 billion in unnecessary fees annually.

Yes, these numbers are staggering – and every dollar spent on fees is a dollar taken from your programs and mission.

Nonprofits can manage these fees.  

Average fees for investing can total 2% or more every year. According to the Wall Street Journal, it is common for clients to pay 1% a year to their advisor plus 1% for the actively managed funds that the advisor recommends. More complicated products – think hedge funds – charge even more.

In truth, half of nonprofits do not know how much they pay in investment fees. (“Study on Nonprofit Investing”, Raffa LLC, April 2014).  Let’s change that!

Be aware of the fees you pay & know that you pay 2 different charges.

Your organization pays fees for advice and fees for products, with little transparency.  To determine what you are really paying – you can use the formula in Note 1 below.

Be wary of popular, overpriced funds.

A high priced fund does not always deliver high performance. The average active large cap growth fund fees (‘expense ratio’) are 1.87% according to Lipper. That’s almost $19,000 for $1 million each year. Consider low cost index funds instead – which average fees less than $2,000 per million.

Remember,

Your organization’s 990 does not reflect the full amount you pay for investments. If your listed fees are $0.00, pay extra attention to product costs.

Stop the Bleeding!

Now is the time to stop bleeding fees. You have 2 levers to adjust your fees – the advice you get and the products you use.  Think about how much more your organization can accomplish with more money for your mission. Let’s take the initiative and change the game together!

Note 1: How to calculate how much you are paying in investing fees

Start by checking your organization’s 990 to see investment management fees (Part IX, line 11f). Then, read the fine print of the prospectus to determine additional fees you pay for products.  Finally, calculate this as a percent (divide the fees by investments (Part X, lines 11 & 12).

What’s Better for Philanthropy than Zuckerberg’s $45 Billion Gift

Sharon Liebowitz

The preceding is a guest post by Sharon Liebowitz, CEO and co-founder of Meritam, an SEC Registered Investment Advisor. Meritam is the pioneer in high performance, low cost, software based investment strategies designed specifically for nonprofit reserves, endowments and other long-term assets.  Sharon is a committed volunteer for organizations she supports and currently serves on the board of directors of the Center for Architecture, the Columbia University Alumni Association, and is a Columbia University Senator. 

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