Finders Fees
(Added 11/1/2012)
A law firm whose attorneys are often asked to refer worthwhile charities for their clients' estate plans recently approached us. That's normally a good call to get, but as I began explaining our programs to the woman who called, she seemed less interested in what we actually do - we're a human service agency - and interrupted to ask if we pay referral fees for gifts that are recommended by third parties. I said we don't, but I'm not sure if that's the right answer. If other charities do that, should we?
You should not pay referral fees.
In the early 1980s, this question was raised when several large charities on the east coast heard a similar come-on: pay us a fee and we'll ensure that you are named as a remainderman in a life-income trust. This ignited a robust discussion. Gift planners calculated the benefit, even weighing the difference between the immediately paid fee and the present value of the expected remainder. Why not do it, many wondered, if we can net a gift out of it? For an outright gift, the fee may be perceived as just the cost of doing business. Even if the charity is bending the rules, the good can outweigh the bad, right?
One of the bigger sources of angst in the fundraising community is acknowledging that while gift planners sign off on the Model Standards (whether they are actually read, understood and embraced is another matter), our partners in the for-profit world are not required, or even asked, to agree to them. We would like everyone to play by our rules, but of course not everyone does - even within the nonprofit world. Unlike the influence the American Council on Gift Annuities has on payout rates, the Model Standards, for some reason, have less clout; when they become inconvenient, no one is around to actually enforce anything. Which, unfortunately as well as ironically and necessarily - is the ethos in an ethics environment.
It's not a good idea to pay a finder's fee because the charity would be violating the spirit of the gift. Most charities that don't offer higher-than-recommended gift annuity rates feel that doing so would violate a community compact among charities, which basically says that we're not going to buy your gift, a purchase that would come at the expense of another charity. From my perspective, this trumps the reason many people think should be the driving force: that it would come at the expense of the pursuit of mission. This is because it could be argued that although the charity would end up with less by offering higher rates, the gift would still mean something.
But paying a fee in this case comes at no expense to another charity, assuming the law firm is eventually going to find one that pays, or ends up not recommending any charitable bequest for its client. The law firm might not be violating its ethical code, the Lawyers Code of Professional Responsibility, but the charitable community has the ability, right, and obligation to determine what is right for itself. And although "Article IV - Compensation" in the Model Standards does not elaborate, it clearly says that charities should not pay a fee for gifts. Any coercion for payment is to be repelled. And why is that? As the article says, in alignment with the idea of the spirit of philanthropy, "Such payments lead to abusive practices."
And they often do. Although charities incur legitimate costs for doing business, they should not be confused with the surrendering of their values. Even a hint of taking part in a potential abusive practice should stop the charity from considering paying a finders fee.