Heard on the Web: Charities Use Dubious Annuity Pitch

Heard on the Web: Charities Use Dubious Annuity Pitch

News story posted in Ethics, Marketing on 1 October 2009| 7 comments
audience: National Publication | last updated: 18 May 2011


In a September 29, 2009 article, Forbes reports that "dozens of charities, including some with brand names, have been soliciting gift annuities over the Web citing unlikely high yields and an endorsement from a fake person who is quoted as saying she is "delighted" with her investment. The questionable plugs for charitable gift annuities, normally considered a legitimate financial product, have been fashioned from material produced by Crescendo Interactive."

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Forbes Releases Follow-Up Article

Forbes has published a follow-up article which can be found at


CGA -- Forbes

I fully agree with the comments chastising Forbes for it's treatment of Crescendo and Charles Schultz. Speaking as an advisory fundraising board member for a major university as well as personally contributing thereto through planned giving, I have found Crescendo's illustrations and explanations to be highly professional, thorough and extremely helpful in explaining the many ins and outs of CGAs and other planned giving vehicles. It makes no difference whether "Valerie Green" exists or not. It is a common practice to use examples to communicate often-complex tax and legal concepts and financial results under various scenarios to prospective donors (and professionals). Anyone who bases an important financial decision merely on such examples -- hypothetical or actual -- without integrating their own circumstances and consulting competent professional advisors is not exercising due care. Although some fundraisers may be overzealous in their quest for financial support, any misuse by them of Crescendo's materials should not be blamed on Crescendo. As one source (unknown to me) said, "Guns don't kill people, people kill people." Forbes owes Crescendo and Mr. Schultz an apology.


It is shameful the way that Forbes seems to seek out these opportunities to exploit and discredit the nonprofit sector. It is challenging enough to raise funds right now without having to defend ourselves against these kinds of pieces. At the same time, it is a good reminder that companies like Forbes are on the lookout for reasons to write articles like these, which highlights the importance of "over and above" honesty and transparency. While we shouldn't have to anticipate every possible question or objection, if we have to ask the question "could this be misconstrued?", the answer is probably yes given the decreasing level of confidence in nonprofits.

When Do We Cross the Line?

Back in September of 1999, an article appeared the PGDC entitled, "Has Forbes Ever Met a Planned Gift it Liked?"

See http://www.pgdc.com/pgdc/has-forbes-ever-met-a-planned-gift-it-liked

Apparently the answer is still no. That having been said, it is my personal belief and experience as a former foundation CEO that when advertisements rise to the level of actually quoting donors, charitable and tax-exempt organizations should rise above the marketing fray and see to it that those donors and their stories are real.

I once had the pleasure of overseeing a hospital foundation and enjoyed a wonderful relationship with the hospital's marketing department. Our donors and their stories often graced the covers of the hospital magazine.

For example, there's no replacement for the reality of a former UPS driver by the name of Orval Olive whose job it was in the 1930s to ride the afternoon horse racing results on his Indian Scout motorcycle from Santa Anita Park to the Los Angeles Times for the evening edition and who, along with wife Edna, later transferred over $1 million of UPS stock that Orval purchased for $1,000 to a charitable remainder trust. You just can't make this stuff up! Well, you can but it just isn't as compelling or genuine. We had no trouble obtaining permission from donors to share their stories because they knew that others might also follow their example.

We walk a fine line and I fall on the side of mjrosen who commented in part on the Forbes article with the following: "By taking a donor-centered marketing approach, organizations will strengthen their relationships with their donors and prospects. It's the right thing to do. It's the approach that will produce stronger results. But, it does take more effort."

"Always do the right thing. It will gratify some and astonish the rest." -- Mark Twain

This is an outrageous attack

This is an outrageous attack on an ethical and professional individual and his company. Charlie Schultz and Crescendo provide invaluable service to charitable organizations and their donors, not only with excellent software, but also by providing template examples of how various planned giving vehicles work. Even when a charity uses the generic example, I fail to see how a potential donor could be harmed, as he or she would receive an individual explanation of what the payout and other benefits (and potential disadvantages) would be in their particular case. Furthermore, few donors would permit their real names, ages and circumstances to be publicized, so even when a charity does customize an example, it is unlikely to use the name and specific facts about a "real donor." I cannot imagine what possessed the author to write such a misleading and unfair article, or how Forbes could be so irresponsible as to publish it.

Annuity Pitch

I was distressed to read the very misleading article in Forbes yesterday which attacked Crescendo and its many users for utilizing a generic case study about the benefits of the CGA. Anyone who knows Charles Schultz or Crescendo staff as well as the nonprofits who use their software and internet marketing know that there is no finer or more ethical individual (Charles) or group (Crescendo staff). Once again the media looks for opportunities to attack the nonprofit community without understanding how gifts are actually structured and implemented. I would suspect if you talked to each and every nonprofit mentioned in the article you would find that the process for working with a potential CGA donor is done with integrity and full disclosure based on the donor's specific circumstances. These transactions with reputable nonprofits are not done without the input and advice of the donor's advisors. The gift usually takes time and discussion in order to educate the donor on the benefits and disadvantages. In terms of the full array of potential planned gifts available, CGAs are attractive because (1) they provide a fixed income to the annuitant, (2) are more easily understood than CRTs, (3) safer in terms of not having to rely on the gifted asset as the source of the payments (all of the nonprofit's underlying assets back the obligation), (4) generally produce a higher rate of return than other fixed income investments (CDs, bonds, etc.) and (5) because in many states, there are regulations in place to provide further safeguards for the annuitant. Are CGAs for everyone? No. But for individuals with charitable intent and a desire for a secure fixed income, it may be an excellent vehicle to consider in their overall financial and estate planning. It is clear from reading the Forbes article that the agenda was to create an aura of mistrust around nonprofits which seems to be a recurring theme in recent years with the media. At a time when nonprofits are hurting for funding in order to continue providing services--many of them critical--it is sad that sensationalism is more important than digging deeper to see that this is truly a case of "making a mountain out of a molehill." Are there some bad actors out there in the nonprofit world? Yes, just as there are in any business arena. But, the vast majority of nonprofits are going about the business of doing good with little resources, staffed primarily with people who have a passion for the mission and with a desire to make a difference. It is much more difficult to do so when these types of articles are written in such a way that is unbalanced and biased. Should the nonprofits change the Valerie Green story? Yes, and now, I am sure being made aware of the issue, they will work quickly and diligently to do so. Will the act of changing the website be characterized as being an affirmation that these nonprofits or Crescendo willingly engaged in a deceptive practice designed to mislead the public? Anyone who knows the players knows that such a characterization is ludicrous and without merit. Claudia Sangster

CGA - Forbes Article

While I agree that charitable gift annuities can be prudently implemented and that Crescendo does provide a great service, I think there is merit in the Forbes article in that portion that echoed the recent Warfield case concerning the marketing of CGAs and promises of return. I disagree that CGAs generally provide a higher rate of return than those provided with CDs and other fixed assets. Semantics matter in this realm and stating cash flow yield rates (published by ACGA) as "rates of return" is particularly troublesome and subjected the financial advisors in Warfield to civil damages especially when viewed in the light that the cash flow yield ceases upon death of the annuitant(s). Cash flow yield in this case is not the same as "rate of return". Plaintiff's can have a hayday with these types of half-representations. The CGA true internal rate of return is based on the IRC Section 7520 rate, which was 3.2% for October 2009. I did a simple internet search and found a Discover Bank CD 10 year rate at 3.7 with an APY of 3.8. I found other municipal bond yields in excess of 4%. To state that the CGA rate of return is higher confuses cash flow yield with rate of return. Certainly for annuitants who die prior to life expectancy, this should be a serious concern for charities. The Warfield case mentioned this risk and the possibility of no return if the annuitant does not live long enough. As it related to the representations of true rate of return, most CGA marketing material that I have seen is problematic. In this regard, I think the Forbes article was accurate and fair. In the context of an "investment contract" as in Warfield, CGAs are a bet to live as are commercial straight life annuities. Early death greatly benefits charity and many annuitants (and their children) are unaware of the resulting windfall to charity. Douglas S. Delaney, JD, LLM Managing Director CHIRA USA, LLC (843) 815-9777

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