The Wink-Wink Organizations
An obscure American sub-genre is that of products that proclaim to be useful in a certain way, but nobody – I mean nobody – uses it for that. Example: Q-tips. Their ads show women gently stroking their cheeks with Q-tips, but everyone buys them to clean out their ears. But Q-tips can’t say that.
Another example is vibrators – according to ads, used to relax arm and back muscles. At least that’s how I use mine! Sexual use goes unmentioned by either the seller or the buyer.
These are wink-wink products. The ads wink at the buyers, who wink knowingly back. The unspoken business driver hides behind a wink.
What are the wink-winks in the nonprofit community?
The most obvious: donor-advised funds (DAFs). Advertised and promoted as a way for people to make donations to nonprofits conveniently and “strategically,” but behind the wink is their real purpose, performing as a tax avoidance mechanism.
On paper, the person gives the money to a financial institution such as a Wall Street investment firm or a community foundation, which then assumes legal control of the funds – immediately making the transfer a tax-deductible contribution. Technically the donor – now a donor-advised fund account holder – “recommends grants from the DAF sponsor to chosen nonprofits.” But the business model relies on a wink – the investment firm will follow the account holder’s instructions. Only in a rare set of circumstances (when the recipient is not an eligible tax-exempt organization) does the sponsor exercise real control and decline the disbursement.
In fact, donor-advised funds are increasingly discussed – and used – just like any other financial asset. Individuals feel that they have a house, a checking account, an investment account and a DAF in their overall portfolio. They are encouraged to leave their DAF to their children – technically naming the children as "successor advisors," but in reality deeding control as part of their generational wealth game plan. Wink wink.
For wealthy individuals, donor-advised funds come up first as a tax strategy. A former development officer for a large community foundation told me that in every single instance, they were approached first by a wealth advisor exploring tax benefits, who would then raise the idea with their clients.
A nice side benefit: with large donor-advised fund accounts, the individuals' wealth advisor or wealth manager can continue to "recommend" the buying and selling of investments. The wink? The DAF sponsor is the legal wealth manager, but they accept the direction of the donor's wealth manager, who often continues to earn fees based on the asset size of the DAF.
The business incentive for DAF sponsors and wealth advisors is to keep DAF monies in the DAF. "We're a smart way to give" is the pitch. Wink wink.
There are other wink wink nonprofit endeavors, including Type III Supporting Organizations, neutral voter registration, non-cash donations, and others. Some wink wink efforts slide right into fraud. As with DAFs, there are honest people doing honest things with wink winks, but the business model relies on a very big wink.
