Wealth Data: 5 Ways to Learn More About Your Prospect’s Capacity to Give
Mo’ money, Mo’
problems major gifts. We’re concluding our donor research tips series with arguably the most important information you can find on your prospective donors, their wealth. If you’ve been following along in the series and trying out the search tips, you now know that: your promising new prospect lives in a 7 bedroom house in Texas, has a beach house in Malibu, tends to give gifts of at least $50,000 (primarily to Human Services causes) and sits on two boards. But what about her securities ownership? Does she have other assets? What is her annual income? These are a few of the questions you can answer with some research into your prospect’s wealth portfolio.
Wealth data is extremely important in prospect research because it is the primary driver behind your prospect’s ability to give. However, our clients tend to fall into two camps with regards to their opinion on the importance of wealth data: Camp #1: It doesn’t matter how much money they have if they’re not philanthropic, aka they don’t have a history of giving it away. Camp #2: Wealth is all that matters. As long as they have wealth, we can make them passionate about our cause.
Regardless of what camp your organization falls into, all fundraising professionals should be slightly weary of wealth information. You can only find out as much about your prospect’s wealth as is publicly available. And the wealthier an individual is, the more likely they are to find creative ways to disperse their wealth among hard to find LLCs and trusts. As Helen Brown, Founder of The Helen Brown Group, explains in this post, “Evidence suggests that for some prospects publicly-identifiable wealth only comprises a tiny fraction of net worth since so much of their wealth is private. For others, identifiable wealth well over-inflates net worth since it ignores the liabilities on a household’s balance sheet.”
So wealth data isn’t the be-all and end-all, but it is an excellent baseline indicator that your prospect may have capacity to donate a major gift. So how do you determine just how wealthy your prospect or donor is?
Try These 5 Wealth Data Research Tips:
1. Look for their Stock Holdings and Transactions through SEC Filings
SEC Filings provide excellent insight into your prospect’s liquidity and thus allow you to make more timely asks. They are publicly available through the US Securities and Exchange Commission in the US or SEDAR in Canada, and detail insider transactions and security ownership. If your prospect research tool provides a database like this one for scanning SEC filings, you can use it to quickly search insider transactions and security ownership by individuals, companies, or alumni. You can also scan information such as security type, number of shares traded, price, and remaining securities. You may even be able to set alerts that will notify you of your prospect’s wealth creating events such as acquiring and disposing of stock.
2. Look for multiple evidences of wealth
As mentioned above, wealthy individuals may have tactful ways of distributing their wealth among multiple sources. However, there are some wealth indicators that are typically associated with high net worth individuals:
- Does the individuals work at a profession typically associated with high net worth – i.e C-level executive, doctor, lawyer, pilots, or real estate investors?
- Does the individual have a certain level of liquid assets i.e. $1M – $2M, $2M -$3M, $4M+?
- Does the individual own certain assets associated with wealth i.e. Yacht, aircrafts, luxury/exotic cars?
- Is the person a specialized Investor i.e. accredited investor, angel investor, etc.?
There are multiple ways to find this information but arguably the fastest way is through a specialized database such as Prospects of Wealth from Larkspur Data.
3. Look for wealth acquired through financial compensation
Going back to basics, you can look for wealth that is acquired through employment or a board membership with a wealthy company. This information can sometimes be found with some skilled digging online, or databases such as Infinata’s High Net Worth Insight will provide it to you all in one place. Specialized databases like Infinata’s may also assign individual’s a wealth score based on title, length of employment, company revenue, cash compensation, and stock information if employed at a publicly traded company.
4. Determine an individual’s baseline capacity rating
The primary reason a researcher or fundraiser is trying to find insight into their prospect’s wealth is so they can use that to determine an ask amount or an estimated capacity rating. We won’t go into detail on this as it is a whole topic in and of itself, but we will give you quick rules of thumb, from this presentation by KCI, for using wealth data points to determine a capacity rating:
- Capacity as a percentage of estimated net worth: Estimated net worth x 5%
- Annual Income represents 10% of net worth: Annual income x 10%
- Real Estate represents 20-25% of an individual’s net worth: Value of Primary Residence + Value of Additional Properties/20-25% x 5%. More here.
- Stock Holdings represent 30-35% of an individual’s net worth: Current Estimated Holdings/30-35% x 5%
5. Look at their real estate holdings, charitable giving information, and foundation affiliations
We wouldn’t be able to conclude a discussion on understanding your prospect’s wealth without mentioning real estate holdings, philanthropic information, and foundation affiliations. These 3 sources of information were all explained in detail earlier in the series (links below), but they’re worth mentioning as a prospect’s wealth picture isn’t complete without them.
- Real estate holdings, especially additional properties, indicate an individual’s wealth and can be used to determine capacity.
- Charitable Gift size helps you determine if the individual has a history of donating major gifts
- Foundation Affiliations – if someone sits on multiple foundation boards, odds are they may have wealth to give. This is especially true if you find that the individual sits on the board of a family foundation. If this is the case, not only do they likely have wealth, they have also set up a medium for them to distribute that wealth to certain causes (which you can see by identifying their grants awarded).
There you have it. Wealth insights are very important to understanding the capacity and lifestyle of your prospective donors. These 5 tips should help get you started determining whether your prospect has wealth to give. Are there other go-to wealth indicators you make sure to include in every donor profile? Let us know!