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The Metamor Response
In addressing the concerns of the ACGA and NCPG point by point as we do below, the careful development of the Metamor model becomes evident. Moreover, in an economic climate where development professionals are dramatically behind goal, it is imperative that organizations discern the best means to minimize potential liabilities. Creating immediate cash flow from CGA transactions, while securing the transaction against the ebb and flow of market conditions proves to be the most prudent course of action in the ever changing landscape of mission driven fundraising efforts.
Regarding the payment of commissions as a trigger to SEC regulation
The Metamor broker is not providing donation leads, nor are they soliciting financial donations on the behalf of the charity. All gifts are procured by the paid and volunteer staff of the nonprofit organization. Moreover, the charity is not paying a commission to the Metamor broker. In fact, no payment is made by the issuing charity to Metamor ever. All commissions are paid to Metamor by the life insurance company the commercial income annuity is purchased with. This represents a significant savings to the charity, which under current practice, is paying up to 25 basis points per quarter to a portfolio manager to manage their investment. Given the fact that a life insurance license and life company appointments are the only necessary requirements to place a commercial income annuity, there is no threat that the SEC would even have interest in our model. More importantly, Metamor Charitable Funding holds such license in all 50 States – eliminating the need for the issuing charity to seek these requirements. With a pending patent on our business model, we have ensured that this product will not be mismanaged by brokers looking to turn a quick profit. Our interests are in complete alignment with the charity, donor and ACGA.
Regarding charitable gift annuities being different than commercial annuities based on intent
The Metamor staff couldn’t agree more. That, again, is why we are not soliciting or selling the gift. The donor and charity will enter into a charitable gift arrangement as they always have. Rather than subject either party to investment risk, the issuing charity will simply place their funds in the care of a life insurance company rather than turn the gift over to a portfolio manager. In so doing, the charitable intent is actually magnified as a commercial income annuity costs less and provides immediate cash flow to the charity. More importantly, there is truth in advertising, as the Charitable Gift Annuity is in fact an actual commercial annuity – not just a pooled income fund.
Regarding confusion as to the proper crediting of gift amounts on commissioned sales
The Metamor business model eliminates any and all confusion, as there is no commission to account for. Donors are able to recognize a tax deduction in the year the gift is transacted, equal to the difference between the donation made and the anticipated value of the lifetime payments, (i.e.: if the donor makes a $100,000 donation in exchange for an annuity that projects to pay him $50,000 over his remaining life span, the deduction this tax year will be roughly $50,000).
Regarding the violation of State solicitation laws and subsequent loss of nonprofit status
There is no solicitation in this model that differs from what is currently taking place. Thus, there is no cause to be concerned with a violation in this area. The Metamor model seeks to enhance the security of a CGA transaction for all parties.
Metamor Charitable Funding does not market or discuss CGA transactions with individual donors. We operate as an agent of the issuing charity and life insurance company exclusively.
Regarding a significant reduction in the residuum available for charitable purposes
Nothing could be further from the truth. Due to the fact that a commercial income annuity costs an average of 20-30% less to provide the same annuity payment to the donor, the charity is actually receiving a greater share of the donation for their charitable interests and service delivery operations. More importantly, every annuity can be purchased with a Legacy Refund option which provides for a potential return of the corpus gift upon the death of the donor, equal to the difference between the premium paid to the life insurance company and the benefits paid to the donor over their respective lifetime.
ACGA suggested rates are used in each and every scenario as well. At worst, a donor outlives their normal life expectancy and is paid until their death through the purchase of the commercial income annuity and the issuing charity captured the initial 20-30% savings upon receiving the gift. In the current business model, a portfolio can ‘go negative’ if a donor outlives the normal life expectancy, or the fund is managed poorly. As such, there would be no residuum available. In fact, it is possible that a charity could lose money in such a scenario, as the invested funds cannot keep up with inflation and the charity is forced to tap reserves to meet their financial obligation to the donor.
Regarding the Model Standards of Practice and the payment of finders fees or commissions as never being appropriate
Metamor agrees. As members of the Association of Fundraising Professionals (AFP), we abide by the ethical solicitation and stewardship of donated dollars to charity. Nonprofit organizations and their paid and volunteer staff should be held to the highest standards. They should be transparent in their accounting of donations and be able to prove that the intended use of the donated dollars was maintained. The current CGA model, where funds are donated, turned over to a bank and managed by a portfolio advisor who is subject to market risks is simply poor stewardship. In no way does the Metamor Charitable Funding model compromise the integrity of the donor – charity relationship. All gifts are secured by charity staff and funded by charitable intent on behalf of the donor. Our model simply maximizes the value of the gift to the issuing charity, while creating a more secure transaction for both the donor and nonprofit organization. There is no downside risk to the Metamor model in any capacity – all verified by the Private Letter Ruling.
Moreover, charities are currently paying management fees (typically 25 basis points per quarter) to money managers, regardless of their performance for the issuing charity. A substantial argument can be made that having the life insurance company (not the issuing charity) pay a one time commission to an insurance broker is a much more appropriate stewardship of charitable dollars than the current business model.
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