Definition: Finder’s Fees1
A fee paid to a third party for bringing together two or more people or companies in a business transaction, as in the borrowing or lending of money. In the fundraising context, a finder’s fee refers to the payment of a fee to a third party that is contingent upon obtaining a donation.
A payment based on the dollar value of a transaction. In the fundraising context, it refers to remuneration based on a percentage of funds raised.
Definition: Percentage Based on Contributions1
Compensation based on a percentage of funds raised.
Why is it important for nonprofit and charitable organizations not to pay finder’s fees, commissions, or percentage compensation based on contributions to their fundraisers? CRA is adamant that fundraising should not deliver more than incidental private benefit to those involved.2 The Association of Fundraising Professionals insists that finders’ fees, commissions for fundraising activities, and percentage based contributions run counter to the nonprofit sector’s philanthropic values, inviting abuses of charitable funds for personal gain and placing undue risk on the reputation of the sector as a whole.3 The AFP cites six reasons why fundraisers should not be paid finders’ fees, commissions, or percentage based compensation:3
- These incentives create an environment in which it is easy for personal self-gain to be favoured over charitable purpose
- Knowing that a commission will be paid to a fundraiser can negatively impact donor trust in the organization and can place undue pressures on donors to contribute
- People’s self-interest inherently favours immediate results, which may not take into account a donor’s best interests
- Organizations are strengthened by involving volunteers in fundraising, and paying commissions, finder’s fees, or percentage based compensation can discourage professional fundraisers from cultivating volunteer capacity within an organization
- These vehicles of compensation can reward fundraisers without cause, as would be the case if a large, unsolicited donation was made in a person’s will. Fundraising is a cumulative, long-term process and large donations are seldom the result of a single person’s efforts
- There are a wide variety of vehicles for charitable giving and a fundraiser who is paid on commission or on a percentage basis may favour certain options over others that may be better for the donor or for the organization over the long-term.
In addition, Imagine Canada’s Ethical Code Program, a precursor to the Standards Initiative, prohibited the use of finder’s fees, commissions, and percentage based compensation with the following rationale:4
- Charities, because they operate for the public good, receive unique rights and tax exemptions. Percentage-based compensation can incur excessive private benefit to fundraisers, undermining the contract that charitable organizations make with society
- These practices can damage the reputation of the sector by creating the perception that large percentages of a donation are going to fundraisers. Donors may choose not to give if they feel their donation is going to an individual as opposed to the cause
- Effective fundraising depends on cultivating long-term relationships, while finder’s fees, commissions, and percentage based compensation favour seeking immediate funds
- These mechanisms can place too much pressure on donors
- Determining payment in advance recognizes the valuable work of fundraisers regardless of the financial return
Instead of receiving finder’s fees, commissions, or percentage based on contributions, fundraisers should be compensated according to their experience, expertise, and time.5
From "Accreditation Preparation Workbook Section C: Fundraising," Katharine Zywert, Social Prosperity Wood Buffalo at the University of Waterloo, 2013.
- “Standards Program Definitions,” Imagine Canada, May 2011.
- “Fundraising by Registered Charities: Guidance,” Canada Revenue Agency, April 20th 2012.
- “Professional Compensation: A Position Paper,” AFP Ethics Committee, Association of Fundraising Professionals, Revised October 2001.
- “Ethical Code Handbook,” Imagine Canada, February 2011.
- “Association of Fundraising Professionals Code of Ethical Principles and Standards,” Association of Fundraising Professionals, 2004.
Standards Reference Guide