America’s 10 biggest sponsors of donor-advised funds took in $21.5 billion last year, up 24.7 percent from 2017, according to a Chronicle analysis.
That’s more than the $18 billion the top 10 nonprofits in our America’s Favorite Charities list raised in private gifts during the same time. To exceed the haul taken in by America’s biggest commercial donor-advised funds, you’d have to add up the private support received by the 18 top-ranked cause-oriented nonprofits, which brought in a total of $22.1 billion in cash and noncash support.
(Our ranking includes only organizations that are simply financial vehicles, that don’t focus on a cause. Therefore, we have excluded community foundations’ donor-advised funds from this list. If we had included them, the Silicon Valley Community Foundation would have ranked No. 5.)
Fidelity Charitable Gift Fund remains the largest donor-advised fund in America. It took in more than $9 billion in private support in 2018, 70 percent of it from stock donations. That’s a 32.2 percent increase over 2017. It’s followed by Schwab Charitable, which took in $3.3 billion in 2018, up 8.8 percent from 2017.
Academics studying the rise of donor-advised funds say their continued growth could be attributed to a combination of factors, including the new tax law, which went into effect in 2018. The tax law roughly doubled the standard deduction, which may be prompting some donors to “bunch” what would otherwise be multiple years of charitable giving into one tax year. Taxpayers can contribute a large amount to a donor-advised fund in a single year to maximize their tax benefits while continuing to dole out funds to charities from those accounts any time they want to.
Also, many wealthy donors find that giving through a donor-advised fund is easier and less restrictive than creating a private foundation, which would be required to pay out at least 5 percent of assets each year, among other requirements.
Donor-advised funds “provide that sweet spot in which donors get the maximum tax benefits and continue to get ongoing control,” says Ray Madoff, director of the Boston College Law School Forum on Philanthropy and the Public Good. “Without a DAF, donors had to choose between giving to a private foundation, where they got significantly fewer tax benefits, and giving outright to a public charity, where the donor had to give up control.”
Donor-advised-fund sponsors can also make it easy to dispose of complex assets.
Fidelity officials say they have four lawyers on staff whose full-time job is to handle donations of appreciated stock, property, business assets, and so forth.
“There’s a great deal of complexity in terms of the transfer rights of those assets,” says Amy Pirozzolo, Fidelity Charitable’s head of marketing. “Most charities would have to hire outside counsel to help with that evaluation so I do think that sets us apart that we have that expertise in-house.”
Concerns Raised
Madoff and other critics of donor-advised funds say their rapid growth underscores concerns that they have become giant holding pens where too much money is sitting idle and generating fees for account managers.
“Donors can bunch their donations without any obligation of getting the money out the door, ever,” said Alan Cantor, a nonprofit consultant.
Donor-advised funds account for 12.7 percent of individual charitable giving in the United States, according to the National Philanthropic Trust. In an era when contributions to charity have flatlined, Cantor and Madoff both argue that donor-advised funds are taking up a larger and larger slice of donor dollars without benefiting traditional nonprofits.
While some critics view donor-advised funds as a giving vehicle — and tax shelter — for the wealthy, they are also being deployed in ways that reach small-dollar donors. American Online Giving Foundation sponsors donor-advised-fund accounts in partnership with Benevity, a Canadian company that helps businesses offer workplace-giving programs.
The sheer size of American Online Giving Foundation’s donor-advised-fund operation has caused major changes in the statistical landscape of donor-advised funds. The foundation has been in operation only since 2016, but by 2018 it managed 352,552, or 48 percent, of the nation’s 728,563 donor-advised fund accounts in the National Philanthropic Trust’s tally. According to its 2018 tax documents, the American Online Giving Foundation saw $606.3 million in contributions to its accounts, ranking it seventh on our list of the biggest donor-advised-fund sponsors.
However, most its accounts are relatively small. The average account holder contributed only $1,697 a year to a fund and held an end-of-year average of $25 in an account.
Compare that with Fidelity Charitable Gift Fund, whose 114,245 accounts saw 2018 per-account average contributions of $79,088 and carried an end-of-year average-per-account value of $235,477.
As a result of the explosion of smaller accounts at American Online, the average size of donor-advised funds among all major providers dropped from $298,169 per account in 2016 to $166,653 in 2018, according to the National Philanthropic Trust.
New Approach
Meanwhile, an increasing number of traditional charities and community foundations are sponsoring donor-advised-fund accounts. Shelly O’Quinn, CEO of the Innovia Foundation, runs a community foundation focused on Eastern Washington and North Idaho. O’Quinn’s predecessor, Mark Hurtubise, was a frequent critic of commercially affiliated donor-advised funds, but Innovia now works with investment managers to seek contributions to the funds it manages. If a local investment manager has a client who wants to give to charity, the arrangement allows the investment manager to continue to manage those funds in accounts sponsored by Innovia.
“We created a way that we could contract with those investment managers if the donor recommended it and allow them to continue to manage those funds,” said O’Quinn. “If they bring over our minimum of $500,000 or more to the foundation, they can continue to manage those dollars on behalf of the foundation. They just have to follow our investment policy statement.”
The program has been up and running 12 years, but Innovia now has about 11 outside investment advisers who manage roughly $20 million in donor-advised funds earmarked for the foundation.
Innovia officials said the program helps the community foundation keep the money local — though they do allow Innovia donor-advised-fund account-holders to direct some contributions further afield.
“We are actively engaged in our communities in our region, working with nonprofits and are involved with initiatives around education, homelessness, etc.,” said O’Quinn. “When a donor comes to us with an area of interest, we are able to help them and provide information to help them with their giving. That’s not a service that any of the commercial entities offer.”
Michael Theis writes about data and accountability for the Chronicle, conducting surveys and reporting on fundraising, giving, salaries, taxes, and more. He compiled data for our November report on America’s Favorite Charities , and he recently surveyed pay packages at charities and found wide disparities in base salaries and bonuses among nonprofit causes. Email Michael or follow him on Twitter .