News and analysis
June 17, 2015

Backers and Critics of Donor-Advised Funds Debate Their Merits

The growing scrutiny of donor-advised funds is baseless, said leaders of community foundations and representatives from national investment firms during an Urban Institute conference this week.

"It’s a disservice to the field to assume there’s a problem," Emmett Carson said, president of the Silicon Valley Community Foundation, in an interview. "I think that undermines public trust if we can’t find what the problem is."

Intended to serve as neutral ground, the conference dealt with donor-advised fund policies, practices, and statistics.

But several participants challenged the framing of the debate. For example, Mr. Carson objected to the premise of an early line of inquiry about whether donor-advised funds have increased the level of giving over all.

"I’m not understanding why this vehicle bears this sole burden in the entire ecosystem of philanthropy," Mr. Carson said at the conference on Tuesday.

Edward Beckwith, national leader of BakerHostetler’s tax-exempt organizations and charitable-giving law practice, agreed, calling the question a "red herring."

"This is a gateway to philanthropy for people who can’t otherwise afford large enterprises," he said. "Why wouldn’t you allow it?"

Giving Now vs. Later

Some of the fund managers balked at calls for more transparent data and asked that critics develop concrete research goals before requesting information, to avoid what Mr. Carson called a "witch hunt for data mining."

Other participants, including several law professors, articulated their objections. That there is no standard limit to the amount of time money may sit in donor advised funds worried Boston College Law School professors Brian Galle and Ray Madoff, who suggested that a limit would improve public perception of the funds.

Several investment-firm and community-foundation representatives pointed out that their organizations have policies preventing accounts from being dormant for more than a few years. Alex Armlovich, research associate at the Manhattan Institute, noted that dollars in these funds will accrue interest that can be spent in the future.

But to Mr. Galle, there’s a clear opportunity cost to holding onto donations.

"All money held by philanthropic institutions could also have been spent on charity today," he said in an interview. Spending money now to send someone to college, for example, will help that individual get a job, which leads to more benefits down the road, he said. He also argued that paying for experimental programs now may lead to innovative solutions for future use.

Other participants said that charities are concerned about the accessibility of people who have donor-advised funds, especially since cultivating personal relationships with donors is a key fundraising strategy. Benjamin Pierce, president of Vanguard Charitable Endowment Program, said that 95 percent of his organization’s grants are made with full disclosure about the donors’ identities. Several other donor-advised fund representatives confirmed that only a small minority of giving through their funds is done anonymously.

"It’s a beautiful cultivation opportunity that sits before all of these charities," Mr. Pierce said. "You’ve been given a gift beyond money — you know the donor, you know they have a bucket of money waiting for you. That development officer should be all over us, and that donor and ask, ‘Can I get an annual gift?’"

There were was one point of agreement: Participants with varied perspectives on other aspects of donor-advised funds agreed said that they are more efficient than the small private foundations donors might open instead.

Send an e-mail to Rebecca Koenig.