Seeking to fix what it calls a "broken system" the Jessie Smith Noyes Foundation has begun to court donor-advised fund account holders to speed up their contributions to other charities.
The problem, as Victor De Luca, the foundation’s president, sees it, is that donors get an immediate tax deduction from money they donate to such funds, but they fail to direct their money to groups that fulfill the foundation’s mission of securing reproductive rights, promoting sustainable agriculture, and reducing pollution. Mr. De Luca wanted to find a way to connect the fast-growing practice of giving to a donor-advised fund with more traditional foundation giving.
"People are leaving their money there and forgetting about it. There’s no sense of urgency," he says. "We wanted to start a campaign to ramp up that sense of urgency."
In May, the New York grant maker produced a video inviting wealth advisers and account holders to work with the foundation to identify nonprofits that merit support. It spread the word on Twitter and plans to send a link to the video to about two dozen wealth advisers throughout the nation.
The foundation’s goals are modest: By year’s end, Mr. De Luca would like to work with one or two donors. After their investments are made, Noyes will be able to write a case study on the campaign that he hopes will attract several million-dollar account holders to work with the foundation. It’s necessary to go through wealth advisers, Mr. De Luca says, because it is difficult to get in touch with account holders.
"That’s hard, because there’s no list of who has a donor-advised fund," he says.
Mr. De Luca says the grant maker’s program staff can point potential donors to worthy nonprofits in areas that Noyes supports. But having a relationship with the foundation isn’t a prerequisite.
"We know a slew of organizations that are doing work out there," he says. "It’s not just our grantees. We just want to get more money out into the movement."
A ‘Moral Responsibility’
The idea for directly connecting with donor-advised fund holders came from the direct experience of Ann Wiener, a Noyes board member and granddaughter of Charles Noyes, one of the grant maker’s founders.
After she and her husband opened a donor-advised fund with Fidelity Charitable more than 20 years ago, the couple rarely used it to make charitable gifts.
"We didn’t pay much attention to it," she says. "We got a nice tax deduction, and that was it."
In 2008, Ms. Wiener watched as the foundation’s investment portfolio plummeted, and grantees saw cuts in support.
Sensing she had a "moral responsibility" to use the money in her fund to help grantees, she committed $500,000 from the account over 10 years to charities recommended by the foundation’s staff.
Fidelity Charitable President Amy Danforth welcomed the campaign, calling it an innovative way to "keep money on the move."
She said the donor-advised fund giant, which maintains $14.9 billion in assets spread out over 75,000 accounts, tries to educate donors on giving. The fund issues white papers on the impact of disaster-recovery donations and giving to veterans organizations and can refer donors to a roster of 18 wealth advisers.
But donors aren’t clamoring for the advice, she says.
"The majority of our donors tell us they have a good sense of what charities they are going to grant to," she says.
She calls the notion that funds sit idle at commercial donor-advised funds, which were created by financial-services companies like Fidelity, Schwab, and Vanguard, a "misperception." Last year, the fund made $2.9 billion in grants. That equals a 28-percent payout rate when the grants are calculated against a five-year rolling average of end-of-year assets.
Says Ms. Danforth: "We’re a beehive over here."
The Noyes foundation pays out about 6 percent of its assets to charities, more than the 5 percent, required of private foundations by federal law.
But Fidelity’s higher payout rate obscures the fact that billions of dollars are sitting idle in donor-advised fund accounts, says Mr. De Luca. His goal isn’t to require a higher payout but simply encourage donors to shift the money to other charities on their own.
"This system needs a course correction," he says.