Donor-advised funds housed at charities run by commercial organizations such as Fidelity and Schwab transferred at least $1 billion into other commercial DAFs in 2019 alone, according to a new report. These transfers between the giving vehicles inflate the payout data these organizations report and make it hard to know how much DAFs really distribute to working charities.
The analysis from the Institute for Policy Studies shows that the amount of money donors have transferred from one DAF to another has grown exponentially in recent years.
Chuck Collins, who co-wrote the new report and leads the institute’s Program on Inequality and the Common Good, says it’s important to understand how these transfers are distorting data, especially as discussion is underway about a Senate measure to speed up the flow of money from donor-advised funds to working charities. The transfers are completely legal — and would stay that way — although the Senate measure would deter private foundations from making such transfers by barring grant makers from counting such distributions toward their annual requirement to give at least 5 percent of their assets annually.
“We should be measuring the dollars that leave the donor domain,” Collins says. “A DAF giving to another DAF for whatever reason shouldn’t be considered moving money to frontline charities.”
Researchers analyzed data from 39 commercial DAF sponsors that filed their informational tax returns electronically in at least one year from 2017 to 2019. They analyzed five years of tax information for those fund sponsors.
In 2015, those 39 DAFs granted $209 million to other commercial DAFs. By 2019, the dollar amount granted to other commercial DAFs had ballooned by 409 percent, to $1 billion. Those transfers accounted for roughly 6 percent of the $17.6 billion in grants from national commercial DAF sponsors that year. That tally was reported by the National Philanthropic Trust, a sponsor of donor-advised funds that produces an annual report on DAF growth and grant making.
Reasons to Move
There are many reasons why donors may move money between DAF sponsors. They may switch banks, for example, or move their money from a commercially sponsored fund to a community foundation. Donors may move their money to take advantage of lower fees or higher yields on their investments. They may also do it as a way to preserve anonymity, Collins says, further reducing transparency by removing their name from a grant.
“DAF-to-DAF giving is not insignificant,” he says. “It’s pretty clear there’s a big chunk of money that’s not moving to charities.”
Foundation-to-DAF Transfers
The Institute for Policy Studies has also tracked how private foundations are moving money into DAFs — transfers that today help them meet their 5 percent minimum payout requirement without necessarily getting money into charity coffers. That soon-to-be-published analysis includes only giving from foundations that file electronic tax returns.
From 2016 to 2018, foundation grants to the top 50 commercial DAFs averaged $740 million per year, the institute’s analysis found. In 2018 alone, foundations moved more than $937 million into these biggest commercial DAFs.
Only 1.2 percent of foundations made grants to commercial DAFs in the three years studied. But among the foundation that did, those grants made up a median 11.7 percent of their charitable distributions.
While both foundation-to-DAF transfers and grants from one DAF to another are legal, critics say they’ve led to a warehousing of charitable assets, with no requirements to get money out the door.
‘Thoughtfully Skeptical’
The new studies from the Institute for Policy Studies are not the only new data that sheds light on donor-advised-fund giving patterns.
A recent study of donor-advised funds in Michigan found that in 2020, 35 percent of those funds distributed no money, 22 percent distributed less than 5 percent of their assets, and 43 percent distributed more than 5 percent.
Thirty-one of the 39 DAF sponsors in the new analysis gave to another commercial DAF in at least one of the five years from 2015 to 2019. And 44 of the top commercial DAFs received at least one grant from another commercial DAF in that period.
In 2019, the Fidelity Charitable Gift Fund was the largest grantor to other commercial DAFs, giving a total of $448 million to 29 other commercial DAF sponsors that year. Those transfers represent more than 7 percent of the $6.1 billion Fidelity DAF-holders granted out to charity in 2019.
Fidelity was also the largest recipient of commercial DAF grants, receiving a total of $231 million in grants from 14 other commercial DAF sponsors in 2019.
The public should be “thoughtfully skeptical” about fund sponsors’ self-reported payout numbers, Collins says. He says the $1 billion charted in this report is just the tip of the iceberg.
“When we start to count it all, and we include private foundations giving to DAFs counting toward their payout, we start to get a more accurate picture [of] how much money is sitting warehoused and how much money is actually flowing.”
