Wall Street is engineering a not-so-hostile takeover of charity.
That’s the message of a new report that examines the growing assets in donor-advised funds and foundations and the implications for the culture of giving. It projects that by 2028, DAFs and grant makers together will take in half of the dollars donated to charity by individuals. Already, they collect 35 percent.
Assets held by DAFS and foundations will top $2 trillion by 2026, the report says, a warehousing of enormous wealth that benefits a growing array of intermediaries whose processing fees and asset-management commissions siphon off money intended to do good. The result? Altruism, the driving force of charity for centuries, is losing ground to profit motives and donors’ self-interest, the report contends, with philanthropy increasingly structured to benefit business, not charities.
“Philanthropy has become captured by the wealth preservation industry,” declares the report by the Institute for Policy Studies, a critic of DAFs and a proponent for legislation to force DAFs and foundations to distribute more of their assets annually.
The report is the latest salvo in a long-running debate over whether nonprofits are losing out as charitable giving is conducted through investment-like vehicles often managed by for-profit ventures. Three of the five largest DAF sponsors are nonprofit spinoffs of investment firms: Fidelity, Schwab, and Vanguard.
“We do see a muddying of the boundary between investing and philanthropy,” says Bella DeVaan, associate director of IPS’s Charity Reform Initiative and an author of the report.
DAFs, DeVaan says, provide extraordinary benefits to everyone but charities. DAF account holders enjoy significant tax advantages, can dispose of illiquid assets quickly, and still decide how to invest the money. Account administrators profit by charging fees on the assets and sometimes the donation transactions.
It may be years, meanwhile, before a donation that has triggered a tax deduction is put to use for the common good. “We just think that the benefits should go down” to charities themselves, DeVaan says.
Earlier IPS research found DAF sponsors that promote benefits for donors such as tax advantages and investment options attract more donations than those that emphasize their charitable purpose and the impact of donating.
The new report suggests the growth of limited liability companies and impact investing also contribute to what it calls the increasing “financialization” of charitable giving. It points to a Bank of America study that found the number of high-net-worth families participating in impact investing had doubled over three years, with 40 percent using such investments in lieu of some or all of their charitable giving.
Advocates for charity investment vehicles reject the IPS argument and say that treating donations as investments ensures they will have greater impact. Once money is donated to a DAF, it has to go to charity, says Matt Nash, head of the Blackbaud Giving Fund, a DAF sponsor. “It’s OK to try to maximize that money” and its impact.
Also, DAFs allow donors to be more intentional and strategic in their giving. “I can make the decision to spend those funds in times when people really need it,” like the pandemic, adds Nash, a member of the Generosity Commission’s research task force.
Adam Nash, co-founder of the DAF sponsor Daffy, says the funds provide individuals the means and incentive to consistently put aside money for charity and work toward a goal, just like individual-retirement and college-savings accounts.
“It’s fundamentally a good thing for charitable giving for us to take the best practices and benefits that the financial services sector has learned long ago to help people save and meet their financial goals,” Adam Nash says. “If our goal is to get more people to give more money to the causes and organizations doing this work, at some point, putting the money aside for charity is the top of the funnel.”
