Fidelity Charitable, the nation’s largest donor-advised-fund sponsor, Wednesday announced that it has eliminated the $5,000 minimum required to create an account, opening up the already popular philanthropic vehicle to legions of additional donors.
“We want to make giving accessible, simple, and effective to engage philanthropists no matter what dollar amount they’re looking to give to charity,” said Kristen Robinson, a senior vice president at Fidelity Charitable.
The move comes as donor-advised funds come under greater scrutiny. Critics have maintained that the funds, which allow a donor to take an immediate tax deduction for money placed into an account, allow donors to stash money away and not send it to charities that can put it to use.
This year an unsuccessful effort in the California General Assembly to allow the state to track money going in and out of accounts at donor-advised funds sparked a high-money lobbying battle. A group of wealthy donors has pushed Congress to require donor-advised-fund holders to direct at least 10 percent of their account balances to charity a year. And a wealthy couple, David and Jennifer Risher, challenged donors to direct half of their donor-advised accounts to charity. The challenge ended Wednesday; more than $7 million was directed to a total of about 650 nonprofits.
Annual Fee Waived for Some
By removing its minimum contribution amount for new accounts, Fidelity believes it will open up donor-advised funds as a choice for many new donors.
Robinson does not have a projection for how many new accounts Fidelity expects to attract, but she pointed out that on average, American households annually give $2,600 each to charity. By donating through Fidelity, which offers online resources such as webinars and giving stories, Robinson hopes donors will be inspired to give more and to give thoughtfully.
For the next two years Fidelity will waive a $100 minimum annual administrative fee for accounts with a balance of less than $1,000, but other administrative and investment fees may apply.
Robinson was not able to provide the size of the typical newly created account at Fidelity. The average account size, she said, is about $20,000.
Removing Barriers
Other donor-advised funds started by commercial financial-services firms require a minimum contribution for new accounts. Schwab Charitable’s is $5,000, according to its website, and Vanguard maintains a $25,000 minimum.
Roger Colinvaux, director of the Law and Public Policy program at the Catholic University of America’s Columbus School of Law, said eliminating the minimum required contribution could help “democratize” philanthropy. Donor-advised funds have been widely used by millionaires and billionaires to gain an immediate tax deduction on funds earmarked for charity.
“Having a minimum amount to set up a fund maintains a barrier to entry for some who want to get into the donor-advised-fund market,” he says.
However, Colinvaux, who spoke generally about new account requirements, said removing a minimum could delay money actually getting into the hands of a charity that is providing food for the hungry or running an after-school program. Those charities rely on establishing close relationships with donors to keep the cash flowing — relationships that could be harder to establish if more people created advised funds.
“It could further undermine direct giving,” Colinvaux said.
