Contributions to donor-advised funds held by Fidelity Charitable skyrocketed to $6.85 billion in the fiscal year that ended June 30, a 68 percent increase over the previous year, Fidelity reports, citing a healthy stock market and a political climate conducive to giving.
The nation’s other major holders of donor-advised funds have also reported strong results, and some experts say another big year may lie ahead. Schwab Charitable saw 40 percent growth in contributions from January through August compared with the same period last year. Vanguard Charitable expects to register about a 20 percent increase in contributions for the fiscal year that ended on June 30.
Wealth generated by the stock market fueled much of the increase. In the most recent year, 64 percent of Vanguard’s contributions came from appreciated securities, compared with 55 percent during the fund’s 2016 fiscal year.
A changing policy environment made a difference, too, says Pamela Norley, Fidelity’s president. In the months since President Trump’s inauguration, many donors have increased giving to counter immigration, social-justice, and climate-change policies they disagree with emanating from the White House, she said.
“People are concerned with governmental pullback from the issues they care about,” she says. “People wanted to bring their own dollars and their beliefs around the importance of those causes to make sure they stay on track.”
Other experts cited tax policy as another reason for the surge in giving, saying that some donors foresee lower taxes eventually under Mr. Trump, making charitable donations more valuable now as a tax break than in the future.
These philanthropic accounts have become the preferred giving vehicle for many donors. Use this collection of articles and other resources to learn how charities can connect with fund holders.
Striking Results
Fidelity Charitable’s were particularly striking. The nearly $3 billion surge in giving, based on Fidelity’s preliminary, unaudited estimates, follows a down year for the nation’s largest holder of donor-advised funds. In the fiscal year that ended in June 2016, Fidelity attracted about $4 billion in contributions, falling short of the mark it had set the previous year by more than a half-billion dollars.
Fidelity’s donors held onto their assets more closely that year because a volatile stock market made it tough for them to decide how much money they could afford to set aside in their giving accounts, Ms. Norley says.
“A lot of philanthropic dollars sat on the sidelines in early 2016,” she said. “There was a lot of uncertainty with the presidential election looming, and there was uncertainty in the financial markets. We had the election in November, and there was just this groundswell of response.”
Donor-advised funds have been around for decades, but their growth has taken off in recent years. When opening an account, a donor takes an immediate tax deduction. Technically, control of the money in the account is then transferred to the fund’s managers, but donors get to advise which charities will ultimately benefit. Until grants are made, the fund invests the money and charges a management fee.
Donors can open donor-advised-fund accounts at community foundations or at charitable operations, some of which are affiliated with for-profit financial institutions like Fidelity, Schwab, and Vanguard, where growth generally has been the strongest, according to Chronicle data.
Reacting to the Election
Wealth adviser Seth Finkel saw many of his rich clients begin to “front-load” contributions they had planned to make, including gifts to their donor-advised funds, after last November’s election. Mr. Finkel, a managing director at investment firm Neuberger Berman, says many of his clients believed Congress would limit the charitable deduction, and they wanted to get as much tax benefit as possible from their gifts before tax-policy changes were made.
Mr. Finkel, who is one of the top wealth advisers in the country according to Barron’s, says some of his clients are transferring their charitable assets from private foundations to donor-advised-fund accounts.
He gave an example of a professional athlete, whom he declined to identify, who had created a family foundation to contribute to causes in his community. For several years after his retirement, Mr. Finkel says, the sportsman was able to use his prominence to attract other supporters. Now, as his celebrity status has declined, it is more difficult to justify the time and effort it takes to run a private foundation, so he decided to transfer his assets to a donor-advised fund, Mr. Finkel says, which “will probably satisfy the family’s charitable goals at a lower cost.”
Different Passions
While such transfers don’t explain all of the growth at Vanguard, they made a difference. Jane Greenfield, the fund’s president, says transfers of all or portions of a private foundation’s assets increased by 34 percent last year. She said some donors switch to a donor-advised fund because their children don’t want their philanthropy to be locked into the mission of a private foundation. They want to tailor their giving to their own desires.
“On the higher end of our business, we’re seeing some big movement there,” she says. “They’re finding that the next generation might not have the same passion for that mission.”
Ms. Greenfield anticipates that the recent series of hurricanes and natural disasters may nudge contributions higher. She’s noticed an outflow of funds for disaster relief lately, and money flowing out may spur donors to rebuild their funds, she says. Many donors have designed giving strategies that they may want to stick to even after making unexpected disaster-relief contributions.
“We anticipate they may replenish to keep on track with their plans,” she says.
More to Come?
A little-known tax rule may also boost gifts toward the end of this year, according to Eileen Heisman, president of the National Philanthropic Trust, a donor-advised fund. The rule requires hedge-fund managers who earned fees outside of the United States and didn’t pay taxes on them to repatriate the revenue by the end of 2017. That might spur donations to donor-advised accounts from fund managers who want to reduce their tax liability.
“We’re going to see from this very small group of people possibly a very large set of donations coming in by the end of the calendar year,” she predicted. This year, the National Philanthropic Trust has seen contributions increase by 30 percent.
Mixed Results
While gifts appear to be soaring at large commercially affiliated funds like Fidelity and Vanguard, the results are more mixed at smaller holders of donor-advised funds.
The Community Foundation of Greater Memphis notched $103 million in contributions in its fiscal year that ended on April 30, a steep decline from the $195 million it attracted the previous year. Almost all of the contributions the foundation receives are to donor-advised funds it manages.
Robert Fockler, the foundation’s president, says 2016 results were extraordinarily high because of a single large gift. Unlike commercial donor-advised funds, which benefit from strong national marketing campaigns and respond to broad economic factors, a community foundation’s donations rise and fall based on what is happening in the grant maker’s hometown, Mr. Fockler says.
Over all, Mr. Fockler says, results have been strong for the Community Foundation of Greater Memphis for the past decade.
DonorsTrust was expecting a slow year, telling The Chronicle several weeks ago that contributions would likely drop from $140 million to $90 million, largely because two bequests boosted results last year.
Over the summer, things picked up, and the fund now expects to match last year’s results, according to Lawson Bader, DonorsTrust’s chief executive.
DonorsTrust is buoyed by the same increases in wealth and market gains that have helped the major commercial funds. But, Mr. Lawson says, the political climate also affected giving to the fund’s accounts. DonorsTrust’s mission is to support conservative and free-market causes. During the intense political fundraising season in 2016, many of the fund’s donors may have channeled their efforts to political campaigns and public-advocacy efforts rather than to a nonprofit.
“They were very busy in 2016, and they may have wanted to catch their breath,” he says. There may have been some election donor fatigue, but we’ve seen a re-engagement.”
Still, Mr. Bader doesn’t expect the same kind of growth the commercial players have experienced, saying contributions are likely to rise gradually.
One reason donations might continue at a slower pace is that DonorsTrust is concentrating on attracting younger donors who may not yet have the same resources as those close to, or beyond, retirement.
The fund has created the Novus Society, a group of young professionals who will be allowed to open and give from accounts with a much lower minimum contribution. By the end of the year, he’d like to attract 50 people under age 40. To do so, the fund is filming informational videos it plans to put on its Twitter feed and will begin a mentoring program that matches young donors with older donors with a conservative political outlook.
Customer Service
With the proliferation of donor-advised funds, attracting new donors is the key to sustaining growth, Mr. Bader says.
“It’s a more occupied territory, so we have to make sure we are differentiating ourselves from other donor-advised funds.”
Fidelity, too, credits much of its growth to customer service and technology improvements. Opening an online account takes just minutes, Ms. Norley, the fund’s president says. And last summer Fidelity introduced a mobile-giving app. Ms. Norley declined to say how many contributions have been made through mobile devices.
She envisions Fidelity becoming “an Amazon for philanthropy” by catering to donors used to conducting business and shopping on their iPhones.
Ms. Norley expects the end of the year to be a busy time at Fidelity. Usually, the fund starts its giving season in late November. Extra staff is hired. No changes are made to the website, to lessen the chances of a glitch and to ensure seamless interactions with clients.
This year, expecting a torrent of gifts, Fidelity is kicking off its end-of-year effort on October 16.
“It’s a very important time of the year,” Ms. Norley says. “Everything needs to be buttoned down.”
Timothy Sandoval contributed to this article.
Correction: A previous version of this article had the wrong figures for DonorsTrust’s 2016 and projected 2017 contributions.
