Controversy in Charity: The Debate Surrounding Donor Advised Funds


A Donor Advised Fund (or DAF) is a recently growing and popular charitable vehicle, allowing for philanthropic donations that the donor controls over time. So in theory, if you have a million dollars and you want to do good things with it, you give it in a lump sum to a DAF ‘sponsor’ fund, get an immediate tax deduction, and over your lifetime you choose when and how much to donate from that fund to as many charities as you please. The sponsor, meanwhile, actively manages and invests your DAF funds, helping them to grow. Although this seems rather simple, Donor Advised Funds are changing the landscape of both philanthropic and financial institutions in important ways. As Enterprise has been a longstanding player in the nonprofit and charitable world, part of my role has been researching and engaging with these entities. I am looking forward to watching how these funds evolve over time and have found the heated debates surrounding them interesting.

Primarily, whereas the top charitable institutions a decade ago in the U.S. would have been charities that you and I are familiar with like United Way, Salvation Army, American Cancer Society, etc., they now include Vanguard, Fidelity, and Schwab. Each of these institutions has created a charitable arm drawing DAFs, allowing their assets under management to increase by billions as they manage these funds. This is arguably a very good thing, as charitable money in DAFs has grown hugely over the past several years, totaling well over $50 billion nationwide. All of these funds eventually will go to charity, and as this popular vehicle continues to grow, it earmarks even more money for important causes.

Critics, however, are concerned that DAFs do not have many of the same regulatory guidelines that other philanthropic vehicles do. For instance, whereas foundations are required a mandatory minimum 5% annual payout of their assets, there are no such rules for DAFs. So theoretically, a person could put all of their wealth into a DAF, never request that a grant be made, and have it stay there indefinitely even past their death. This, many argue, allows for a huge amount of resources that would have otherwise gone to active charities to be locked up. The tax benefits have been realized, yet the funds are inaccessible to the organizations that desperately need them. Meanwhile, sponsor institutions managing the funds receive a small percentage of each DAF in management fees. Critics worry that this creates a perverse incentive for sponsors, as they benefit the longer the funds are idle and therefore may not encourage donors to make grants.

A small number of DAF sponsors are ‘self-regulating’ to change these policies and mitigate these concerns. For example, many have imposed their own minimum payout requirement of, say, 10% a year, or alternatively created a 10 year maximum lifespan of a DAF. It is possible that there will be other legislative or regulatory changes made, and some organizations are working for this policy change. As members of the social impact world, it is important to be engaged with this influential new tool that is steering a growing portion of charitable dollars. I hope that as many of us work in this space, whether as policy makers, nonprofit charitable beneficiaries, fund managers, (and, after we pay off b-school debt, donors!) we can continue to shape this debate ourselves.


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