Firms that sponsor donor-advised fund programs include Fidelity Charitable, Schwab Charitable and Vanguard Charitable. All three are nonprofits affiliated with their namesake financial services companies: Fidelity Investments in Boston, San Francisco-based Charles Schwab Corp. and Vanguard Group Inc., in Valley Forge, Pennsylvania.
Both Fidelity Charitable and Vanguard Charitable reported record contributions in 2011. At Fidelity they reached almost $2.9 billion, while at Vanguard, they surpassed $859 million, the companies said in statements last week.
Improved Conditions
Donations of appreciated securities were 71 percent of contributions to Fidelity Charitable last year, compared with about 51 percent in 2010, said Sarah Libbey, president of the nonprofit. The increase was due in part to improved market conditions, Libbey said. The Standard & Poor's 500 Index returned 2.1 percent with dividends reinvested last year, according to data compiled by Bloomberg.
"We're pleased to see that rebounding," Ben Pierce, president of Vanguard Charitable, said of people giving shares of appreciated stock such as Google Inc. and Apple Inc. Google returned about 40 percent from January 2007 through December 2011 and Apple gained about 377 percent in the same period.
When individuals give stock to donor-advised funds, the shares generally are liquidated, said Libbey. Fidelity Charitable clients may then invest the money in a variety of funds or, if the account is managed by an investment adviser, in individual securities, she said.
Commissions Charged
Both Fidelity and Vanguard charge a brokerage commission to liquidate shares when donors contribute them to their accounts. That fee usually is $2 per stock trade for those using Vanguard Charitable, said Pierce.
Sponsors of donor-advised funds usually provide the legal, recordkeeping, and accounting services, which generally results in lower startup costs and administrative burdens compared with a private foundation, according to a December report by the U.S. Treasury Department.
For a $10 million account, Vanguard Charitable charges as low as 25 basis points in annual fees for administration and investments, said Pierce. By comparison, the Romneys' Tyler Foundation, which had a fair market value of about $10 million at the end of 2010, reported operating and administrative expenses of about 53 basis points of assets, or about $53,000, according to tax documents.
Fidelity Charitable and Vanguard Charitable charge as much as 60 basis points annually for accounts with smaller balances. A basis point is 0.01 percentage point.
Pay Outs
Foundations are required to pay out 5 percent of their assets to charity each year, said Mark Bosswick, co-managing partner at Berdon LLP, an accounting and advisory firm in New York. Donor-advised funds generally don't have a mandatory distribution requirement under current law, according to the Treasury Department study.
Private foundations generally do have more investment flexibility than donor-advised funds, Libbey said. Fidelity Charitable offers seven actively managed funds and three index funds, all of them from Fidelity Investments. Clients with more than $250,000 may choose an investment adviser and pick a customized portfolio. At Vanguard Charitable, 10 of the 11 investment choices are Vanguard-based, said Pierce.