Equally important to many donors is the advisory role they get to play in determining which charity or charities receive funds—provided each group is a qualified charitable organization.
“Each donor-advised fund sets its own minimum amount for grants to charities; Fidelity and Schwab currently have $50 minimums, while Vanguard requires a $500 minimum grant,” Arnott said.
Donors also retain control over how remaining assets are invested. Fidelity and Schwab offer both in-house funds and third-party offerings. Vanguard’s lineup consists almost exclusively of in-house funds, with an extensive set of both index funds and actively managed offerings, Arnott said.
“Investors can either choose one of these preset portfolios or build their own portfolios using a longer list of single asset-class options. It’s also possible to set aside some funds for upcoming donations in highly liquid securities (such as a money market fund) while investing other assets for longer-term growth,” Arnott said.
Despite their advantages, “donor-advised funds aren’t the right choice for everyone. Although Schwab and Fidelity now allow investors to set up a donor-advised fund with any dollar amount, Vanguard Charitable currently requires a $25,000 initial contribution,” Arnott said.
The funds also come with an additional layer of annual administrative costs. Fidelity, Vanguard, and Schwab all charge a 0.6% administrative fee for accounts with balances up to $500,000. Accounts with balances greater than $500,000 are subject to lower fees in percentage terms, according to Arnott.
That’s in addition to the fees on the underlying investments, which are deducted from the amount donated, making donor-advised funds less cost-efficient than donating directly to a charity, she noted.
“Fidelity and Schwab are accessible to the widest swath of investors because they don’t require a minimum amount for initial contributions or additional contributions, but Vanguard offers lower administrative fees for larger accounts,’ Arnott said.