This lack of transparency has been a draw for some who want to keep their affairs private. It’s allowed more than $12 million over the five years analyzed to move anonymously from Fidelity Charitable to organizations identified by the Southern Poverty Law Center as hate groups. They include the David Horowitz Freedom Center, which SPLC says has given “anti-Muslim voices and radical ideologies a platform to project hate and misinformation,” and the Alliance Defending Freedom, which the law center says has supported efforts to criminalize sex between consenting LGBTQ adults. The alliance says the SPLC’s blacklist has been discredited but that Fidelity Charitable has deterred gifts by preventing some donors from making contributions unless they give up their anonymity. The Horowitz Center didn’t respond to messages seeking comment. Fidelity Charitable says it’s “cause neutral” and doesn’t impose values on donors, relying on the IRS to “determine a charity’s legitimacy.”
The secrecy of donations from DAFs, and their surging popularity, has made it harder for nonprofits to target donors for solicitation. Smaller organizations lack Harvard’s fundraising office and alumni lists, says Jon Pratt, senior research fellow at the Minnesota Council of Nonprofits. “Here’s a whole new class of institutional philanthropy that’s a black box,” he says. “We don’t know who the donors are, when they gave or what the purpose is.”
As the debate intensifies over whether DAFs are hoarding donations, Fidelity Charitable has honed a pitch that keeps pulling in money. During a webinar in October, one of its consultants shared tips with wealth advisers on how to maximize donor benefits from contributing to its DAFs, including selecting the right assets to give and “bunching” donations into a single year to squeeze tax bills to a minimum. Another presenter explained that marketing the accounts deepens relationships with clients and gets closer to their children. The online chat pinged with additional information. Notably absent from the discussion were mentions of any charities or how to help clients find a cause that matters to them.
Fidelity Charitable says that more than 80 people there work with nonprofits. Its dialogue with other charities has led it to encourage more DAF clients to make unrestricted gifts and use electronic funds transfers to speed giving. It also provides research on its website to help donors select charities.
But interviews with several of its DAF donors suggest no one’s prodding them much to figure out what to do with the money in their accounts. Emails go out periodically to encourage distributions, especially after natural disasters or major crises such as the Russian invasion of Ukraine. Even these notices are optional and include links to unsubscribe.
“You can receive as little information from them as you want,” says Mac Liman, a co-trustee on a Fidelity DAF. Her father, Les, set up the fund with more than $1 million in 2017 after making a fortune in the waste-disposal business in Colorado. The money initially sat. As Liman started pestering her dad to give it away, she realized they needed a plan. Liman found that Fidelity had a team of philanthropic consultants who would help them—for a fee—but the Limans decided to pay an outside adviser instead. The experience left her feeling that the DAF was designed to warehouse wealth rather than give it away. “It’s like a storage unit,” she says.
Fidelity requires that donors keep their accounts active or risk having 5% of the assets distributed on their behalf. The minimum to stay current is just a single $50 donation every two years; Fidelity says 99% comply.
Boston College law professor Ray Madoff and John Arnold, a former Enron trader who became a billionaire running an energy-focused hedge fund, proposed a plan to speed up giving from DAFs by putting a time limit on distributions. Congress took up the idea last year, but it hasn’t advanced. “The incentive for DAF sponsors is to grow AUM,” Arnold says, referring to assets under management. “I do not see it solved without regulation.”
Even some of Fidelity Charitable’s donors are supportive. Richard LeBaron, a 71-year-old retired diplomat, has contributed to one of its DAFs for about a half-decade and disburses most of the money he puts there each year. He says the industry should accept regulation mandating minimum annual payout rates of 20%, four times the level required of private foundations. “Fidelity should know that some of their owners of donor-advised funds are for reform, not against it,” he says.
Others aren’t waiting for legislation. Jennifer Risher and her husband, David, earned millions from working at Microsoft Corp. in the 1990s before he went on to a job at Amazon and co-founded a nonprofit to promote reading. For years, they made donations through a Fidelity DAF. But they grew concerned that others were piling up money in the accounts, especially after the pandemic began and the needs of so many soared. In 2020 they started a campaign called #HalfMyDAF that offers matching grants to encourage people to give away 50% of their balances.
Their effort has spurred more than $33 million in giving. The reaction from Fidelity and other sponsors was “Love it, love it, love it,” Jennifer Risher says. But she’s struggled to get any of them to promote the effort, something she chalks up to their economic interest in seeing the money accumulate. (Fidelity Charitable says its more than 250,000 donors have their own timing priorities and rushing them is a disservice.) After researching alternatives, the Rishers opened a new DAF at a sponsor called Possibility Labs, which requires donors to distribute at least 10% of their balances annually and waives fees for those who move more than 40% a year, she says.
The Rishers continue to use Fidelity for an account they set up to handle matching grants for people who halve their DAFs. The campaign gives out hundreds of donations in a day sometimes, a task best suited for the market leader, Jennifer Risher says. “Sometimes the best way to change a system is by working within it.”
This article was provided by Bloomberg News.