A report from one of the largest charitable giving organizations in the US sheds light on the philanthropy route as provided by donor advised funds.

Data on charitable giving through what are called donor advised funds, or DAFs, from one of the largest grant-making organizations in the US shows grants have almost doubled over the past decade, with those of $1 million or more rising significantly.

In a report by Fidelity Charitable, which is the second-largest grant-maker in the US behind the Bill & Melinda Gates Foundation, it seeks to shed light on grant-making behavior of 132,000 donors who use what are called Giving Accounts to support a number of causes. In 2015, these donors recommended $3.1 billion in grants to a total of more than 106,000 groups worldwide. (Fidelity Charitable was in 1991.)

The average number of grants per Giving Account each year has nearly doubled in the past 10 years to 9.2 grants per Giving Account; grants of $1 million or more increased 27 percent over the previous year, Fidelity Charitable said in a statement this week. Its report is based on an analysis of both the activity of its 80,000-plus Giving Accounts and survey data comparing Fidelity Charitable donors to charitable donors overall. (Fidelity Charitable is an independent public charity that sponsors the largest DAF program in the US.)

The report highlights the role of DAFs in driving philanthropic behavior in the US. A donor-advised fund is administered by a third-party to manage the charitable donations on behalf of an organization, family or individual. They are typically regarded as quick to set up, simple for the client to use, and require minimal ongoing effort to manage. Many of them are used by high net worth individuals and families. They are not the only such route for charity, of course. Alternative structures such as private foundations have their champions (to see an article about foundations in this context, see here). 

Among the findings of the Fidelity Charitable report was that two-thirds of contribution dollars were non-cash assets such as stocks and real estate, an 18 per cent increase from the previous year.

“The amount granted to charities has seen significant growth since 2011, outpacing the growth in total number of Fidelity Charitable Giving Accounts. Last year alone, the number of Giving Accounts increased 11 per cent, while grant dollars and volume grew 19 and 17 per cent, respectively,” it said.

News-driven giving, such as responses to disasters, and group giving activities were among the factors that drove donors’ grant recommendations last year. Nearly a quarter of grant recommendations are now scheduled in advance, meaning donors are planning ahead for their giving. The report also noted that retired Fidelity Charitable donors were “better able to sustain a robust level of giving compared to retired affluent donors”. 

The report said that 61 per cent of Giving Accounts have balances of less than $25,000, while almost 8 per cent have balances of more than $250,000.

DAFs
Donor advised funds work as follows: A donor can give cash, stocks, real estate or non-publicly traded assets to a public charity that sponsors a DAF program. The charity establishes a DAF in the donor’s name, and the donor can make additional contributions at any time. While donors decide which charities to support, their donations can potentially grow based on how they recommend them to be invested. In the case of a group such as Fidelity Charitable, donors can recommend an investment strategy. They can support any IRS-qualified public charities with the money in their DAFs. 

DAFs have led to some controversy. A report on Dec. 15, 2014 by CNBC stated that critics say companies offering these funds also manage to profit from them, in the form of fees assessed on the donor-advised fund accounts. Other firms providing DAFs include Charles Schwab and Vanguard.

The first DAFs were created in the 1930's, although the US Congress didn't establish the legal structure for them until 1969. In the 1990's, donor-advised funds began to grow in visibility and popularity, and they have become philanthropy's fastest-growing vehicle in recent years. Today, they account for more than 3 per cent of all charitable giving in the US, according to National Philanthropic Trust. A report by NPT this year said that in 2015, grantmaking from donor-advised funds to qualified charities jumped nearly 17 per cent between 2014 and 2015, from $12.42 billion to a record $14.52 billion.

In its 2016 annual report, NPT said: "The last several years have seen a tremendous growth in all donor-advised fund metrics, but particularly in contributions. The five-year compound annual growth rate from 2010 to 2014 was almost 21 per cent. Uncertainty about tax policy, the political environment and other market conditions fueled this growth. We predict continued growth in contributions to donor-advised funds, but likely at a much lower rate. As contributions level out, we predict a continued increase in grantmaking and rise in payout rates. Grants grew almost 17 per cent between 2014 and 2015. The five-year compound annual growth rate from 2010 to 2014 was at 14.5 per cent. Already, we are seeing this increase in grantmaking and we expect it will continue."