Fidelity Charitable Gift Fund was the top fundraising American charity last year, according to the Philanthropy 400 ranking published by the Chronicle of Philanthropy. The significance of this, according to the Chronicle, is that Fidelity primarily raises money for donor-advised funds (DAFs), and it’s the first time such an organization has topped the list. Reinforcing this, another one of the top five is Schwab Charitable, also a donor-advised fund. Fidelity ousted long-standing favourite United Way, drawing $4.6 billion against United Way’s $3.7 billion.
What’s the attraction? ‘A lot of what [donor-advised funds] have brought to charities and our donors is really technology,’ says Pamela Norley, Fidelity’s president. ‘It’s an intermediary between the donor and charity that allows the process of giving to be simpler and more transparent.’
Donors get the same tax benefit they would from a one-off gift, but they don’t have to decide which charity to give the money to in that tax year, they can ‘bank’ it in the DAF. The money is held in, and invested by, the fund, though donors recommend which charities should get gifts and when.
Unlike foundations, however, donor-advised funds are not subject to any payout requirement. Writing in The New York Review of Books in July 2016, critics of the model Lewis Cullman and Ray Madoff argue that because ‘no deadline is imposed for the eventual distribution of these funds to an operating charity… assets that have been given the tax benefits of charitable donations can be held in a DAF for decades or even centuries, all the while earning management fees for the financial institutions managing the funds, and producing no social value.’ For this and other reasons, the two assert that the DAF model is ‘threatening to undermine the American system for funding charity’.