A charitable takeover?

Donor-advised funds are now among the top-grossing charities in the US — but is that a good thing?

Donor-advised funds (DAFs) – sometimes described as charitable savings accounts – have become so popular that observers are characterizing the trend as the Wall Street takeover of charity, reports The American Prospect. In fact, a financial DAF, Fidelity Charitable, stands at the top of The Chronicle of Philanthropy’s annual ranking of top-grossing charities in the US. 

This is a big change for the list, where the United Way Worldwide had landed in top spot for 24 of the past 25 years. But with a total of US$4.6 billion raised in 2015 alone, Fidelity Charitable easily took over the lead. And it’s not alone: financial giants Schwab and Vanguard also have funds in the top 15, along with the likes of the Salvation Army and Stanford University.

DAFs were created by community foundations in the 1930s as a way for donors to temporarily “park” money earmarked for charity, benefiting from an immediate tax break. DAFs allow donors to see their charitable investments grow tax-free until they decide what cause they want to support. In 2015, 13.2 % of all donations to the 400 charities in the Chronicle list went to commercial and non-profit DAFs.

But now, some wonder if the aim of DAFs has been diverted. Unlike foundations, DAFs are not required by law to meet any specific deadline to distribute their money. While the money sits in the fund, the financial institution earns fees for managing it -- a strong incentive to keep it there. Fidelity says 92% of all DAF donations are distributed after 10 years. A study by the Internal Revenue Service indicated that the median payout by DAFs in 2012 was 10%.