The Competition for Charitable Contributions
There is a benign (sometimes not) competition within the charitable sector for donors’ contributions. More and more Direct Public Charities (see definition below) are starting Donor Advised Funds. Why? And why should yours?
The Chronicle of Philanthropy’s latest annual rankings of the 400 charities that collect the most from private sources demonstrate a shake-up in the nonprofit world as groups that raise money primarily from the affluent see their donations soar.
“Four of the 10 charities that appear at the top of The Chronicle’s Philanthropy 400 are organizations that raise money mostly from the wealthy by offering donor-advised funds, including Fidelity Charitable (No. 2), which is less than $200-million shy of ousting United Way Worldwide from the top of the list. That’s an unusual accomplishment for a nonprofit only 23 years old.
This seismic shift in charitable giving invites a conversation about competition. Are you content to be passively grateful to Fidelity, Schwab and Vanguard for establishing charitable giving arms through Donor Advised Funds, and hope some of their “donors” direct distributions to your charity? How do you feel about the corpus of your donor’s endowment resting with another organization while you hope for grants from that fund? What do you suppose might happen when that donor dies and is no longer available to request distributions? What are your options?
Donor Advised Funds are the new wave in charitable giving. Should you get in the game?
Here is some clarification and detail as you consider this question.
Donor Advised Fund: a charitable giving tool for donors who want to avoid the hassle of a private/family foundation or the effort required by making multiple contributions to various Direct Public Charities by giving to a charitable fund managed by someone else (commonly referred to as the “sponsoring organization”). A DAF may be established at a Community Foundation, with one of a number of Commercial Sponsors (investment firms, banks, etc.), or at one of a small but growing number of Direct Public Charities.
Direct Public Charity: a qualified public charity organized under section 170(b)(1)(A) of the Internal Revenue Code that directly provides services to its identified constituencies. They include churches, schools, hospitals, human service charities, etc.
Indirect Public Charity: Private Foundations, Community Foundations, Supporting Organizations, and Donor Advised Funds with Commercial Sponsors are legally regarded as qualified public charities, but none directly serves a charitable mission. In order to do so distributions or grants must be made to Direct Public Charities.
An Indirect Public Charity might be regarded as a pass-through entity. Yet donors are increasingly giving to Indirect Public Charities, largely through Donor Advised Funds. How will you respond to this changing landscape?
During the past year or so I have followed several spirited discussions on LinkedIn regarding whether charitable donors should give directly to their favorite causes or to Donor Advised Funds, specifically those sponsored by various investment firms.
Having done some research previously and wondered to myself about the pros and cons of just where one’s philanthropy should be directed, I created a Donor Checklist prospective donors can use. It is available in my book Charitable Choices – How to Avoid Donor’s Remorse.” I hope it will be helpful in your analysis of the pros and cons of starting a Donor Advised Fund for your organization.