My colleague Martin Wooster wrote in this space back in September about the potential shortcomings of donor-advised funds, the newest hot trend in Big Philanthropy. These funds benefit investment houses like Fidelity and Schwab, which get to keep donors’ money parked on the books while collecting interest, and they look attractive to donors, who get to claim their deduction immediately regardless of when (or if) the DAF gets around to paying out.
Whether or not these funds prove to be a useful development in the world of philanthropy, they are clearly an influential one, with nearly ten percent of all individual giving now going into DAFs. And now new data released by the Chronicle of Philanthropy sheds some more light on how these funds are being used. The Chronicle analyzed eighty-five of the largest sponsors of DAFs, mainly through tax filings from 2008-2014.
A few main takeaways from the numbers:
First, DAFs are growing fast. “Contributions to the 85 donor-advised funds studied by The Chronicle nearly tripled from 2008 to 2013, while [in comparison] total charitable giving in the United States grew by only 13 percent.” The cash value of these accounts have also soared in that same time, especially in funds sponsored by community foundations.
Second, donor-advised funds are all quite different, reflecting the geographic, ideological, and wage-earning diversity of their donors.
And third—and most relevant for those skeptical of DAFs’ capacity to radically reshape philanthropy for the better—from 2008 to 2013 the “rate at which grants are paid out declined at 72 of the 85 sponsors in The Chronicle analysis.” Payout mechanisms are weak and required rates are low at many of the top funds (though some, like the Donors Capital Fund and the Charities Aid Foundation America boast payout rates of sixty and forty percent, respectively).
As the Chronicle analysis notes, DAF proponents can point to a bullish stock market as one reason for low payout rates—asset value soars while commensurate grant-making, they say, lags just a year or two behind. Whether or not that turns out to be the case remains to be seen, but for the moment the Chronicle’s numbers don’t do too much to assuage critics’ fears that DAFs inhibit giving.