Last week, the Chronicle of Philanthropy released its annual rankings of the 400 charities that “collect the most from private sources.” In their synopsis of the report, the Chronicle noted that four of the top ten charities are donor advised funds. These funds, like Fidelity Charitable (which came in second place in this year’s top 400), have received great critical opprobrium over this past week, with critics questioning whether these charitable gift funds should be compared alongside nonprofit and philanthropic charitable organizations like the Salvation Army, Catholic Charities USA, and the American Red Cross.
Despite this criticism, Chronicle editor Stacy Palmer noted that donor advised funds were included in the project because the project sought to count all donations to 501(c)3 organizations, which technically includes these funds. By including these funds, other charitable organizations (like the American Cancer Society) were displaced (largely because donor advised funds have seen marked increases in “donations” over the past five years). The methodological decision to include these funds raised some significant questions regarding the role of donor advised funds in the nonprofit sector following the project’s publication.
We at Philanthropy Daily are no strangers to the debates regarding donor advised funds (see, for example, here or here). However, this week’s criticism has taken on a slightly different nuance, particularly following a widely circulated piece in the New Yorker that explained “How Investment Firms Are Changing Philanthropy.” Outlining the debate, Vauhini Vara focused on the inequality component of these funds. Quoting Palmer, Vara writes: “Palmer . . . told me she would expect contributions through donor-advised funds to skew toward organizations that affluent people typically support.” This concern builds on the issue introduced by Professor Rob Reich at Stanford who “told [Vara] that the widening wealth gap could be influencing where donors give.”
Essentially, one of donor advised fund criticisms presented by the New Yorker states that wealthy individuals are disproportionately the ones donating to groups like Fidelity, Schwab, or Vanguard. Then, because wealthy people have unique giving tendencies, the argument alleges that donor advised funds disproportionately give to certain nonprofits over others. (e.g., wealthy individuals tend to donate to “high-profile hospitals and universities, rather than, for instance, the local food bank”).
However, the logic of this argument fails to tie donor advised funds to the giving preferences, thus collapsing the argument into a criticism of wealthy giving preferences irrespective of the influence of donor advised funds. While the New Yorker rightfully shows that disclosed donor advised fund reports affirm that this wealthy giving goes to areas like human services and education, this finding merely repeats known correlations between wealth and giving sector, while failing to show any independent influence of donor advised funds on these preferences. While this was not the only critique of the donor advised funds highlighted by the Chronicle, it was the most popular talking point on Twitter following the report’s publication.
Another criticism of donor advised funds comes from Aaron Dorfman, executive director of the National Committee for Responsive Philanthropy:
Although these funds "make giving easier for the donors, it sometimes delays how quickly the money gets to groups that can really make a difference.'"
This is a valid critique; however, it fails to note the other side of the coin, viz., that donor advised funds may increase the amount that wealthy donors give (thereby sacrificing timeliness for the benefit of donor impact). Thus, it is worth exploring whether nonprofits value time over money or money over time.
This latest round of donor advised fund criticisms fails to tackle any of the big picture questions associated with the upward trend of donor advised giving. It seems to remain an open question regarding whether these funds influence giving.