Donor Funds Are on the Rise Again

Assets grew 9.4 percent last year, a Chronicle study finds

Donor-advised funds grew rapidly last year, benefiting from the recovering economy, especially the surge in

the stock market, and stepped-up efforts to market the funds, The Chronicle’s fifth annual survey of gift funds has found.

Assets at 86 organizations that provided figures for 2002 and 2003 rose by 9.4 percent, and more than half those organizations experienced at least a double-digit percentage increase. For example, the assets of the Chicago Community Trust’s donor-advised funds increased by 128.8 percent, while the assets of funds at the Community Foundation of Greater Flint, in Michigan, rose nearly 80 percent. Both funds received several large gifts last year, including one at the Chicago Community Trust worth nearly $35-million.

The number of new accounts opened at the 86 organizations rose by 8.8 percent, to 66,979, and all but six organizations reported an increase in the total number of donor-advised accounts they manage.

Donor-advised funds allow people to donate cash, stock, or other assets to special accounts, claim a charitable tax deduction on their federal income taxes, and then recommend how, when, and to which charities the money in the account should be distributed. The collective value of the assets of all 90 funds that participated in this year’s survey was $11.3-billion and they distributed $2.1-billion.

Only 15 gift funds reported a decline in assets in 2003.

Fund raisers say donor-advised funds are continuing to do well this year, and some predict that 2004 will produce even stronger results for the gift funds.

At the Community Foundation for the Fox Valley Region, in Appleton, Wis., the number of donor-advised funds created in the first six months of the 2004 fiscal year has already matched the typical number of donor-advised funds created in a full year, says Curt Detjen, the foundation’s president. And so far this year donors have already contributed $1.8-million to the gift funds, just shy of the $2.2-million collected in all of last year.

“Donor activity has never stopped but it has picked up momentum in the last six to nine months,” says Mr. Detjen. “People see the recovery of their relative wealth in their portfolios. Many of them were likely sitting on the sidelines waiting for the right time to give.”

Slow Growth at Fidelity’s Fund

The biggest gift fund by far continues to be Fidelity Investments Charitable Gift Fund, with more than $2.4-billion in assets and 31,578 donor-advised funds. Fidelity’s 2.5-percent asset growth, however, was much slower than that of many of its competitors, both nonprofit organizations and other funds operated by for-profit financial-services companies. New York Community Trust, with $629-million, had the second-highest amount of money in donor-advised funds in the Chronicle survey, and its assets dropped by 3.2 percent last year.

Two of Fidelity’s commercial competitors posted large percentage gains in assets last year. The T. Rowe Price Program for Charitable Giving, in Baltimore, reported a nearly 82-percent increase in its assets, and the Renaissance Charitable Foundation, in Indianapolis, had a 109-percent increase in its assets. However, each fund has total assets under $15-million.

Ann Allston Boyce, president of the T. Rowe Price fund, attributes last year’s gains to the market recovery and to a growing understanding among potential donors of how donor-advised funds work.

“We think everyone knows about them, but it’s really not true,” she says.

When the economy started to improve last year, the fund increased the number of direct-mail brochures soliciting new accounts to 60,000 pieces, at least 30 percent more than had been initially planned. “We will probably see the results of those mailings over the coming years,” she says. “To understand a donor-advised fund takes time.”

Working With Advisers

T. Rowe Price was not the only fund to step up its efforts to promote donor-advised funds last year.

Renaissance Charitable Foundation made a concerted push to educate financial advisers, which helped to attract one new $5-million donor-advised fund as well as 12 other new funds last year.

“Last year’s success had less to do with the economy and more to do with getting the story out” about donor-advised funds, says Gregory W. Baker, the foundation’s president. Officials at the foundation’s for-profit affiliate, Renaissance, spoke to more than 3,000 financial advisers nationwide last year about the range of financial products offered, and at least half the presentations included information about donor-advised funds, says Mr. Baker.

A network of 2,600 financial advisers employed by Thrivent Financial for Lutherans, in Minneapolis, helped the Lutheran Community Foundation spread the word about its donor-advised funds. In addition, the foundation produced its first brochure and video about the benefits of gift funds last year, says Curt D. Nelson, the fund’s director of community outreach and donor services.

“We’re promoting donor-advised funds more than we ever have,” he says. “There are a lot of people who don’t know about donor-advised funds and the flexibility they offer, and the more people hear about them, the more interested they become.” The foundation added 23 new gift funds last year; its assets increased by 27 percent, to $8.5-million.

Real Estate

While the surge in the stock market helped many funds attract donors, some organizations did well by promoting alternatives.

Officials at the Columbus Foundation, in Ohio, increased its gift funds’ assets by 22 percent last year, partly by seeking gifts of real estate.

“The expectation was, ‘The stock market is probably going to be depressed again,’” says Terry Schavone, vice president for donor services and development at the foundation. “What could we do to get the word out that there were many other assets out there and how do we position the foundation to be in the donors’ consideration process?”

In September 2002 the foundation sent about 2,500 letters to its donors as well as to legal and financial advisers and real-estate developers in and around Columbus. The letters detailed the foundation’s ability to accept real-estate gifts and included a copy of a Wall Street Journal article about a surge in real-estate donations to community foundations. The foundation also published articles on the topic in its newsletter mailed to donors and advisers, and foundation officials made presentations to professional advisers about real estate and other types of stock gifts. The communications blitz paid off: In 2003, the foundation received five gifts of real estate earmarked for donor-advised funds, including one worth $1.7-million. “I would expect our gifts would continue to grow if we continue to do a good job of helping donors help their community,” says Mr. Schavone.

Some Drop in Value

Most of the donor-advised funds in the Chronicle survey rose in value, but some were hurt by the faltering economy in their regions. In Detroit, the United Jewish Foundation/Jewish Federation of Metropolitan Detroit saw fewer donations in 2003 because its fiscal year, which ended May 31, included many months in 2002 when the economy was struggling, prompting fewer gifts from donors. As a result, the assets of the fund dropped nearly 10 percent. However, this year gifts to funds are on track to more than double the $19-million contributed last year, says Dorothy Benyas, the group’s chief financial adviser. “2003 was a down year but we are very pleased with our results in 2004,” she says.

In other cases, the value of some funds declined because donors authorized substantial contributions from their accounts. Two large gifts totaling $5.2-million helped cause a 17.3-percent decline in gift-fund assets at Cornell University, in Ithaca, N.Y., in 2003. One gift benefited the university’s nanotechnology center and the other endowed a dean’s position at the university’s college of human ecology.

Some charities wish more donors would decide to use their gift funds to make significant gifts today instead of waiting for years to give away money. Donors have little incentive to do so because the federal government doesn’t set any distribution rules governing how much funds must give away annually. That is one reason some donors like to set up donor-advised funds, instead of foundations, which are required by the federal government to distribute at least 5 percent of their assets to charitable causes annually.

Most funds in the Chronicle survey said they distributed a total that was much higher than 5 percent, though most of them didn’t set any minimums. The median amount awarded by the funds in the Chronicle survey rose by 11 percent last year, to $9.1-million, meaning that half distributed more and half distributed less.

However, such figures reflect only the overall donations from the accounts maintained by a single nonprofit group or commercial organization. Individual donors at the funds could be choosing not to distribute any of their money, while others are making big gifts and skewing the percentages.

Some organizations recommend that donors distribute at least 5 percent each year. At the Rose Community Foundation, in Denver, Sheila Bugdanowitz, the foundation’s president, says, “We don’t want people to park the money here. We want them to be active in their philanthropy.” The foundation oversees 25 donor-advised funds.

When foundation staff members notice that donors haven’t been giving much, a staff member calls the donor to ask if he or she needs help researching potential grant recipients or how the foundation can help with plans for future gifts. Ms. Bugdanowitz says that 20 of the 25 funds distributed at least 7 percent of their assets in 2003.

Others take a very different approach. At the Greater Milwaukee Foundation, officials encourage donors to “build endowments” and give no more than 5 percent of a gift fund’s assets annually, based on a five-year average of the fund’s worth, says Doris H. Heiser, director of development and donor services at the foundation. The strategy ensures that “a fund will continue to grow at least as much as to keep up with inflation,” she says.

The issue of how much is distributed from charitable foundations commanded attention on Capitol Hill last year and some expect that Congress might turn to the issue of how much donor-advised funds stockpile. “Reform of donor-advised funds is a significant concern for the committee and payout is an issue in terms of reform,” said a Republican aide to the Senate Finance Committee who asked not to be named.

David Ness, president of the Raymond James Trust Company, which oversees the Raymond James Charitable Endowment Fund, in St. Petersburg, Fla., has no problem with setting a minimum 5-percent distribution rate for donor-advised funds at each organization that offers them. But he doesn’t want to see each donor-advised fund account at every organization required to distribute at least 5 percent annually. Mr. Ness says that donors may want to save up contributions in their account to make a gift that’s a “big splash,” rather than give away smaller amounts every year. “That’s a flexibility that people should receive in exchange for not creating their own nonoperating foundation,” he says. “They are getting the opportunity to skip a year.”