Charities Can Expect More Money to Flow From Donor-Advised Funds

The amount of money held by donor-advised funds is growing fast, even amid the challenges caused by the volatile stock market and the large sums donors take out of the accounts to give to nonprofit groups.

Over the five-year period ending in 2009, The Chronicle study found that assets held in donor-advised funds at 64 organizations grew from $13.48-billion to $16.86-billion, adjusted for inflation.

During that same five years, the U.S. stock market declined slightly.

The resilience of donor-advised funds during the economic downturn suggests that contributions could be poised for a sharp move higher if the stock market, which has been flat for a decade, begins a steady rise.

Greater Assets

Already some leaders of organizations that offer the funds are beginning to speculate about what they might be able to do with greater assets. Donor-advised funds allow donors to set aside cash or other assets, receive a tax break, and later decide how much to give to specific charities.

Benjamin Pierce, executive director of the Vanguard Charitable Endowment Program, in Malvern, Pa., says the fund will probably be in a position to reduce its fees as assets grow. Vanguard currently charges an administrative fee of just 0.6 percent of assets each year, about the same as its peers Fidelity Charitable Gift Fund and Schwab Charitable Fund. Investment expenses add another layer of fees.

“We’ll have the potential to reduce the administrative fee substantially,” Mr. Pierce says. “That will be very exciting for the philanthropic world, as more dollars will flow to charities.”

But Kim Wright-Violich, president of Schwab Charitable, in San Francisco, says extreme efforts to reduce fees may not be best for donor-advised funds. “I would hope that the drive to keep fees down wouldn’t be so significant that we cannot also push forward on doing some creative things,” she says.

She points to the fund’s microfinance partnership with the Grameen Foundation, in Washington, through which Schwab donors can recommend that up to 10 percent of the money in their donor-advised accounts be set aside to guarantee microfinance loans to help needy individuals in developing countries build economic security. The program generates no fees of any kind for Schwab.

New Approach on Fees

Community foundations and Jewish federations, meanwhile, often find it difficult to generate enough revenue from small donor-advised funds to cover the costs of administering accounts. Some are revamping their pricing. For example, the Baton Rouge Area Foundation, in Louisiana, raised its minimum fee on donor-advised funds from $500 to $750 in the past year.

The Jewish United Fund/Jewish Federation of Metropolitan Chicago, which previously charged no fee, will institute fees ranging from 0.1 to 0.3 percent of assets in January.

“While people will be disappointed, it’s not like there is a place down the street where they can set up a fund and pay nothing for it,” says David Rosen, the federation’s senior vice president of legacies and endowments.

The Saint Paul Foundation increased its minimum annual fee from $250 to $350 and increased the minimum size of grants it will handle from $100 to $250. The foundation is also encouraging small donors to make grants through its Web site rather than over the phone. The first change will increase revenue from small donors, while the other two changes will reduce the amount of staff time spent administering those donors’ accounts.

“With the way individuals use donor-advised funds, cycling money in and out, it’s hard to capture fees,” says Jean Vukas Roberts, the foundation’s vice president of development. “Hopefully this will be a better business model.”

Order the complete set of data from The Chronicle of Philanthropy‘s 11th
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