Companies Compete on Donor Funds

A decade after Fidelity Investments introduced the first commercial donor-advised–fund, the field is growing more crowded than ever.

Among the companies that recently have entered the multibillion-dollar donor-advised-fund market or are offering

new versions of established plans: the Calvert Group, a mutual-fund company in Bethesda, Md., and the Vanguard Group, a mutual-fund company in Malvern, Pa. In addition, Merrill Lynch, the New York investment giant, plans to introduce a new gift-fund program allied with community foundations.

Donor-advised funds enable donors to contribute cash and appreciated assets to special accounts, claim a charitable deduction on their federal income taxes, and then recommend how, when, and to which charities to distribute money from the accounts.

The funds once were offered exclusively by community foundations, Jewish federations, and a select group of charities with the most sophisticated planned-giving programs. Then, in the 1990s, a smattering of financial-services companies followed Fidelity’s lead into the market.

Now, as the funds become more common, financial-industry experts say, businesses will seek to carve out special niches in the marketplace.

Already, Vanguard and Calvert are offering donor-advised funds designed to meet the wishes of donors interested in investing in so-called socially responsible companies — enterprises that don’t sell such products as tobacco and liquor, or that meet certain standards related to the environment, workers’ rights, or other issues.

Vanguard, which has offered a gift fund since 1997, last year began offering donors the option of placing their donor-advised assets in a separate investment pool, called the Social Legacy Pool, whose investments are specially screened.

In October, the Calvert Social Investment Foundation started the Calvert Giving Fund, drawing on the foundation’s connection with the Calvert Group, which focuses on socially responsible investing.

Merrill Lynch’s Plan

Merrill Lynch, one of the nation’s biggest securities dealers, intends to distinguish itself from its competitors by building a new donor-advised–fund program to complement an effort it started in 1997 to work with community foundations. The company has made arrangements with 170 community foundations intended to help Merrill Lynch brokers steer clients interested in setting up gift funds to the foundations. The foundations, in turn, promise to allow the brokers to manage the assets their clients contribute to the funds.

By the end of the year, Merrill Lynch expects to introduce a more formal arrangement with a smaller number of community foundations. The deal would still call for the company’s brokers to deliver clients to the community foundations, and the foundations would still be the entity setting up the gift funds. The difference would be that the gift funds the foundations offer will be operated under a national program run by Merrill Lynch. Investing, record keeping, and other administrative functions will be handled by Merrill Lynch in conjunction with the foundations, using an integrated computer system.

The program will probably appear very much as if Merrill Lynch were running its own donor-advised fund, just as Fidelity does. But, Merrill Lynch officials note, community funds will play a key role in screening charities and counseling donors about their giving.

Says Susan J. Smith, marketing director at Vanguard Charitable Endowment Program, of the various innovations cropping up among commercial gift funds: “We consider all this friendly competition in a really big and growing market.”