Forum on Donor-Advised Funds: The Gap Between Intention and Action Remains Wide
On August 29th, a community forum in San Francisco discussed proposed legislation in California to create more transparency around donor-advised funds (DAFs). For the most part, representatives from opposing sides and opposite ends of the nonprofit spectrum used that time to posture and talk past each other, highlighting the deepening fractures within our community.
The conversation was between Jan Masaoka (CEO of CalNonprofits), Dan Baldwin (CEO of Community Foundation for Monterey County), and Nageeb Sumar (VP, Private Donor Group, Fidelity Charitable). The purpose was to discuss the pros and cons of CA-AB 1712, a bill that would require DAF sponsors like Baldwin and Sumar’s organizations to file reports revealing the nature of the assets being held in these charitable funds.
This is a point a much speculation, particularly as they have attracted “dark money forces,” according to Masaoka.
Let’s pop the bubble for a second: donor-advised funds are the most rapidly growing charitable vehicle in the country, favored in particular by the wealthy* for their ease of use, anonymity, and ability to accept a range of complex assets like private stock, real estate, and cryptocurrency as charitable gifts. There are now more than 500,000 DAFs in the US holding over $100 billion in assets.
Often referred to as “charitable bank accounts,” a donor can make a gift to a DAF sponsor — like their local community foundation or Fidelity Charitable — to open their own fund and then use it to make grants to nonprofits at their leisure. It’s a lot like starting a foundation, except someone else is taking care of the day-to-day for you and your job is just to decide how the fund is invested and who gets to receive funding.
The original gift and any future ones are fully tax-deductible regardless of how much of that money is ever granted out, a boon to anyone who can afford to give away more than the current standard deduction of $12,000 for individuals or $24,000 for married couples. In other words, the donor gets immediately rewarded while nonprofit programs may not see the benefits for many years to come.
Because of the tax write-off, this manner of giving should be considered “a kind of public investment,” argued Masaoka, “which should include public accountability.”
You can get a sense from the table above how the growth in the number of funds and the money being poured into them has been explosive over the past several years. But what all accounts for this swift rise in popularity?
“DAFs are simple and accessible,” explained Sumar, “We like to say that we can offer our donors an Amazon-like experience.” It was the second time in the span of a few minutes that he mentioned an “Amazon-like experience,” in line with talking about the app that donors can use to manage their funds and referring to Fidelity as the “market leader” throughout the conversation. And he’s right — the market has shown that people want a friction-less experience, whether it comes to on-demand consumption or their charitable giving.
DAFs can offer that, and once the word started getting out, those DAF sponsors who were well-positioned and opportunistic scaled rapidly to meet demand…to the tune of billions.
But of course, not all sponsors have fared the same in what has become an intensely competitive market. In a moment of tension between the two pro-DAF speakers (perhaps the only one), Baldwin commented that people like to have options and “if someone wants to really have a close partner in their philanthropy, as opposed to a more transactional [relationship], then they may gravitate towards a community foundation.”
Sumar, not letting that slide, insisted that “our motto for my team is to move from transactional to transformative giving.” He went on to talk about how there’s a misconception that national DAF sponsors aren’t connected to local communities, essentially working to negate Baldwin’s attempt to differentiate their two organizations.
This moment spoke volumes about the internal divide between different types of DAF sponsors. Between the national and the place-based; the big and the small; the “commercial providers” and the “true nonprofits.”
I can’t emphasize this moment enough. The rifts between nonprofit advocates like Masaoka and funders are obvious; the rifts between redistribution activists like me and wealth preservationists are obvious; what isn’t so obvious is the fierce pressure that small, mid-size, and even some very large community foundations are under to continue being competitive channels for philanthropy when these massive financial institutions like Fidelity, Charles Schwab, Vanguard, and others have stepped fully into this space.
What I find both fascinating and heartbreaking, however, is that instead of advocating for reform, for a more level playing field that incentivizes transparency and funding going out the door into local communities, foundations like Baldwin’s have chosen to either stifle it or take no position.
At one point, Baldwin commented on how the bill never made it out of committee, anyway (it is now a “2-year bill” that won’t be considered until 2020). In what may or may not be related to that outcome, the head of the committee that decided not to move forward is Assemblymember Mark Stone, representing Monterey County.
“If you create legislation without knowing what the outcomes will be, that’s going to make us really nervous,” stated Baldwin.
Baldwin is among the leaders we need in this fight for a higher purpose in philanthropy, but by and large they have chosen the devil they know over the one that they don’t. Ironically, it is that lack of political will that has forced the issue of reform.
And so the gap remains very wide between this present state of opaque and delayed giving and some ideal future state where giving meets the urgency of our times.
On a final note, in what was my favorite line of the discussion, when Sumar attempts to lift up the Giving Pledge as an example of how the norms around when to give (i.e., before you’re dead) really are changing, Masaoka interjected, “the Giving Pledge is probably exhibit A in the difference between stated aims and actual practice.”
That moment was probably the closest we came over those 90 minutes to talking about the real issues at play here. Power. Control. Influence. The desire to do good and appear good without making any real sacrifice.
I went looking for that discussion, but I guess I went to the wrong place.
— — —
*Did you know that a couple earning more than $100,000 a year is among the top 10% of all American households? The top 10% of any society certainly seems like the wealthy part. If that’s you, congratulations! Now please go give some of that away to someone who really needs it.
