More donors starting funds rather than giving directly to charities

April 14, 2017
  • By Monica Williams
  • Giving City
Magaly Rivera is shown with the food truck she started with the help of services from Caritas. Caritas was the fifth most-funded local nonprofit by Fidelity Charitable account holders. (Photo courtesy of Caritas)

For the first time on record, the nonprofit that received the most in donations in the country is not what you typically think of as a nonprofit — and that has some in the nonprofit sector worried that the new model is upending traditional philanthropy.

The most recent Chronicle of Philanthropy ranking of Fidelity Charitable as the top charity in the United States points to the growing popularity of donor-advised funds or giving accounts.

Giving accounts allow donors to get an immediate tax benefit when they open an account, but the money can sit in the account indefinitely and can be invested. Local organizations like Austin Community Foundation have offered donor-advised funds for decades, but newer, commercially-based organizations, like Fidelity Charitable — a nonprofit offshoot of Fidelity Investments — have popularized the accounts.

“Donors tell us they like giving accounts for their simplicity,” said Matt Nash of Fidelity Charitable. “They can donate one time and then they can go online and move that money to whichever charity they want.”

“I wasn’t surprised when that ranking came out,” said Meeta Kothare of the RGK Center for Philanthropy and Community Service at the University of Texas. “Philanthropy is changing. Donors just want to give differently now.”

In Austin, Fidelity reports that in 2016 it held 615 giving accounts while the Austin Community Foundation reports that in the same year it held 378 giving accounts.

While the number of giving accounts of new donor-advised funds opened at Austin Community Foundation in 2016 is down from the previous two years, Fidelity Charitable reports that the number of giving accounts it holds across the country has nearly doubled over the past 10 years.

Because fund holders aren’t required to make a gift from their giving accounts, some in the nonprofit sector worry that money intended for mission-focused, charitable purposes isn’t reaching those purposes, even though the donor can claim the charitable tax deduction.

Austin Community Foundation said that in 2016, its donor-advised funds were valued at $105.5 million and of that, $11 million in grants were made, a payout rate of 11 percent, with more than half of that going to charities in the Austin area.

Fidelity reports that in 2016 it granted $24 million with about half of that going to Austin-area nonprofits. It reported a payout rate of around 20 percent.

Across the country, the average payout rate for donor-advised funds is just above 20 percent, and 13 percent for community foundations in particular, according to the National Philanthropic Trust.

Robin Bradford of Austin Community Foundation said that most of the money in its donor-advised funds is invested and therefore has restrictions as to how much of the fund or its earnings can be given in grants.

Fidelity’s Nash said, “What we find is that a donor-advised fund holder is more serious about philanthropy. Once you open a donor-advised fund, you can only give it to one place, which is charities. So why would they not put that money to use?”

Amy Jackson, a professional fundraiser for Caritas, said her organization has received many gifts from Fidelity and Austin Community Foundation accounts. But while she said they appreciate every gift from a giving account, it’s frustrating to not know who the person was who made the gift. Gifts from donor-advised funds are not credited to the original fund-holder, rather they are credited to the organization holding the fund.

“If a donor wants to be anonymous, a fundraiser like myself will always honor that request,” said Jackson. “But when we receive a gift via a donor-advised fund, we don’t know whom that money is coming from.”