The last Hors-Frontières deciphers the Donors Advised Funds. Credit: iStock
A growing tool
The Donor-Advised Fund (DAF) is an American non-profit legal vehicle that has existed since 1931. While not new in itself, their number has exploded in recent years: there were 873,000 in 2019 in the USA (+ 300% over the last ten years) and they would receive 12.7% of donations from individuals. Whether this surge has several reasons, the ease of management and the flexibility of CFOs are the main explanations for this . Moreover, they have no legal obligation to spend part of their assets (whereas American foundations must spend 5% of their value each year).
The CFOs mainly receive assets (and not cash) and pay the dividends or the fruit of their sales to associations. During the year 2019, they would have received 38 billion dollarslarge sums in absolute terms, but which must be put into perspective in a country where generosity had reached $427 billion the same year. Note that donations are irrevocable and can only go to non-profit organizations. The American DAFs would have amassed in a short time, $141 billion in assets in 2019 compared to 30 billion dollars in 2010 (for comparison, the assets of the 90,000 American foundations would amount to 1,000 billion dollars). And this is not likely to stop: unlike private foundations, CFOs value assets (shares, buildings, etc.) at their market value, not at their purchase value (cost basis). As a result, tax deductions are greater.
Banks at the origin of the largest American NGOs?
If associations have created DAFs, for-profit organizations can also do so. And, surprisingly, the most imposing CFOs in terms of lifts today are those of Fidelity, Vanguard and Schwabb, the wealthiest financial services companies. Thus, the three largest CFOs in the USA are those of these three banks and total $11 billion in assets. With two other major DAFs (the Silicon Valley Community Foundation and the National Philanthropic Trust), they totaled 50% of the collection for this type of vehicle over the past year. And the critics focus on them.
Critics to weigh
Indeed, the CFOs of these banks are today among the 10 largest charities of the USA in terms of fundraising. The banks manage the assets of the CFOs and charge “management fees” (account maintenance fees) to their customers. They are therefore accused of “hoarding” money without necessarily giving it away for profit.
If we can regret to see the banks create non-profit vehicles, which they also invoice, the money is no less given: 27 billion in 2019 and 35 billion in 2020, i.e. approximately 20% of assets of these structures. While American foundations must donate 5% of the amount of their assets each year, CFOs do better. Problem: the reference study on the subject, that of the National Philanthropic Trust only takes into account DAFs created by non-profit organizations…
In another study, relating specifically to the 2,600 CFOs of a single state (Michigan), the reality seems more mixed: only 43% of CFOs had made donations for more than 5% of the value of their assets. Finally, it should be noted that banking players are not necessarily less generous or more opaque. Some, like that of Vanguard, are even particularly transparent to the point of being noticed by Charity Navigator.
A changing philanthropy
Although they represent only a small part of the funds donated each year, DAFs are a particularly popular tool for major donors. In 2018, data erroneously released showed that several top US executives made donations of more than $600 million to CFOs without the latter being required to distribute the funds quickly. Several initiatives aimed at changing the law are also in progress. If they meet with significant success, and while American philanthropy is under fire from criticsthe CFOs will have to demonstrate their ability to effectively distribute the large sums they collect.