Despite everything that changed last year, donor-advised funds (DAFs) continued their decade-long growth trend mostly undisturbed. The rise of the DAF is one of the most significant long-term developments in philanthropy, one that’s getting harder to ignore as intersecting crises amp up an already vigorous debate over the giving vehicles’ merits. As one DAF proponent put it, “More than anything, a tumultuous 2020 reinforced the power of donor-advised funds to serve as a ready reserve for philanthropy during times of crisis.”
DAFs are certainly a mighty reserve, though their “readiness” is a matter of contention. Fidelity Charitable, whose president, Pamela Norley, made the above remark in its latest giving report, has been the nation’s largest grantmaker for several years now. Fidelity is also by far the largest DAF sponsor, leading the charge in an arena that saw tremendous growth throughout the post-2008 expansion. Its updated numbers are remarkable. In 2020, Fidelity channeled $9.1 billion to nonprofits across 2 million individual grants. Donors with Fidelity DAF accounts now number 254,000 and recipient organizations in 2020 numbered over 170,000.
DAFs held at Fidelity alone account for a sizable chunk of overall giving activity by well-heeled Americans, and that’s not even accounting for the other big DAF sponsors like Schwab, Vanguard and the National Philanthropic Trust. With contributions to DAFs making up nearly 13% of total individual giving in the U.S. as of the National Philanthropic Trust’s most recent scan, it’s hard to overstate the growing centrality of DAFs for modest donors, and many major ones, too.
Of course, the meteoric rise of DAFs is also what has their critics worried. Even as uninterrupted wealth gains among the investor class propelled continued DAF growth, 2020 saw some notable overtures to reform—among them the much-debated Initiative to Accelerate Charitable Giving as well as a slate of California DAF reform bills that died in committee, at least for now.
As debate persists, questions of power dynamics and privilege are joining issues of transparency and payout in the reckoning over DAFs. And Fidelity Charitable, the undisputed leader in this field right now, will be central to that debate. Below are five major takeaways from Fidelity’s report.
1. The DAF explosion continues
Fidelity Charitable got its start 30 years ago, and in that time, it has given out a total of $51 billion. As large as that number is, what’s really remarkable is that around half of that total—roughly $25 billion—has gone out over the past five years alone. I wrote about Fidelity’s rise to the top two years ago, after the DAF sponsor became the nation’s largest grantmaker with $5.2 billion in donor-recommended grants in 2018. The total outlay for 2020, around $9.1 billion, stands at nearly double that figure. It reflects what Fidelity calls an “unprecedented” 39% increase in grantmaking during 2019, to $7.2 billion for the year, and another 24% increase in 2020.
This near-doubling of Fidelity’s grantmaking parallels rapid growth in donor contributions over the past several years. In 2018, for instance, Fidelity Charitable took in around $7 billion across its DAF accounts. That total stood at $14.4 billion last year. And while Fidelity’s reports don’t provide data on average contribution rates, they do indicate that the total donor roster rose by about 50,000 people since 2018, from around 200,000 to over 250,000. That points to a ramp-up in the average per-donor contribution rate, reflecting both the pre-pandemic boom and sustained growth to upper and upper middle-class wealth during COVID-19. As of 2019, the Fidelity Charitable Gift Fund had assets in excess of $30 billion.
Fidelity’s rapid expansion over the past five years tracks with the expansion of DAF grantmaking writ large. According to the National Philanthropic Trust’s data (which only measures through fiscal year 2019), total DAF grantmaking stood at around $27.4 billion in 2019, up almost double from $14.2 billion in 2015. Assets under management in DAFs rose over the same period from $77.2 billion to nearly $142 billion, while the overall number of DAF accounts skyrocketed from 272,781 to 873,228.
2. This isn’t just the super-rich, or even the regular rich
Vast personal wealth is plentiful among Fidelity’s DAF account holders, who made a total of 1,068 grants of $1 million or more in 2020, an increase of 36% from 2019. But the majority of account holders at Fidelity are donors of far more modest means. According to the report, the median account balance in 2020 was $21,637, with 53% of account balances coming in under $25,000. Only 10% of accounts had balances over $250,000.
Bearing in mind the National Philanthropic Trust’s data showing a marked decrease in average DAF account size since 2015—combined with a tripling of the overall number of accounts across the sector—Fidelity’s data paints a picture of widening access for people with extra cash to spare. While it would be a big stretch to liken this flood of DAFs to “democratization,” as some have, both Fidelity and NPT’s numbers suggest that a larger section of both upper and upper-middle-class donors are getting on board.
On this metric and others, critics charge that DAF managers’ numbers obscure true giving patterns. For example, in an opinion piece for Inside Philanthropy, Dan Petegorsky, coordinator of the Charity Reform Initiative at the Institute for Policy Studies, argues that NPT’s addition of a large number of workplace giving accounts—which are administered as DAFs but operate very differently than most—presents a misleading picture of trends in DAF size.
Regardless, the reality is that while billionaires and other members of the far upper class have realized the greatest gains from a relentlessly unequal pandemic economy, they’re not the only ones doing well. Plenty of white-collar professionals are reaping more modest benefits, too. DAFs have their faults, but until (and if) we ever get any kind of meaningful rule changes, they are a user-friendly way for smaller donors to get involved in giving.
3. A majority of grants are unrestricted
Fidelity’s report was quick to highlight another feature of its grantmaking that has grown even more important over the past year. Some 63% of recommended grants in 2020 were designated to be used by recipients “where needed most.” There was only a small uptick in that percentage since 2019 (60%), but the point is that DAF giving by its nature tends to be less restricted than traditional foundation grants.
Smaller donors, after all, aren’t typically in a position to insist that their regular charitable contributions go to such-and-such a project, and even though the DAF structure permits more restricted uses (there’s the remaining 37%, after all), many Fidelity donors appear not to bother.
On one hand, the mostly unrestricted nature of DAF funding is a function of smaller average grant sizes. But it’s also a matter of culture. By making strategic charitable giving accessible to a larger section of the populace, DAFs normalize giving practices that have little to do with the foundation model and its traditionally onerous reporting requirements. The warm and fuzzy feeling of making a gift—combined with the tax benefits, of course—is enough for many upper-middle-class donors who trust their favorite charities to do the right thing, at least most of the time.
4. Only moderate pandemic-driven changes
Keen to justify Norley’s commentary about DAFs as a “ready reserve” in times of crisis, Fidelity’s report spotlights many of the ways COVID impacted its clients’ giving. Nevertheless, the overall impression is one of only modest shifts.
As mentioned previously, overall giving from Fidelity DAFs actually increased a lot more in 2019 than in 2020—39% versus 24%. And even though the average grant size did rise in 2020 from $4,358 to $4,614, that’s an increase of only 6%. The average number of grants per giving account also rose, albeit modestly, from 10.8 in 2019 to 12.8 in 2020.
While we’re on the topic, it’s worth noting how these numbers stack up against the notion that DAF giving represents charitable “democratization.” Based on these figures, a hypothetical average Fidelity giving account gave out about $59,000 in 2020. I certainly don’t have that kind of money to give away on a yearly basis, and neither do the vast majority of Americans. Nor, I suspect, do the majority of IP readers.
What did change in 2020, besides an overall uptick in giving that would have happened without COVID, was a modest rise in human services grantmaking that reflected nearly $500 million in grants designated for COVID relief. I say “modest” not because a half-billion is a small amount, but because it’s a small fraction of $9.1 billion. The report acknowledges that the overall picture didn’t change that much, framing that fact as a positive: “Rather than redistributing dollars to human services charities from other nonprofits, donors simply increased their overall support so they could address pandemic-related needs. Education is the only sector that experienced a slight decrease in total grant dollars from the previous year.”
Nevertheless, education—last year’s front-runner—remains tied with human services as the leading category of recipient, with the always-vague “society benefit” and then “religion” following. “Health” was the next most-popular funding area, receiving only 7% of total grant dollars in 2020.
Fidelity Charitable’s ranking of its most-popular charities also only saw moderate shifts, with many of the top recipients maintaining lead spots (think Doctors Without Borders, the Salvation Army, St. Jude, American National Red Cross and United Way). One notable change is that providers of food aid saw a flood of support, with donations to places like Feeding America and World Central Kitchen skyrocketing. Meals on Wheels enjoyed the sharpest rise in the number of its Fidelity donors, which surged by 2,679% in 2020.
Predictably, medical needs organizations like the CDC Foundation and the National Association of Free and Charitable Clinics also saw their donor ranks explode. The number of Fidelity donors to Gates Philanthropy Partners grew by a massive 4,474%. It’s also unsurprising that donors paid more attention to racial equity in 2020. NAACP Empowerment Programs, the Fair Fight Initiative and the NAACP Legal Defense and Educational Fund all saw their donor ranks grow by over 1,000%, and the Bail Project, the Equal Justice Initiative and the National Urban League also saw a vast surge of interest.
5. Most donors didn’t contribute cash
This isn’t exactly news. In 2020, Fidelity Charitable donors made 68% of their DAF contributions in the form of non-cash assets and only 32% in cash. That’s down from two years ago, when cash made up 37% of Fidelity DAF contributions. Though the degree to which donors fund DAFs with non-cash assets varies widely by sponsor, donors’ ability to contribute publicly traded securities and other assets has always been a selling point for DAFs. The logic is simple: by funding a DAF, a donor gets an immediate tax write-off and avoids paying capital gains taxes on the assets contributed, even as they grow over time in the giving account.
Fidelity presents this as a positive and touts the $15 billion its giving accounts have “generated” over the years as investments while donors formulate “a strategy that aligns with their own charitable goals and time frames.” DAF critics, of course, disparage this feature as a bug, since it lets donors defer actually supporting nonprofits while they sidestep tax responsibilities twice—once for the initial contribution and again on a continual basis via the sheltered capital gains.
Double win, double loss
This sense of a double win for well-heeled donors and a double loss for the public coffers has inspired many of the most upfront calls for DAF reform. Tax laws in the United States “do not sufficiently incentivize DAFs and private foundations to distribute their funds to charities in a timely fashion, even though donors receive tax benefits upfront,” said prominent DAF critic and Boston College Law Professor Ray Madoff in our coverage of the Initiative to Accelerate Charitable Giving this past December. Madoff has spearheaded that effort alongside philanthropist John Arnold.
In a guest piece in IP last summer, author and Liberated Capital founder Edgar Villanueva accused DAFs of “[operating] under the assumption that the presumably white, wealthy donor knows what’s best…[reinforcing] the ideological belief that as a whole, this class of donors is best equipped to solve social problems rather than pay taxes to the government.”
Even though Fidelity tries to make the best of the DAF donation delay by noting that “within five years of a $100 contribution to Fidelity Charitable, $76 has been granted to charities,” the fact that only $38 of that $100 goes out within one year isn’t encouraging for nonprofits—and desperate people—who need support right now. Fidelity also points to aggregate grant payout rates above 20% as of 2019, an entirely voluntary quadrupling of the mandated 5% payout rate for foundations.
Here, too, critics of DAFs say industry standards are overstating their case. For example, Madoff and James Andreoni, an economics professor at University of California, San Diego, wrote a working paper in October criticizing the formula that large DAF managers use to chart payout, proposing a better approach that shows a rate of 14.7%, versus the industry’s 22.4% figure.
Wherever one sits regarding the merits and flaws of DAFs, there’s no denying these perennial punching bags are an ever more important part of the philanthropic universe. Appetite is also on the rise for meaningful reform, though whether it’ll ever materialize is unclear. As of right now, as John Arnold put it in a recent tweet, "Curiously, the tax code rewards the commitment to give rather than the act of giving.”