Fidelity Investments' Charitable Gift Fund has jumped on the open architecture bandwagon in a bid to satisfy donors, many of them high-net-worth, who have requested a broader investment menu.
The fund, which has more than $3.3 billion under management and is the largest donor-advised fund program in the United States by assets, said it has added third-party mutual funds to four of its investment pools and has introduced two investment pools that include both Fidelity and non-Fidelity portfolios.
"We've been hearing feedback from donors and advisers who have asked for more investment choices," said David Giunta, the president of the Boston-based gift fund. "People have come to expect options when they invest for financial goals such as retirement and college, so we believe it's important that the gift fund also provide more diversification opportunities."
Banks and other financial institutions have added third-party products to their investment platforms in recent years as wealthy investors demanded more complex investment vehicles. A Prudential Financial study released in October said banks could boost their share of the affluent market by offering a mix of third-party and proprietary products.
And many banks, including the U.S. Trust unit of Charles Schwab Corp., have looked to charitable-giving vehicles to lure ultra-wealthy clients. A 2004 Fidelity study found that 52% of investors with $5 million or more of investable assets discussed charitable giving with their advisers and roughly one-third were invested in donor-advised fund programs.
Expanding the gift fund's investment pools program will give donors more opportunities to expand their charitable contributions, Mr. Giunta said. The greater investment flexibility may also prove attractive to financial advisers who help wealthy clients develop charitable giving strategies, he said.
The gift fund is a nonprofit organization that uses account administration fees to cover operating expenses, such as staff salaries. Financial advisers, including those at banks, are paid 0.25% annually of the amounts in Fidelity donor-advised accounts they have helped their clients set up.
The fund is an independent charity, though several Fidelity companies supply investment management and administrative services to it.
Fidelity's gift fund lets donors make irrevocable contributions that are immediately tax-deductible. Donors invest their contributions in one or more investment pools and direct the fund to support IRS-qualified U.S. charities of their choice.
Unlike charitable remainder trusts, donor-advised funds let investors make charitable gifts during their lifetimes.
The gift fund now has 11 investment pools, including three asset-allocation pools that are tailored to various donation strategies. The two new pools are an all-cap equity pool that offers diversified exposure to the U.S stock market and an interest-income pool that invests in a range of Fidelity and non-Fidelity fixed-income mutual funds.
Strategic Advisors Inc. - a Fidelity subsidiary and the gift fund's investment manager - can now choose from among about 2,000 Fidelity and non-Fidelity mutual funds as underlying investments for six of the pools. Its choices were previously confined to Fidelity's proprietary funds.
The other five pools will continue to invest solely in Fidelity funds.
