Fidelity Investments' Charitable Gift Fund is growing, a trend seen in donor-advised funds in general as a post-crisis sense of normalcy returns to the market.
Private foundations are increasingly seeing the benefits of donor-advised funds, given the complexities of running one's own foundation. Cost efficiency, simplicity, flexibility, no administrative burdens and larger tax deductions are all compelling reasons to turn to donor-advised funds.
"When you are part of the Fidelity Charitable Gift Fund, we are doing all of the oversight and administering of grants for you, and therefore you don't have the fiduciary responsibility for administering all of that," said Sarah Libbey, president of the Fidelity Charitable Gift Fund.
"Foundations have also realized that, if they can save the costs of running a private foundation, then they can get more money into the hands of the nonprofits that really need it."
The downside is that some donors want more control over their grants. Donor-advised funds only let people recommend charities to get their contributions, though the fund usually honors donors' requests.
If an individual has $250,000 or more, he or she can also have her own investment adviser manage the money in the account.
Another bonus of a donor-advised fund, Fidelity says, is that philanthropists can do most of their transactions online, choosing from more than 50,000 donor-advised funds in Fidelity's portfolio and checking their account balances.
Since March 9, 2009, when the Standard & Poor's 500 index hit its low during the financial crisis, donors have contributed nearly $1.2 billion to the Fidelity Charitable Gift Fund, up nearly 20% from the previous 12 months, Fidelity said. Year-to-date contributions to the fund are up 57%, to $118.6 million, from 2009.
Fidelity's is the largest donor-advised fund, with $4.7 billion of assets. Charles Schwab Corp. and Vanguard Group offer their own donor-advised funds.
Libbey said that part of the draw of Fidelity's Charitable Gift Fund is its simplicity: Any individual can set up a giving account with a $5,000 minimum, and the initial contribution can be taken as a charitable tax deduction. No minimum amount is required for additions to a donor-advised fund. The minimum charitable grant is $50.
A misconception is that the Fidelity Charitable Gift Fund is one fund and that it works as a private foundation's endowment would, Libbey said.
The reality is that the individual may recommend how his or her account balance should be managed. With 15 investment pools to choose from, including money market funds and international stocks, there are many options. And the investor has an unlimited time horizon for making grants to nonprofit organizations.
Libbey pointed out that in 2009 more than 45% of her fund's incoming contributions were in the form of appreciated securities, meaning that the donor was able not only to get the tax deduction but also to avoid a capital gains tax liability. This is called a donation-in-kind.
"The individual is not selling the stocks and getting cash and then giving the donation," she said.
"They are giving the stock to us to liquidate, and we add it to their account balance."
In the past three years, Libbey said, donor-advised funds have shown double-digit growth rates as more tax experts, estate planners and registered investment advisers have learned about this product.
