As donor-advised funds become more popular, fundraisers wonder if commercially run gift funds will spark a charitable boom, undermine local fundraising efforts, or both, The Chronicle of Philanthropy reports.
And because the funds operate with few clear legal guidelines, the Clinton administration has asked Congress to pass new rules to regulate the funds, the newspaper says.
Donor-advised funds allow donors to claim a charitable deduction for a gift and then recommend how the money will be distributed.
Money is invested in financial markets while the donor considers how it should be spent so it can continue to grow.
In the past few years, as people have made millions of dollars in the stock market, private companies have set up more charities to offer the service.
A Chronicle survey found that in the last four years, total assets of donor-advised funds offered by the largest community foundations and private companies grew 231 percent — to $5.5 billion in 1999.
The Charitable Gift Fund, Boston-based Fidelity Investments’ donor-advised fund, quintupled in the same period to $2.2 billion in assets, while the number of people with donor-advised accounts at Fidelity grew 271 percent to nearly 21,000, the Chronicle says.
And the 189 Jewish federations in the U.S. held nearly $2 billion in 7,500 donor-advised accounts last June – double the total in 1995.
Supporters believe the funds will spark a charitable boom, drawing larger gifts from more donors who wish to exercise greater control of their funds.
Donor-advised funds serve the needs of young donors who want “involvement and expression, including a desire for more participation in the process of gift dissemination and project design,” veteran fundraising executive Jay Steenhuysen told the Chronicle.
But detractors say donor-advised funds prevent fundraisers from building lasting relationships with donors — a problem that could undermine future fundraising efforts.
Others worry that community foundations, which have close ties to local charities, will be replaced by commercial competitors such as big banks and brokerages that can lack an understanding of local needs.
Fundraisers are noticing an alarming trend: Donors are giving only the income that is earned in their donor-advised accounts — and leaving the principal intact.
This means a $10,000 gift to charity may be parceled out in $1,000 gifts each year.
For an increasing number of donors, giving is becoming ” a pocketbook decision, not one of the heart,” Robert Brennan, top fundraising official for the Humane Society, told the Chronicle.
Some nonprofit groups, such as Harvard University and some United Ways, have developed their own donor-advised funds to compete in the intensifying charity market. Others are creating partnerships with financial companies to access new donors, the Chronicle says.