Philanthropic Fracking – Part 1

October 7, 2018 at 11:30 am 1 comment

Many thanks to Suzanne Woolley of Bloomberg for her article “Super Rich are Stockpiling Wealth in Black Box Charities“.

It has always been my humble opinion that donors can do whatever they like with their money – it’s their money. I would contend it is my job as a fundraiser or philanthropic catalyst to connect a donors’ passion to a person or program that inspires their generosity.

While I have not been around as long as donor advised funds (DAF) (1930) but I was 10 years into my fundraising career when in 1991 Fidelity won a landmark ruling from the IRS that recognized its fund as a public charity. In case you didn’t follow, the ruling, it allows donors to take an immediate tax advantage, so deposits can be timed to maximize savings. Donors can then parcel the money out to charities at their leisure — when and if they so choose, privately. While the fund continues to earn money in these accounts.

DAF assets have grown to $85 billion at the end of 2016 from $30 billion in 2010. Annual administrative fees for DAF accounts can be 0.6 percent, on top of investment management fees. Fidelity Charitable’s “complete overall fees” average 0.6 percent. Some 60 percent of the $21.2 billion in Fidelity Charitable, for example, is in Fidelity funds. Fidelity Investments parent FMR LLC is the DAF’s largest independent contractor and received $46.3 million for the year ended June 30, 2017. Bloomberg

Today Fidelity is among the largest of “funds” in corporate and community foundations offering this tax vehicle to US donors. That donor poll that says, “The last reason a donor gives is for a tax advantage.” Yeah well DAFs are the exception to that rule. The DAF allows for an immediate charitable tax deduction.

We can blame the 1991 IRS (and George HW Bush) ruling for allowing Fidelity to open this door and create this monster pile of money. A conflict of interest started immediately – Fidelity and their clan of investment houses earn money on all the money in those DAFs. Remember “too big to fail” – this is the philanthropic version.

Put yourself in the shoes of an investment house

You already have a lot of high network individuals (HNWI) and their family’s money. Why not capture more?
AND help them earn more so you too can earn money on their money?
AND you have just become the messiah of their money management – avoidance of capital gains, taxes and more.
AND you could double or triple the money under management and earn for the investment house and your bonus.
AND you know nothing, really, about charitable giving, and couldn’t care less.
AND what could possibly be your incentive to counsel, encourage, extol your HNWI clients to make charitable contributions which would lower the dollars under investment?

Those are big ethical questions. Fidelity leadership, IRS and Bush #1 administration had no issue with any of this.

And that my friends is how we got to where we are today – philanthropically speaking.

Stay tuned: Part 2: Warehouses of Wealth


Entry filed under: Fundraising, Nonprofit fundraising, Nonprofit Research. Tags: , , , , .

Philanthropic Intention Warehouses of Wealth – Part 2

1 Comment Add your own

  • 1. Warehouses of Wealth – Part 2 | Talisman Thinking Out Loud  |  October 17, 2018 at 10:48 am

    […] have come under fire – including the institutions that house all this wealth. As I wrote Philanthropic Fracking Part 1 the money in these funds has been placed there by donors, legally, because of a 1991 IRS rule that […]


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