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Vilifying Donor Advised Funds – ProPublica Gets It Wrong

An article published yesterday by the online newspaper, ProPublica (which claims to focus on stories with “moral force”), is getting a lot of attention.  In the essay entitled, The Wall Street Takeover of Charity, writer Jesse Eisinger goes to great lengths to effectively label donor-advised funds as scandalous investment vehicles that allow the “rich” to get tax credit for charitable giving without having to give anything…and in the process, depriving those who need charitable help.  The reader is left with the image of Ebenezer Scrooge trying to project an image of philanthropy while really working the system for his own gain.

Nothing could be further from the truth regarding donor-advised funds.

Mr. Eisinger attempts to make his point by focusing on the worst possible outcome of money donated to DAFs, as if this outcome were the most likely.  A quote from the article,

The money in donor-advised accounts doesn’t have to go out right away. Private foundations have to disburse an average of 5 percent each year. But donor-advised funds have no legal obligation to spend down their money — ever. True, donors cannot get their money back. But they could designate their children as the advisers to the money. And their children could pass that responsibility on to their children.

This is a classic straw-man argument and, in my opinion, is intended to mislead.  Could this happen?  I guess so.  But the better question is, does this happen?  In practice, the answer is emphatically, no.  As we pointed out in a post earlier this year, DAFs distribute, on average, 16% of managed assets annually…more than 3 times the minimum distribution requirement of private foundations.  Eisinger’s article itself quotes Fidelity’s Amy Danforth as saying that 90% of donations made to their DAFs are distributed to charity within 10 years.  That’s before he takes a swipe at Ms. Danforth by suggesting, without substantiation, that her statistic is not to be trusted.

Another mistake in this article is focusing exclusively on DAFs managed by for-profit mutual funds companies.  Not that there is anything wrong with such DAFs, but an uninformed reader would be left to assume that is all there is.  What is strategically left out is the fact that the majority of DAFs in the US are run by nonprofit community foundations.  Already, the VP of Communications for the Council on Foundations has slammed the piece for this intentional omission:

The author focuses on one type of organization that offers DAFs. But this is not the only channel. Community Foundations, many with deep, decades-long ties to their home communities, also offer donor advised funds among a variety of philanthropic tools. Community foundations deploy donor advised funds to tackle emergency needs, address persistent community concerns, and create long-term investments that ensure resilient and thriving communities across the country. Donors who work with community foundations craft their giving with the professional advice and deep knowledge of local experts. The community benefits from the growth of funds over time and the opportunity for donors to make far greater gifts to the causes they support.

In fairness, the article is an opinion piece.  By their very nature, opinion pieces are meant to take the reader down the path of the writer’s choosing.  And, Mr. Eisinger has attempted to do just that.  Unfortunately, by presenting an entirely misleading picture of DAFs by his use of cherry-picked statistics, straw-man arguments, and his intentional omission of the successes of community foundations, one is left wondering exactly what his motivation is.

That’s terribly unfortunate.  DAFs, especially those of the community foundation variety, have been an incredibly innovative tool to increase, not decrease, philanthropy.  Hopefully, readers of his article will do their homework and realize there is much more to the story.

What’s your take?  Here’s the original article:

The Wall Street Takeover of Charity

 

Greg McRay, EA

Greg McRay, EA

Greg McRay is the founder and CEO of The Foundation Group. He is registered with the IRS as an Enrolled Agent and specializes in 501(c)(3) and other tax exemption issues.

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