Tuesday, May 13, 2003

More Donor Advised Funds than Foundations

More Donor Advised Funds than Foundations: A significant event in philanthropy went unnoticed in 2001. It's official...and you heard it here first, there are now more donor advised funds than foundations in the United States. The May 15, 2003, edition of The Chronicle of Philanthropy reported that donors had set-up 62,245 donor advised fund accounts by 2001, while the Foundation Center estimated that 61,180 private, community and corporate foundations were in existence that same year. While the number of private foundations accelerated in the late-1990s, donor advised fund growth has been even faster. Despite the weak economy, the number of donor advised fund accounts grew 12.2 percent 70,066 in 2002.

What does this mean for philanthropy? On the one hand, it means that philanthropy is becoming "democratized." Instead of the exclusive province of individuals of significant wealth where you need $3-$5 million to set up your foundation, the "price" of entry is a few simple forms, and $10,000.

It also means that philanthropy is maturing. For decades, financial experts have been advising their clients to diversify their portfolios, and allocate their investments among a number of vehicles (CDs, mutual funds, IRAs, etc.) so as to minimize their risk and maximize their return. Now the same is occurring in philanthropy. A generation ago, wealthy individuals equated philanthropy as two options -- the checkbook or the foundation. Over the last 30 years, with the emergence of community foundations, national donor advised funds, and planned giving specialists, coupled with an interest among financial service firms to serve high net worth clients, the same message is being delivered to philanthropists. Don't tie up all your charitable assets in a foundation -- establish a donor advised fund, set up a charitable remainder trust, or charitable gift annuity.

Contrary to some of my colleagues, philanthropy is not a zero-sum game. The rise of donor advised funds does take away from other charitable giving options. Our experience is that it augments it -- expanding the pie of giving. As Bill Bradley, Paul Jansen and Les Silverman noted in the current Harvard Business Review (“The Nonprofit Sector’s $100 Billion Opportunity") “[Donor Advised Funds] offer tremendous convenience. They help donors research grantees, and by lowering start-up costs…they actually encourage [donors] to give more.”

This is big news -- too bad everyone missed it.


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