Lower-cost donor-advised funds?

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
joeschmo
Posts: 179
Joined: Thu Mar 23, 2017 2:37 pm

Lower-cost donor-advised funds?

Post by joeschmo »

Hi, one of my main goals is to ramp up charitable giving. I have till now been doing this via donor-advised funds at Fidelity/Vanguard but they charge 0.6%. Chronicle of Philanthropy has a helpful list of other DAFs:

https://www.philanthropy.com/article/Wh ... nds/156495

There are some from community foundations that look just as polished as Fidelity/Vanguard, such as Marin Community Foundation. However, the investments don't seem quite as low cost.

Others like Nature Conservancy offer DAFs that are "free" except you have to give their projects 20%. This seems like a great option if only a place like NRDC offered this.

Does anyone have experience with DAFs that are either (1) lower cost or (2) higher cost but seem like a better cause than Vanguard/Fidelity? Also, what's the equivalent of Bogleheads forum but for philanthropy?
Silk McCue
Posts: 4807
Joined: Thu Feb 25, 2016 7:11 pm

Re: Lower-cost donor-advised funds?

Post by Silk McCue »

As I reviewed the DAFs in the link you provided it appeared to me that Fidelity was very competitive with its .6 fee. Marin Community was .5 and as you said the investment cost seemed higher.

You mention "seem like a better cause than Vanguard/Fidelity". They aren't causes. You can donate to any IRS qualified charity that you desire from both of these. Unless it just makes you feel good to hold the DAF at a charitable organization with a name that appeals to you

Cheers
LFS1234
Posts: 221
Joined: Fri Feb 08, 2019 4:13 am

Re: Lower-cost donor-advised funds?

Post by LFS1234 »

joeschmo wrote: Sat Feb 01, 2020 11:42 pm Hi, one of my main goals is to ramp up charitable giving. I have till now been doing this via donor-advised funds at Fidelity/Vanguard but they charge 0.6%.
I don't understand why you're concerned about this.

When you're saving for the future for yourself, every bit counts, compounding occurs over many decades and half a percentage point of annual cost can easily reduce your long-term results by twenty percent or more over a working lifetime (depending on your specific assumptions). So in this case, a 0.6% annual fee in your personal investment accounts would be very undesirable when you have the option of investing at less than a tenth of that cost.

When you're giving money away, you've already decided that 100% of your donation is money that you don't need. If there is a 0.6% cost to using a DAF, then this only means that the end charity gets 99.4% of your contribution rather than 100% of it. I see no reason to lose sleep over that. You aren't hurt in the slightest, what the end charity sees has been reduced by 0.6%, and the end charity is thrilled to have (indirectly) paid a 0.6% fee in order to get free money. Frankly, I think a well-run DAF would be a bargain at double the price.

If your intention is to make a single very large donation to a DAF and dribble it out over many years, then the math is slightly different, but the fee structure still doesn't affect you personally and still in my view is highly acceptable. I just looked at Schwab's DAF, and their fees drop in half from 0.6% to 0.3% once your DAF account exceeds $500k, and keep going down from there.
livesoft
Posts: 73338
Joined: Thu Mar 01, 2007 8:00 pm

Re: Lower-cost donor-advised funds?

Post by livesoft »

I try to use my DAF as a conduit and not as a place to hold not-my-money anymore. Share donations go in just before the money gets granted to charities. The 0.6% fee on any residual amounts does not amount to much given the flow of money through the DAF.
Wiki This signature message sponsored by sscritic: Learn to fish.
Topic Author
joeschmo
Posts: 179
Joined: Thu Mar 23, 2017 2:37 pm

Re: Lower-cost donor-advised funds?

Post by joeschmo »

Thanks for the help thinking through this. If I get up the courage, I will contribute a large amount ($1-2M or even more if I were very courageous) to the DAF and so the fees start to look substantial - even if I then donated everything in a year, though I think that might be difficult. If there is a DAF offered by an organization with a cause I believe in, then it would make sense to pay higher fees to them. But if that DAF restricts my donation options or requires me to pay high investment management fees, then it doesn't seem so attractive anymore.
StealthRabbit
Posts: 528
Joined: Sat Jun 13, 2009 1:25 am

Re: Lower-cost donor-advised funds?

Post by StealthRabbit »

I first used a community foundation for DAF. (~30 yrs ago)

When I dug into some missing designated gifts I discovered the community foundation had not been allocating, managing, or investing according to my written recommendations. They doing what they they wanted to serve their interests. I quickly bailed after having several discussions with Foundation managemet. We no longer aligned on anything (change of management / at the foundation). They also expected to designate 100% of your remaining funds to their sole activities (when you pass away). That didn't fly well with me.

I would be very careful of that when going to a DAF with narrow purpose and limited oversight and exposure.
inbox788
Posts: 7598
Joined: Thu Mar 15, 2012 5:24 pm

Re: Lower-cost donor-advised funds?

Post by inbox788 »

LFS1234 wrote: Sun Feb 02, 2020 9:24 ama 0.6% annual fee in your personal investment accounts would be very undesirable when you have the option of investing at less than a tenth of that cost
If we had better options with DAF costing less than a tenth of the cost, we'd surely be using them, but unfortunately, AFAIK, we don't. I understand that fees are required to pay for costs not associated with personal accounts, but I'd be surprised if these operations were operating at a loss. And the PR the get is generally positive, since they get some credit for supporting charitable causes. Don't forget, they use their own funds, so they're earning their fees there as well, especially with the higher active selections.

I'm getting more cynical as I see more and more people and companies profiting from charitable nonprofits, but so far these DAFs are still good guys in my view. Or at least helping the good guys a little, though there are those that disagree.

OP, I did come across a couple of charities operating DAFs that looked like they had lower fees, but the contributions where highly restricted, so unless you wanted to support only their limited causes, the general DAFs are much more flexible.
LFS1234
Posts: 221
Joined: Fri Feb 08, 2019 4:13 am

Re: Lower-cost donor-advised funds?

Post by LFS1234 »

inbox788 wrote: Sun Feb 02, 2020 8:33 pm
LFS1234 wrote: Sun Feb 02, 2020 9:24 ama 0.6% annual fee in your personal investment accounts would be very undesirable when you have the option of investing at less than a tenth of that cost
If we had better options with DAF costing less than a tenth of the cost, we'd surely be using them, but unfortunately, AFAIK, we don't. I understand that fees are required to pay for costs not associated with personal accounts, but I'd be surprised if these operations were operating at a loss. And the PR the get is generally positive, since they get some credit for supporting charitable causes. Don't forget, they use their own funds, so they're earning their fees there as well, especially with the higher active selections.

I'm getting more cynical as I see more and more people and companies profiting from charitable nonprofits, but so far these DAFs are still good guys in my view. Or at least helping the good guys a little, though there are those that disagree.

OP, I did come across a couple of charities operating DAFs that looked like they had lower fees, but the contributions where highly restricted, so unless you wanted to support only their limited causes, the general DAFs are much more flexible.
Non-profits, just like any other legal entities, can be used fraudulently or for purposes with which we might disagree. However, they can also be used for purposes with which we strongly agree. There are a great many non-profits out there, and I doubt there are many people who wouldn't find some which they would happily support.

The DAFs operated by Fidelity, Schwab and Vanguard are among the biggest out there, have economies of scale, and should be able to operate more efficiently and at lower costs than most smaller ones. Most of these lower costs get passed on to their customers. I have used Schwab's DAF for much of my charitable giving since 2013, have been very pleased with it, and feel it offers tremendous value in terms of tax efficiency, saving time, enabling anonymous donations, and cost.

It sounds like OP is considering making a 7-figure donation and gradually trickling the money out to end charities, which would cause the annual AUM fees to be assessed for multiple years. The most common reason for making very large one-time charitable donations is for tax reduction purposes, off-setting one-time windfalls resulting from sales of businesses and the like. If there is no good reason to make a huge donation to a DAF and gradually trickling the money out to charities, then it may make more sense to make smaller annual donations to the DAF and having that money directed to the end charities shortly afterwards. OP writes that he has an accountant and the accountant should certainly be able to help him in making these decisions.

Another alternative is to make direct donations of appreciated assets to the OP's favorite charities. This would eliminate the need for the DAF. OP and his accountant would have to figure out if the savings are sufficient to justify the extra time and other costs involved in such a course of action. A very reasonable compromise can be making large contributions to favorite charities directly, and making smaller ones to less-favored charities indirectly but more conveniently through a DAF.
inbox788
Posts: 7598
Joined: Thu Mar 15, 2012 5:24 pm

Re: Lower-cost donor-advised funds?

Post by inbox788 »

LFS1234 wrote: Mon Feb 03, 2020 12:31 pmNon-profits, just like any other legal entities, can be used fraudulently or for purposes with which we might disagree. However, they can also be used for purposes with which we strongly agree. There are a great many non-profits out there, and I doubt there are many people who wouldn't find some which they would happily support.

The DAFs operated by Fidelity, Schwab and Vanguard are among the biggest out there, have economies of scale, and should be able to operate more efficiently and at lower costs than most smaller ones. Most of these lower costs get passed on to their customers. I have used Schwab's DAF for much of my charitable giving since 2013, have been very pleased with it, and feel it offers tremendous value in terms of tax efficiency, saving time, enabling anonymous donations, and cost.
I'm not trying to get into any debate or questioning the value of the DAF products sold by Fidelty and others. I'm just pointing out the mixed motives they have, making money on helping charitable endeavors. [looked at the annual report and they spend less than 0.2% on expenses, so I wonder where the other 0.4% is going] Anyway, we donors have mixed motives too when we donate and get tax breaks, but I've yet to find a program where I get back more in tax breaks than I donate.

Also, if anyone wanted to do fraudulent activity, that's another issue. It's the legal, but questionable benefit operations that I'm discovering more and more. Some fund raising companies keep the vast proportion of the proceeds for themselves. I think some of these shouldn't be allowed, like the fundraising activities where only 2% of the collections actually winds up at the charity, but I'm not sure who or how you'd determine what levels are appropriate. https://thinkprogress.org/these-corpora ... 29b0cd81c/
Donor beware
Absent aggressive enforcement, the charitable sector has struggled to regulate itself. The biggest offenders often work on behalf of nonprofits doing heartstring-pulling work like serving veterans and supporting people with cancer.
http://theconversation.com/when-chariti ... nors-89426

If I had $1M in personal account or for charity, and paying over $6000 in fees each year for keeping it invested in low cost index funds and cutting a few checks, I'd be looking for ways to reduce that. On the investing side, 0-0.05 expense fees mean less than $500/year, but even that paid thru the fund. If there are enough big donors that want to avoid these fees, maybe a lean DAF of DAF could operate for say $1000/year in fees that invests only in a handful of low cost index funds, and doles out 5% of the account to Fidelity DAF each year to meet the distribution requirement. Then all these million plus accounts could donate $5000 more to charities each year. But chances are even if it could succeed, it would cut in to the profits of the DAFs and they'd have to make up somewhere else. BTW, one other way they could cut costs is NOT to accept stocks or other complicated donations; only accept cash or Fidelity DAF checks [piggyback or leech off the existing services]. I see quite a bit of room to cut costs, especially on larger accounts. Could Fidelity not act on advice to use such a low cost competitor? Or are they required to such as when transferring to Schwab or Vanguard?
Topic Author
joeschmo
Posts: 179
Joined: Thu Mar 23, 2017 2:37 pm

Re: Lower-cost donor-advised funds?

Post by joeschmo »

inbox788 wrote: Mon Feb 03, 2020 2:23 pm I'm not trying to get into any debate or questioning the value of the DAF products sold by Fidelty and others. I'm just pointing out the mixed motives they have, making money on helping charitable endeavors. [looked at the annual report and they spend less than 0.2% on expenses, so I wonder where the other 0.4% is going] Anyway, we donors have mixed motives too when we donate and get tax breaks, but I've yet to find a program where I get back more in tax breaks than I donate.
Just to be sure we are on the same page, Fidelity Charitable and Vanguard Charitable are both 501(c)3 organizations:

https://www.charitynavigator.org/index. ... =232888152
https://www.charitynavigator.org/index. ... =110303001

So they are not allowed to make profit on helping charitable endeavors. But of course non-profits can be inefficient and wasteful etc. I'd rather a donor-advised fund that were highly rated on Charity Navigator and charged 1%, than one that charged less but had no Charity Navigator rating.
User avatar
FelixTheCat
Posts: 1873
Joined: Sat Sep 24, 2011 12:39 am

Re: Lower-cost donor-advised funds?

Post by FelixTheCat »

I have Fidelity's DAF. The profit you make on your investments makes up for the slight loss on the administrative fees.
Felix is a wonderful, wonderful cat.
Topic Author
joeschmo
Posts: 179
Joined: Thu Mar 23, 2017 2:37 pm

Re: Lower-cost donor-advised funds?

Post by joeschmo »

My main concern for the DAF isn't keeping as much money as possible; it's ensuring that as much money as possible goes to the right people. For $2-3 million in a DAF, even kept just 3 years, that means $18k/yr that goes to Vanguard Charitable.

So let's assume there is a sponsor organization that I'd rather give $18k/yr to. For example, a community foundation like East Bay Community Foundation has 4 stars on CN:

https://www.charitynavigator.org/index. ... orgid=3640

They have a DAF, but the fees are 1.25% + investment fees. I don't know much about EBCF's work but assuming it's good, then it's better to give them 1.25%/yr than Vanguard or Fidelity, but then that leaves investment fees.

According to their 2019 investment results, their expense ratios are 0.28-0.4% paid to Graystone Consulting, which is just Morgan Stanley. So not atrocious but certainly Vgd's are way better... Hence my issue.
Silk McCue
Posts: 4807
Joined: Thu Feb 25, 2016 7:11 pm

Re: Lower-cost donor-advised funds?

Post by Silk McCue »

joeschmo wrote: Mon Feb 03, 2020 3:50 pm
inbox788 wrote: Mon Feb 03, 2020 2:23 pm I'm not trying to get into any debate or questioning the value of the DAF products sold by Fidelty and others. I'm just pointing out the mixed motives they have, making money on helping charitable endeavors. [looked at the annual report and they spend less than 0.2% on expenses, so I wonder where the other 0.4% is going] Anyway, we donors have mixed motives too when we donate and get tax breaks, but I've yet to find a program where I get back more in tax breaks than I donate.
Just to be sure we are on the same page, Fidelity Charitable and Vanguard Charitable are both 501(c)3 organizations:

https://www.charitynavigator.org/index. ... =232888152
https://www.charitynavigator.org/index. ... =110303001

So they are not allowed to make profit on helping charitable endeavors. But of course non-profits can be inefficient and wasteful etc. I'd rather a donor-advised fund that were highly rated on Charity Navigator and charged 1%, than one that charged less but had no Charity Navigator rating.
CharityNavigator isn't going to rate Fidelity and Vanguard as charities. They are operators of Donor Advised Funds which the link for Fidelity had a statement making it clear that "Charities that primarily operate Donor Advised Funds are not rated".

If you want to believe that means you should spend more on fees than you need to in a DAF then go right ahead. We certainly won't when we establish our DAF later this year.

Cheers
inbox788
Posts: 7598
Joined: Thu Mar 15, 2012 5:24 pm

Re: Lower-cost donor-advised funds?

Post by inbox788 »

joeschmo wrote: Mon Feb 03, 2020 3:50 pmJust to be sure we are on the same page, Fidelity Charitable and Vanguard Charitable are both 501(c)3 organizations:

https://www.charitynavigator.org/index. ... =232888152
https://www.charitynavigator.org/index. ... =110303001

So they are not allowed to make profit on helping charitable endeavors. But of course non-profits can be inefficient and wasteful etc. I'd rather a donor-advised fund that were highly rated on Charity Navigator and charged 1%, than one that charged less but had no Charity Navigator rating.
Yes, the "Fidelity Charitable" organization is not-for-profit, but they take in between 0.15-0.60 in fees on $30B assets, so as much as $180M, less the reduced rate accounts. [I miscalculated above, so 0.2% is wrong; it's more like 0.35% that can be seen from $105M fees and expenses of their $30B AUM -- there's still up to $75M that I haven't accounted for, other than reduced fees for larger accounts. If that's most of the discrepancy, then there's not much more efficiency they can squeeze out of the operation without looking deeper into those fees and expenses paid.]
https://www.fidelitycharitable.org/cont ... report.pdf

Indirect benefit to Fidelity at large is goodwill from their charitable efforts, and they do feed their own funds that $30B (a form of self dealing). And some of those funds have high fees. The business of charity can be profitable.
Environmental Impact Access 0.99%
https://www.fidelitycharitable.org/givi ... costs.html

Don't get me wrong, like I said before, I think Fidelity Charitable (also Vanguard and Schwab DAFs) are good guys, but they can be more efficient and afford to be even more charitable.

Expenses other than grants $20M/$10B AUM = .2%. I'm also finding a gap here, assuming most accounts are below $29M and they're collecting at least 0.35% in fees.
https://www.vanguardcharitable.org/2019annualreport
https://www.vanguardcharitable.org/site ... .30.19.pdf
Annual fee schedule
15 vanguardcharitable.org | 888-383-4483
Below is a sample fee schedule for an account with $750,000.2
Standard account Select account1
First $500K 0.60% 0.60%
Next $500K 0.35% 0.35%
Next $29M 0.35% 0.13%
Next $70M 0.05%
Additional assets over $100M Contact us
https://www.vanguardcharitable.org/site ... 18_ABW.pdf

OP, you're a relatively bigger fish at Fidelity Charitable than Vanguard Charitable.
Topic Author
joeschmo
Posts: 179
Joined: Thu Mar 23, 2017 2:37 pm

Re: Lower-cost donor-advised funds?

Post by joeschmo »

Silk McCue wrote: Mon Feb 03, 2020 4:08 pm
joeschmo wrote: Mon Feb 03, 2020 3:50 pm
inbox788 wrote: Mon Feb 03, 2020 2:23 pm I'm not trying to get into any debate or questioning the value of the DAF products sold by Fidelty and others. I'm just pointing out the mixed motives they have, making money on helping charitable endeavors. [looked at the annual report and they spend less than 0.2% on expenses, so I wonder where the other 0.4% is going] Anyway, we donors have mixed motives too when we donate and get tax breaks, but I've yet to find a program where I get back more in tax breaks than I donate.
Just to be sure we are on the same page, Fidelity Charitable and Vanguard Charitable are both 501(c)3 organizations:

https://www.charitynavigator.org/index. ... =232888152
https://www.charitynavigator.org/index. ... =110303001

So they are not allowed to make profit on helping charitable endeavors. But of course non-profits can be inefficient and wasteful etc. I'd rather a donor-advised fund that were highly rated on Charity Navigator and charged 1%, than one that charged less but had no Charity Navigator rating.
CharityNavigator isn't going to rate Fidelity and Vanguard as charities. They are operators of Donor Advised Funds which the link for Fidelity had a statement making it clear that "Charities that primarily operate Donor Advised Funds are not rated".

If you want to believe that means you should spend more on fees than you need to in a DAF then go right ahead. We certainly won't when we establish our DAF later this year.

Cheers
You sound angry. I don’t mean to change your mind about what is best for you.

In my shoes it is hard to argue that it’s “spending more on fees” if the fee money is going to a charity you believe in, instead of programs that merely advance the best interests of brokerage houses. Whether there is a better alternative, I don’t know - that’s why I started this thread.
Topic Author
joeschmo
Posts: 179
Joined: Thu Mar 23, 2017 2:37 pm

Re: Lower-cost donor-advised funds?

Post by joeschmo »

inbox788 wrote: Mon Feb 03, 2020 4:41 pm
joeschmo wrote: Mon Feb 03, 2020 3:50 pmJust to be sure we are on the same page, Fidelity Charitable and Vanguard Charitable are both 501(c)3 organizations:

https://www.charitynavigator.org/index. ... =232888152
https://www.charitynavigator.org/index. ... =110303001

So they are not allowed to make profit on helping charitable endeavors. But of course non-profits can be inefficient and wasteful etc. I'd rather a donor-advised fund that were highly rated on Charity Navigator and charged 1%, than one that charged less but had no Charity Navigator rating.
Yes, the "Fidelity Charitable" organization is not-for-profit, but they take in between 0.15-0.60 in fees on $30B assets, so as much as $180M, less the reduced rate accounts. [I miscalculated above, so 0.2% is wrong; it's more like 0.35% that can be seen from $105M fees and expenses of their $30B AUM -- there's still up to $75M that I haven't accounted for, other than reduced fees for larger accounts. If that's most of the discrepancy, then there's not much more efficiency they can squeeze out of the operation without looking deeper into those fees and expenses paid.]
https://www.fidelitycharitable.org/cont ... report.pdf

Indirect benefit to Fidelity at large is goodwill from their charitable efforts, and they do feed their own funds that $30B (a form of self dealing). And some of those funds have high fees. The business of charity can be profitable.
Environmental Impact Access 0.99%
https://www.fidelitycharitable.org/givi ... costs.html

Don't get me wrong, like I said before, I think Fidelity Charitable (also Vanguard and Schwab DAFs) are good guys, but they can be more efficient and afford to be even more charitable.

Expenses other than grants $20M/$10B AUM = .2%. I'm also finding a gap here, assuming most accounts are below $29M and they're collecting at least 0.35% in fees.
https://www.vanguardcharitable.org/2019annualreport
https://www.vanguardcharitable.org/site ... .30.19.pdf
Annual fee schedule
15 vanguardcharitable.org | 888-383-4483
Below is a sample fee schedule for an account with $750,000.2
Standard account Select account1
First $500K 0.60% 0.60%
Next $500K 0.35% 0.35%
Next $29M 0.35% 0.13%
Next $70M 0.05%
Additional assets over $100M Contact us
https://www.vanguardcharitable.org/site ... 18_ABW.pdf

OP, you're a relatively bigger fish at Fidelity Charitable than Vanguard Charitable.
You bring up another point that I find morally objectionable about Fidelity Charitable: though they offer low-cost investment vehicles, the default options they choose for you are very expensive. I am sure Fidelity Charitable had funneled enormous amounts of money to their for-profit mothership - including from me, before I realized what was happening. :(

If I am donating like 10-15x per year at most, it seems hard to imagine this would cost one of these orgs the $18k I am paying them to hold the money for a year.

My hope was to fund a DAF richly and then set up recurring grants to charities over the span of several years, which is of course better for the charities, but when we are talking about $20-$40k+ in fees paid out just to the DAF.... gosh I’d rather have that go to saving people’s lives. :(
Silk McCue
Posts: 4807
Joined: Thu Feb 25, 2016 7:11 pm

Re: Lower-cost donor-advised funds?

Post by Silk McCue »

joeschmo wrote: Mon Feb 03, 2020 5:24 pm
You sound angry. I don’t mean to change your mind about what is best for you.
Then you are hearing something that isn’t there.

Cheers
cashheavy18
Posts: 131
Joined: Fri Jun 15, 2018 3:19 pm

Re: Lower-cost donor-advised funds?

Post by cashheavy18 »

I realize you are looking to transfer a large amount at once ($1-2M) and make annual distributions from there.

If you already know which organizations you want to donate to, consider transferring the stock directly to them - bypass the DAF altogether.

Ask the non-profit what their process is to donate stocks/mutual funds, etc. You can designate how the funds are to be used as well (to be used for a specific need vs. going to their general pot).

This is what we do and have found it to be a smooth process.
cashheavy18
Posts: 131
Joined: Fri Jun 15, 2018 3:19 pm

Re: Lower-cost donor-advised funds?

Post by cashheavy18 »

livesoft wrote: Sun Feb 02, 2020 9:36 am I try to use my DAF as a conduit and not as a place to hold not-my-money anymore. Share donations go in just before the money gets granted to charities. The 0.6% fee on any residual amounts does not amount to much given the flow of money through the DAF.
Would you please say more on how the fees are assessed when you use it as a pass through? I'm considering opening a DAF for the first time, to lock in some gains now and then disburse the funds in a lump sum in 2 months time (to align with the charities giving campaign and matches). Is the .6% fee assessed on a monthly basis?
Geologist
Posts: 1507
Joined: Fri Jan 02, 2009 7:35 pm

Re: Lower-cost donor-advised funds?

Post by Geologist »

inbox788 wrote: Mon Feb 03, 2020 4:41 pm

Don't get me wrong, like I said before, I think Fidelity Charitable (also Vanguard and Schwab DAFs) are good guys, but they can be more efficient and afford to be even more charitable.

Expenses other than grants $20M/$10B AUM = .2%. I'm also finding a gap here, assuming most accounts are below $29M and they're collecting at least 0.35% in fees.
https://www.vanguardcharitable.org/2019annualreport
https://www.vanguardcharitable.org/site ... .30.19.pdf
Annual fee schedule
15 vanguardcharitable.org | 888-383-4483
Below is a sample fee schedule for an account with $750,000.2
Standard account Select account1
First $500K 0.60% 0.60%
Next $500K 0.35% 0.35%
Next $29M 0.35% 0.13%
Next $70M 0.05%
Additional assets over $100M Contact us
https://www.vanguardcharitable.org/site ... 18_ABW.pdf
I’m afraid your analysis is deficient, at least as applied to Vanguard Charitable. First, you have not read Vanguard Charitable’s fee schedule right. Most accounts above $1 million are paying only 0.13% (see below; Select status kicks in at $1M and is the 0.13% cost in your table). Second, Vanguard Charitable’s total costs run about 0.2% of assets ($20 million on $10 billion in assets). Therefore, the key question is how much money is in accounts above $1 million because these are paying less than the overall cost percentage, not how whether most account are less than $29 million. In fact, the small accounts incur relatively more of the costs of running the operation because many of the costs are fixed.

Recourse to the IRS Form 990, which you don’t even mention, shows easily that the average Vanguard Charitable account is almost exactly $500,000 ($8.5 billion in 17,145 accounts for 2107 [most recent year available], see p. 21). Since there are surely quite a few small accounts (like mine), this means that a lot of money is in fewer large accounts paying fee percentages much less than the overall percentage. And there must be, because the rest of the 990 has a list of donations of $5000 or more showing enormous numbers of individual contributions greater than or equal to $100,000. (In 2017: Harvard alone received $4.1 million in individual donations of at least $100,000. The Henry Huntington Library and Art Gallery received one $625,000 and one $307,000 gift. There are several other individual gifts of $500,000 and one of $5,000,000). Only big accounts can sustain this level of giving. These will have most of the assets but pay little in fees.

In short, your argument “I think Fidelity Charitable (also Vanguard and Schwab DAFs) are good guys, but they can be more efficient and afford to be even more charitable” is unsubstantiated at least for Vanguard and likely to be wrong. If you want your argument to be more than mere assertion, please supply some evidence.



Quote from https://www.vanguardcharitable.org/givi ... d-minimums
“Select account status is subject to Vanguard Charitable's approval and is based on account balance, activity, and patterns. Most accounts with balances of more than $1 million for at least three months are approved for Select status.”
Topic Author
joeschmo
Posts: 179
Joined: Thu Mar 23, 2017 2:37 pm

Re: Lower-cost donor-advised funds?

Post by joeschmo »

Geologist wrote: Mon Feb 03, 2020 7:24 pm Most accounts above $1 million are paying only 0.13%
This isn't necessarily true. The fee schedule is not by range but by "first x, next y, next z, etc." Thus e.g. a $3 million account is charged 0.24%:

Image

This can be confirmed using the fee calculator on Vanguard Charitable's site. Moreover, with their "moderate growth" asset mix fees of 0.11%, that brings the total fee to a Boglehead-dizzying 0.35%. Granted, Fidelity is worse and their investment fees are much higher by default.
cashheavy18 wrote: Mon Feb 03, 2020 6:57 pm Would you please say more on how the fees are assessed when you use it as a pass through? I'm considering opening a DAF for the first time, to lock in some gains now and then disburse the funds in a lump sum in 2 months time (to align with the charities giving campaign and matches). Is the .6% fee assessed on a monthly basis?
It's 0.6%/yr but I don't know how often it is assessed. Perhaps the charity would be willing to be flexible on matches etc if you donated directly?
cashheavy18 wrote: Mon Feb 03, 2020 6:54 pm I realize you are looking to transfer a large amount at once ($1-2M) and make annual distributions from there.

If you already know which organizations you want to donate to, consider transferring the stock directly to them - bypass the DAF altogether.

Ask the non-profit what their process is to donate stocks/mutual funds, etc. You can designate how the funds are to be used as well (to be used for a specific need vs. going to their general pot).

This is what we do and have found it to be a smooth process.
I was thinking about this but imagined it would be better for charities to have a recurring donation rather than a one-off windfall. Unrelated, but I have heard consistently that it is better for charities when donors do not earmark funds for particular causes.
Topic Author
joeschmo
Posts: 179
Joined: Thu Mar 23, 2017 2:37 pm

Re: Lower-cost donor-advised funds?

Post by joeschmo »

By the way, Sierra Club has a Donor-Advised Fund that works about as I was hoping:

https://www.sierraclubfoundation.org/wa ... ised-funds

For me personally, 25% is a bit steep for donating to one organization (even though climate change is to be at least 50% of my giving allocation) but I am posting this here in case it helps anyone else.
cashheavy18
Posts: 131
Joined: Fri Jun 15, 2018 3:19 pm

Re: Lower-cost donor-advised funds?

Post by cashheavy18 »

cashheavy18 wrote: Mon Feb 03, 2020 6:54 pm I realize you are looking to transfer a large amount at once ($1-2M) and make annual distributions from there.

If you already know which organizations you want to donate to, consider transferring the stock directly to them - bypass the DAF altogether.

Ask the non-profit what their process is to donate stocks/mutual funds, etc. You can designate how the funds are to be used as well (to be used for a specific need vs. going to their general pot).

This is what we do and have found it to be a smooth process.
I was thinking about this but imagined it would be better for charities to have a recurring donation rather than a one-off windfall. Unrelated, but I have heard consistently that it is better for charities when donors do not earmark funds for particular causes.
[/quote]

If you already know which charities you are going to donate to, it would be worthwhile to setup time to talk to them and share your intentions and gauge their response. I sit on a board of small non-profit (<$1M in assets), here is what I think we'd do if someone came in donating $1M:

- Be in shock (in a good way)!
-Meet with the donor to understand their wishes/preferences (you can still remain anonymous for all public facing recognition, but still meet with the executive director)
-The influx of the money, which in the example above would double our assets wouldn't affect the day to day, we would still follow our guidelines on how the funds are used/invested and account for the wishes of the donor
-Your comment that it's better for charities that funds aren't designated is a yes/no - non-profits definitely need general dollars to allocate for operating expenses, so it would be a problem if every single donation was "ear marked." However, I personally want to see the donation I make used for causes that are important to me - so, I always designate. A charity will honor your request and you can certainly discuss with them to see if there are any concerns (you could always split and say 50% designated, 50% not)

Regardless of your approach - it's wonderful that you are planning to donate and support causes that are important to you! All the best!
inbox788
Posts: 7598
Joined: Thu Mar 15, 2012 5:24 pm

Re: Lower-cost donor-advised funds?

Post by inbox788 »

joeschmo wrote: Mon Feb 03, 2020 11:29 pm
Geologist wrote: Mon Feb 03, 2020 7:24 pm Most accounts above $1 million are paying only 0.13%
This isn't necessarily true. The fee schedule is not by range but by "first x, next y, next z, etc." Thus e.g. a $3 million account is charged 0.24%:
There isn't sufficient information from the annual report and Form 990 to separate out the costs from the smaller vs. larger accounts. Only so much can be inferred form the totals and averages they provide. It's unknown how many accounts are select status at the lower rate, but the many $500k-1M accounts are also charged .35%. There's not enough information to determine what fraction is charged the lower 0.13% fee, but if 50% of the dollars are in select accounts, then the average fee would also be .24%. This seems to imply that the average account is around $3M, but Geologist is right, there's no way to know if one or a few accounts make up $9B of the AUM and the overall rate is actually below the average. I don't think it's that top heavy, but as a nonprofit, if they're required to match their fees with their costs at 0.2% (are they?), then it would imply that the majority of the funds are charged the reduced rates. And with those three high thresholds levels (29/70/100), they certainly have some big and giant accounts. I would be surprised if this was the case, but don't know how the public would know, and they're unlikely to want to share such detail.

There's no way to tell whether the big accounts are subsidizing the smaller accounts or the other way around. But Vanguard (0.2% cost) doesn't have the even smaller accounts and limits that Fidelity (0.35% cost) or Schwab (.317% cost) allow. People complain about the higher amounts at Vanguard, but there might be a case to further increase the limits and minimums.
sycamore
Posts: 1219
Joined: Tue May 08, 2018 12:06 pm

Re: Lower-cost donor-advised funds?

Post by sycamore »

cashheavy18 wrote: Mon Feb 03, 2020 6:57 pm
livesoft wrote: Sun Feb 02, 2020 9:36 am I try to use my DAF as a conduit and not as a place to hold not-my-money anymore. Share donations go in just before the money gets granted to charities. The 0.6% fee on any residual amounts does not amount to much given the flow of money through the DAF.
Would you please say more on how the fees are assessed when you use it as a pass through? I'm considering opening a DAF for the first time, to lock in some gains now and then disburse the funds in a lump sum in 2 months time (to align with the charities giving campaign and matches). Is the .6% fee assessed on a monthly basis?
Here's how Schwab does it
The 0.60% administrative fee does not appear as a line item on account statements; rather, in keeping with the method widely used for mutual fund investments, this expense is accrued daily and reflected in the investment pool’s daily net asset value (NAV).1

Any administrative fees that have been collected during the course of Schwab Charitable’s fiscal year ending June 30 are subtracted from the $100 minimum (assessed on an annual basis on or around July 31).
and footnote 1:
1 NAV is calculated by the net asset value of the underlying investment fund, less Schwab Charitable administrative fees and operating expenses attributable to that investment pool, divided by the total outstanding shares of that investment pool. The net asset value of the underlying investment fund incorporates realized and unrealized capital gains or losses, dividends/interest on the portfolio of investments, as well as expenses charged by the fund manager as described in the corresponding mutual fund’s prospectus. Operating expenses include custodial fees and administrative fees.
I would guess it's something similar at Fidelity.

[Edited to add:] Here's how Vanguard does it (scroll down to Fees And Expenses section):
Assessment of administrative fee

The annual tiered administrative fee does not appear as a line item on account statements or online. The expense is spread over the year with daily assessments that are reflected in the investment options’ unit values (excluding the TIFF Multi-Asset Pool). This method is widely used for mutual fund investments.

Every quarter, affected accounts are adjusted by the difference between the fee already assessed and the fee actually owed. Adjustments are then assessed to each investment option in the account (excluding the TIFF Multi-Asset Pool) on a pro-rata basis.

The Statements, Other transactions, and Administrative fee sections of an online account will show adjustments as an “administrative fee credit” (or “administrative fee” for a debit). The final statement for a calendar year will show the actual fee assessed on an account.
Topic Author
joeschmo
Posts: 179
Joined: Thu Mar 23, 2017 2:37 pm

Re: Lower-cost donor-advised funds?

Post by joeschmo »

sycamore wrote: Tue Feb 04, 2020 3:24 pm
cashheavy18 wrote: Mon Feb 03, 2020 6:57 pm
livesoft wrote: Sun Feb 02, 2020 9:36 am I try to use my DAF as a conduit and not as a place to hold not-my-money anymore. Share donations go in just before the money gets granted to charities. The 0.6% fee on any residual amounts does not amount to much given the flow of money through the DAF.
Would you please say more on how the fees are assessed when you use it as a pass through? I'm considering opening a DAF for the first time, to lock in some gains now and then disburse the funds in a lump sum in 2 months time (to align with the charities giving campaign and matches). Is the .6% fee assessed on a monthly basis?
Here's how Schwab does it
The 0.60% administrative fee does not appear as a line item on account statements; rather, in keeping with the method widely used for mutual fund investments, this expense is accrued daily and reflected in the investment pool’s daily net asset value (NAV).1

Any administrative fees that have been collected during the course of Schwab Charitable’s fiscal year ending June 30 are subtracted from the $100 minimum (assessed on an annual basis on or around July 31).
and footnote 1:
1 NAV is calculated by the net asset value of the underlying investment fund, less Schwab Charitable administrative fees and operating expenses attributable to that investment pool, divided by the total outstanding shares of that investment pool. The net asset value of the underlying investment fund incorporates realized and unrealized capital gains or losses, dividends/interest on the portfolio of investments, as well as expenses charged by the fund manager as described in the corresponding mutual fund’s prospectus. Operating expenses include custodial fees and administrative fees.
I would guess it's something similar at Fidelity.

[Edited to add:] Here's how Vanguard does it (scroll down to Fees And Expenses section):
Assessment of administrative fee

The annual tiered administrative fee does not appear as a line item on account statements or online. The expense is spread over the year with daily assessments that are reflected in the investment options’ unit values (excluding the TIFF Multi-Asset Pool). This method is widely used for mutual fund investments.

Every quarter, affected accounts are adjusted by the difference between the fee already assessed and the fee actually owed. Adjustments are then assessed to each investment option in the account (excluding the TIFF Multi-Asset Pool) on a pro-rata basis.

The Statements, Other transactions, and Administrative fee sections of an online account will show adjustments as an “administrative fee credit” (or “administrative fee” for a debit). The final statement for a calendar year will show the actual fee assessed on an account.
How thoroughly tricky. There cannot be any way to make their fees less transparent. At least with a % AUM advisor fee you actually get to see the money vanish from the account...I like that they say “oh but mutual funds do it this way so it’s OK.”
Topic Author
joeschmo
Posts: 179
Joined: Thu Mar 23, 2017 2:37 pm

Re: Lower-cost donor-advised funds?

Post by joeschmo »

cashheavy18 wrote: Tue Feb 04, 2020 8:54 am If you already know which charities you are going to donate to, it would be worthwhile to setup time to talk to them and share your intentions and gauge their response. I sit on a board of small non-profit (<$1M in assets), here is what I think we'd do if someone came in donating $1M:

- Be in shock (in a good way)!
-Meet with the donor to understand their wishes/preferences (you can still remain anonymous for all public facing recognition, but still meet with the executive director)
-The influx of the money, which in the example above would double our assets wouldn't affect the day to day, we would still follow our guidelines on how the funds are used/invested and account for the wishes of the donor
-Your comment that it's better for charities that funds aren't designated is a yes/no - non-profits definitely need general dollars to allocate for operating expenses, so it would be a problem if every single donation was "ear marked." However, I personally want to see the donation I make used for causes that are important to me - so, I always designate. A charity will honor your request and you can certainly discuss with them to see if there are any concerns (you could always split and say 50% designated, 50% not)

Regardless of your approach - it's wonderful that you are planning to donate and support causes that are important to you! All the best!
Hi cashheavy18, that's great to hear the perspective from a non-profit. I used to run a for-profit company and can confirm that we'd have had the same reaction if $1 million showed up announced on our doorstep. I imagine it wouldn't be that different from a person receiving a windfall, since after all, companies are just made of people.

I have given a lot (at least by my middle-class standards) over the years and always been 100% anonymous through the DAF. The two times I didn't were with my college (nice to talk to them though I had to reach out for updates on the project I was trying to support and I still have no clue whether there was any impact at all) and to another charity (received a bajillion keychains in the mail but otherwise was fine).

I am quite afraid of thoroughly assuming the "rich donor" role in person, taking meetings to figure out how to structure gifts, being the powerful guy in the room with the checkbook. It is scarier to imagine at a small non-profit that would not have as much experience with large donors, even though I believe that the small non-profits are probably more efficient to give to. I'm also just afraid of trying to select a non-profit - there are so many groups doing good stuff and it is a bit paralyzing trying to imagine choosing who should "get lucky."

I'd love to hear any inspiring stories from Bogleheads who have found the courage to face that they have enough (PDF of Bogle Enough) and give.

I'd love to hear from anyone who confronted these kinds of issues. I guess Bogleheads doesn't have a philanthropy forum but perhaps someone can recommend a site that does?
Last edited by joeschmo on Tue Feb 04, 2020 11:07 pm, edited 1 time in total.
User avatar
BroIceCream
Posts: 279
Joined: Tue Oct 30, 2018 11:31 pm
Location: California

Re: Lower-cost donor-advised funds?

Post by BroIceCream »

cashheavy18 wrote: Mon Feb 03, 2020 6:57 pm
livesoft wrote: Sun Feb 02, 2020 9:36 am I try to use my DAF as a conduit and not as a place to hold not-my-money anymore. Share donations go in just before the money gets granted to charities. The 0.6% fee on any residual amounts does not amount to much given the flow of money through the DAF.
...how the fees are assessed when you use it as a pass through? I'm considering opening a DAF for the first time, to lock in some gains now and then disburse the funds in a lump sum in 2 months time (to align with the charities giving campaign and matches). Is the .6% fee assessed on a monthly basis?
I've used the Fidelity DAF for 3 years, and have not had any administrative charges. I use it only in conduit mode... I contribute and usually grant to a charity within a couple weeks. I my window widened to 3 weeks with a contribution in December, and grant in mid-January. No fees were charged.

I recommend calling the Fido-DAF support rep, and ask them. They explained to me several years ago when I opened the account, but I ignored them since my balance is typically 0.
Topic Author
joeschmo
Posts: 179
Joined: Thu Mar 23, 2017 2:37 pm

Re: Lower-cost donor-advised funds?

Post by joeschmo »

BroIceCream wrote: Tue Feb 04, 2020 10:53 pm
cashheavy18 wrote: Mon Feb 03, 2020 6:57 pm
livesoft wrote: Sun Feb 02, 2020 9:36 am I try to use my DAF as a conduit and not as a place to hold not-my-money anymore. Share donations go in just before the money gets granted to charities. The 0.6% fee on any residual amounts does not amount to much given the flow of money through the DAF.
...how the fees are assessed when you use it as a pass through? I'm considering opening a DAF for the first time, to lock in some gains now and then disburse the funds in a lump sum in 2 months time (to align with the charities giving campaign and matches). Is the .6% fee assessed on a monthly basis?
I've used the Fidelity DAF for 3 years, and have not had any administrative charges. I use it only in conduit mode... I contribute and usually grant to a charity within a couple weeks. I my window widened to 3 weeks with a contribution in December, and grant in mid-January. No fees were charged.

I recommend calling the Fido-DAF support rep, and ask them. They explained to me several years ago when I opened the account, but I ignored them since my balance is typically 0.
If you see sycamore's post above - apparently they assess the fees secretly through some magic of how the funds are priced. :/
User avatar
BroIceCream
Posts: 279
Joined: Tue Oct 30, 2018 11:31 pm
Location: California

Re: Lower-cost donor-advised funds?

Post by BroIceCream »

joeschmo wrote: Tue Feb 04, 2020 11:08 pm
BroIceCream wrote: Tue Feb 04, 2020 10:53 pm I've used the Fidelity DAF for 3 years, and have not had any administrative charges. I use it only in conduit mode... I contribute and usually grant to a charity within a couple weeks.
If you see sycamore's post above - apparently they assess the fees secretly through some magic of how the funds are priced. :/
I don't disagree. Taking a cut off of the NAV makes sense. I don't think I'd encounter it because I just do my pass-thru dollars via a MMF.
LFS1234
Posts: 221
Joined: Fri Feb 08, 2019 4:13 am

Re: Lower-cost donor-advised funds?

Post by LFS1234 »

joeschmo wrote: Tue Feb 04, 2020 5:18 pm
I am quite afraid of thoroughly assuming the "rich donor" role in person, taking meetings to figure out how to structure gifts, being the powerful guy in the room with the checkbook.
So don't. Start small, build up as your comfort level increases, and don't give anyone reason to believe that you could be writing bigger checks than you are comfortable writing until you are 100% ready to do so.

Many have found William MacAskill's book "Doing Good Better" helpful. This book was recommended by someone on this forum, and I found it to be an interesting and enlightening read. There is a blurb on the cover by the CEO of the Gates foundation calling this book "a straightforward quide to help anyone make the largest possible difference in the lives of others".

The below thread might also be of interest:

viewtopic.php?t=252131
Shallowpockets
Posts: 1681
Joined: Fri Nov 20, 2015 10:26 am

Re: Lower-cost donor-advised funds?

Post by Shallowpockets »

Hey. You are already getting a tax break from the donation. That dwarfs the fee you are concerned about.
User avatar
foosball
Posts: 68
Joined: Mon Jun 06, 2016 4:45 pm

Re: Lower-cost donor-advised funds?

Post by foosball »

I learned by reading the PDF linked in this thread:
A core account requires a $5,000 minimum contribution and account holders may recommend that account assets be allocated among a variety of investment pools selected and monitored on a regular basis by Schwab Charitable.
That's a nice, low entry point compared to Vanguard's minimum.
Tilterati
inbox788
Posts: 7598
Joined: Thu Mar 15, 2012 5:24 pm

Re: Lower-cost donor-advised funds?

Post by inbox788 »

cashheavy18 wrote: Mon Feb 03, 2020 6:57 pm
livesoft wrote: Sun Feb 02, 2020 9:36 am I try to use my DAF as a conduit and not as a place to hold not-my-money anymore. Share donations go in just before the money gets granted to charities. The 0.6% fee on any residual amounts does not amount to much given the flow of money through the DAF.
Would you please say more on how the fees are assessed when you use it as a pass through? I'm considering opening a DAF for the first time, to lock in some gains now and then disburse the funds in a lump sum in 2 months time (to align with the charities giving campaign and matches). Is the .6% fee assessed on a monthly basis?
Shallowpockets wrote: Wed Feb 05, 2020 8:31 am Hey. You are already getting a tax break from the donation. That dwarfs the fee you are concerned about.
Correct, if you're using it as a conduit, but if you're planning on keeping the funds invested over years or decades, the fees do add up (even though you don't see it taken out as a line item). It's an ongoing drag. And the tax reform, with less people itemizing, reduced the tax break for many folks, introducing a threshold above the standard deduction.

Turnover seems to be around 20% for these DAFs (Fidelity, Schwab, Vanguard), which is well over the required 5%. There are probably more folks that are higher, which allows some folks that want to defer their donations for down the road, and individually get around the 5% rule.

Since these DAFs are themselves 501c3 organizations, would transferring back and forth from Fidelity to Schwab every other year be a loophole around the 5% rule? Anyway, thought about this when I thought about a DAF that carved out and catered to those that wanted to invest a while, rather than passthru, and can use one of the existing DAFs for their conduit. It should cost next to nothing if they only took cash (and cash equivalents from other DAFs) and only wrote checks to a handful of charities including Fidelity/Vanguard/Schwab DAFs, United Way, Salvation Army, and Boys & Girls Club, and few others (eliminating the costly and complicated asset liquidations and vetting charities).
Topic Author
joeschmo
Posts: 179
Joined: Thu Mar 23, 2017 2:37 pm

Re: Lower-cost donor-advised funds?

Post by joeschmo »

Hi, I talked to both Vanguard and Fidelity Charitable today and have updates on their fees:

Vanguard

- "Select" fees for the underlying funds kick in at $500k+ of assets
- "Premiere" program at $1mm+ doesn't affect fees but you get access to their team (6 people total!) of people. Besides intl granting, the benefits were very unclear to me - "Someone who knows your account, someone you can call at any time, etc." Their site mentions Chartered Advisors in Philanthropy® folks but it sounds like they don't focus on helping people figure out how to structure a giving plan.
- Fees are assessed daily - every day you pay 1/365th of the total fees, based on account balance

Fidelity

- No waived fees for higher account balances
- Fees assessed annually based on average daily account balance (sounds equivalent to Vanguard)

As for total all-in administration + fund fees, this of course depends on situation. For someone lucky enough to give $3mm, and wanting to do it in 0-5 years (=> 20/80 stock/bond allocation), the lowest fees I could come up with are as follows:

Image

Note that Fidelity's "pool" portfolios are all actively managed and quite expensive. The "20/80" fund fee for Fidelity above would be for buying the fees separately. They rebalance for you, in any case.

Hope this helps - let me know if my math is off.
Post Reply