The rapid rise of donor-advised funds has been one of the top stories in philanthropy over the past few years. Most of the biggest grantmaking organizations in the U.S. are now DAFs. The largest of these, Fidelity Charitable, moved more money last year—over $3 billion—than any foundation other than Gates. The other top DAFs, including Vanguard and Schwab, now give away much more annually than the Ford Foundation. And just yesterday, I wrote about the remarkable rise of the Silicon Valley Community Foundation, which hosts thousands of donor funds, and last year made $1.3 billion in grants—up from $285 million in 2012.
But it’s not just DAFs that are exploding. Other kinds of intermediaries also help wealth holders manage their giving. I’m talking about places like New Profit, the Boston-based venture philanthropy fund whose revenues are way up from a decade ago. Or NEO Philanthropy, an intermediary I wrote about in 2015 that works both with foundations and individual donors. Or other places like the New Ventures Fund, the Global Fund for Women, the Proteus Fund, Arabella Advisors, Women Moving Millions, and the Democracy Alliance.
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None of these outfits is quite like the other, but what they share in common is that, like DAFs, they work as middlemen, connecting the people and institutions with money to nonprofit recipients. (Many leaders of these “middlemen,” I should stress, are actually women.) What they also share in common is an upward growth trajectory. We’ve entered a golden age of philanthropy intermediaries.
But is this a good thing? Is it a good thing that a new army of middlemen are playing an ever-larger role in giving, overseeing a fast-rising flow of grant dollars?
The answer is both yes and no.
The best thing about the explosion of intermediaries is that this trend has made giving easier at a time when a record number of Americans hold significant wealth. (Some 70,000 U.S. households are worth at least $30 million, excluding their real estate assets.) If you’re already a client at an investment firm like Fidelity or Vanguard, it’s super-easy to set aside tax-free money to give away—either immediately or someday down the line. It’s also easy to make the actual grants, in terms of checks going out the door and in compliance with regulations. If you need help identifying who to give money to, DAFs can help with that, too. They can also help donors deal with tricky situations, like transferring complex assets to philanthropy or making large gifts with stipulations as to how money will be used or how donors will be recognized.
Compare that kind of one-stop shopping to the more traditional model of setting up your own foundation, which involves more paperwork at the front end and then ongoing administrative and compliance work. (Although there are also intermediaries like Foundation Source that can manage foundations for donors in a hassle-free way.) DAFs are especially appealing to busy donors who are still in the thick of their careers and want to keep things as simple as possible. As well, they’re great for donors with smaller amounts of money to give.
Meanwhile, intermediaries like New Profit or NEO Philanthropy also deliver huge value to individual donors or smaller foundations. They allow these funders to pool their money behind sophisticated grantmaking strategies that they’d never be able to develop on their own. This is similar to investors who put their money into private equity or venture capital funds, which enables them to get in on opportunities that aren’t available to individual investors.
Overall, with vast wealth now in the hands of America’s 1 percent, and many of these economic winners keen to give, what’s not to like about middlemen who make it easier to give—and to give in a smart way?
Actually, maybe a few things.
First and foremost, there’s the question of how good a job many intermediaries do in advising donors on how and where to give. In particular, more philanthropy veterans are wondering aloud about whether the big Wall Street DAFs know what they’re doing—or have the right capacity to do it well. There are growing concerns that more donors are being advised on their giving by inexperienced advisors whose backgrounds are in finance as opposed to the social sector.
Even as the professionalized world of large foundations has gotten more focused on effective grantmaking, with better planning and evaluation, these same foundations are being eclipsed in size by DAFs that seem decidedly less sophisticated in their grantmaking. So, for example, while the Gates Foundation may famously be “a learning organization” that sinks huge resources into assessing its impact, it’s unclear whether Fidelity Charitable, which is now nearly as big, is thinking along such lines at all.
I don’t mean to pick on Fidelity, since I’ve seen no evidence that it does a poor job of advising donors. In fact, I’ve seen very little written at all about the effectiveness of DAFs. Nor do these institutions tend to reveal much about how they operate, or even identify their philanthropy consulting staff in many cases. This lack of transparency and openness only fuels concerns that the big DAFs are helping direct truckloads of money in ways that may or not optimize impact. I plan to dig further into this, listening to what DAF leaders have to say about their methodologies, in future posts.
But while we’re on the topic of transparency, let me flag the second big reason to be concerned about an explosion of intermediaries—which is how they facilitate anonymous giving. I’ve written a bunch about this in the past, so I’ll keep it brief, here—intermediaries stand at the center of a new “shadow giving system” that has made a full end-run around yesterday’s philanthropic reporting requirements. It’s quaint that private foundations still have to file 990s disclosing where their grants went, but giving through such entities is entirely voluntary, and more donors realize this as giving through intermediaries becomes the norm. DAFs have to report where grants went, but not who made those grants. Even if donors aren’t focused on covering their tracks, that’s the effect of the increasing utilization of DAFs. The growth of anonymous giving is a big problem during a moment when philanthropy has become more politicized, as I’ve argued elsewhere.
Finally, there’s a third potential problem with the boom in intermediaries, which is that middlemen are grabbing an ever-bigger slice of the wealth that is set aside for charity. In particular, the finance sector—which seems to have a knack for monetizing every possible human activity—has figured out how to earn many millions in fees by becoming a top player in philanthropy. Alan Cantor has written here about Wall Street’s “charitable gold rush.” (Cantor, like others, has also critiqued DAFs for their lack of required payout, an argument I’ll leave for another time.)
It’s not just Wall Street that’s cashing in, it’s a vast new industry of philanthropic consultants—most of which, I need hardly say, look nothing like the beneficiaries of charitable giving that we normally think of.
Is the enrichment of philanthropy’s middlemen really worth worrying about? Maybe not, if you don’t fret generally about overhead in the charitable sector and you believe that it’s expensive to give money wisely, and that the costs of expert help are worthwhile in terms of impact.
On the other hand, if many of the new middlemen are pretty lame, then all the money they’re pocketing is not a happy thought.
The explosion of intermediaries remains a pretty new phenomenon in the long arc of American philanthropy, and it reflects today’s new Gilded Age, with so much new money sloshing around. It may take a while for things to settle down and for us to get a better sense of the strengths and weaknesses of intermediaries.
In the meantime, though, it’s not too early to start asking some tough questions.