How the DAF Industry Controls the Data and Attempts to Control the Narrative

With the new year come fresh, upbeat reports on the generosity of American donors. The latest is from Schwab Charitable, which boasts that its donor-advised funds (DAFs) gave a record $4.7 billion in grants to charities during 2022.

The genre is familiar. It’s only natural for industries to publish promotional reports; philanthropy is no exception. Early in each calendar year, commercial DAF sponsors like Schwab, Fidelity and Vanguard issue press releases touting their successes and eliding less flattering aspects of their work — in these cases, the fact that as much as their grants keep increasing, their assets keep piling up even faster, warehousing more and more charitable dollars rather than moving them quickly out the door to working charities.

But the media dutifully report these releases as news, and precious few outlets delve deeper into data showing just how misleading they can be. When they’re not focusing on eye-popping mega-gifts, articles on philanthropy often simply elevate these rosy summaries and do little to examine the issues driving calls to reform inequitable practices across the industry.

Promotional reports produced in early 2022 by Vanguard Charitable and the nation’s largest DAF sponsor, Fidelity Charitable, were perfect examples. Like Schwab’s current report, Vanguard and Fidelity’s releases emphasized how much their grantmaking increased in the previous year, while saying nothing about the even greater growth in their assets. When asked for contribution and assets numbers by Chronicle of Philanthropy reporters, both Vanguard and Fidelity refused to provide those figures.

The core problem for policymakers and reformers is that DAFs remain shrouded in secrecy. Current rules require almost no reporting or transparency from DAFs comparable to what private foundations must provide. The sponsor organizations that manage DAFs need only report aggregated totals of DAF assets, contributions, grants and numbers of accounts, but no additional information at all on the hundreds, or, for the largest, thousands of individual accounts they manage.

Absent such reporting requirements for individual accounts, the DAF sponsors have an almost complete stranglehold on detailed information. And they use both partial and aggregated data alongside unorthodox payout rate calculations to make their DAFs look more generous and “democratic” than they really are in an effort to control not just the data but the narrative.

We might have hoped things would be different in 2023. The market collapse may well have reduced contributions to DAFs, with donors instead choosing to sell off depreciated assets and take capital losses rather than contributing them. Steady or even increased grantmaking alongside a drop in contributions would show DAFs acting as what the industry claims they are: sources of ready reserves to keep grants steady even during down markets. After all, that claim is much harder to back up when assets are piling up faster than grants are going out.

Alas, the latest from Schwab Charitable (and now Vanguard Charitable, as well) dashes such hopes. As with last year’s Vanguard and Fidelity reports, Schwab gives us numbers only for grants. It’s anybody’s guess for the moment how much its assets, which stood at $25.5 billion as of June 2021, fared. And all we know about Schwab’s incoming 2022 contributions is that 60% were non-cash assets, allowing donors to “eliminate capital gains tax liability on the assets.” Lovely.

Even in cases where DAF sponsors have voluntarily provided independent researchers with more detailed data, those researchers may find themselves compromised. After all, they’re indebted to the sponsors for the data, and in some cases, for funding the research. That can lead to or coincide with heavily pro-DAF, anti-reform framing, regardless of what the research actually finds.

For example: A new report that the DAF Research Collaborative (DAFRC) put out in early January shed much-needed light on inactive and endowed DAFs. The report, however, was underwritten by a conservative advocacy group that opposes most all philanthropy reforms — the Philanthropy Roundtable — and it’s permeated with the Roundtable’s preferred framing that self-regulation by the industry obviates the need for reform.

Here’s how the Roundtable spun the report: “It’s not necessary to impose payout rates on donor-advised funds because they already regulate themselves. It’s time for policymakers to accept that DAFs are a robust giving vehicle.” The report itself uses this “self-regulating” language, even though its actual findings undermine the Roundtable’s line. For instance, the DAFRC found that dormant accounts can typically go 54 months before becoming active again, and even then, a token grant as small as $50 or $200 may be all it takes to regain active status.

And endowed DAFs? “The average annual spending policy for the sponsors sampled is 4.4% with a range of 4 to 6%.” That’s the maximum rate, versus the 5% minimum required for private foundations. Robust? Potential grantees might not think that word means what the Roundtable thinks it means.

Earlier reports by the DAFRC have also cast doubt on the muscular payout numbers the industry likes to cite. The group obtained individual account data from community foundations and was able to show that the median annual payout rate for all DAF accounts in their dataset was 11% — just half the average aggregate rate claimed in reports by DAF sponsor National Philanthropic Trust and other proponents. And 35% of accounts paid out less than 5%.

Similarly, the California attorney general’s office reported last fall on account-level data it required from DAF sponsors operating in the state. Its report showed that on average, 42% of community foundation DAF accounts paid out less than 5%.

This is exactly the kind of information that challenges the rosy picture we encounter in industry press releases, and that policymakers need.

Finally, we can’t let the IRS off the hook. Public accountability must rely on public information, yet the IRS has fallen down in this regard, to the point that it simply cannot meet the public interest with existing tools and resources. Current IRS reporting requirements are inadequate, and the IRS is now woefully behind in releasing what meager reporting it has to the public. Years behind. When we’re looking at DAFs — or any philanthropic vehicle for that matter — this makes us dependent on either delayed and insufficient publicly accessible data, or proprietary data that the industry chooses to release.

Rectifying this should be a bipartisan interest — but Republicans are now all-in on their crusade against the IRS, making much-needed changes all but impossible at the federal level. So it’s all the more important for researchers and journalists to interrogate industry-presented figures and claims ever more closely as they roll out.

Dan Petegorsky is coordinator of the Charity Reform Initiative at the Institute for Policy Studies.

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