September 10, 2024 • 44 mins
On this episode of Financial Perspectives: Chats, we'll discuss how donor-advised funds (DAFs) revolutionizing the philanthropic landscape in America. Join us as we sit down with Alyssa Heath - Chief Operating Officer & Director of Social Impact at Fire Capital Management – and Pamela Doherty - Senior Director of Gift Planning at The San Francisco Foundation to explore the mechanics and impact of DAFs.
Holding nearly $230 billion in assets and boasting an annual payout rate of over 20%, DAFs are changing the way donors think about charitable giving. Discover why these funds are gaining attention and how they are becoming a cornerstone in modern philanthropy. We delve into potential regulatory changes and their broader implications, while also discussing strategic approaches for wealth advisors to integrate philanthropy into client conversations.
Whether you're a seasoned donor, a wealth advisor, or simply curious about the future of philanthropy, this episode offers a comprehensive look at how DAFs are engaging multiple generations and reshaping charitable giving.
If you'd like to learn more about the show, have a topic or speaker to suggest, or would like to leave us a comment, email podcast@cfa-sf.org.
This podcast is produced by CFA Society San Francisco, a not-for-profit professional association, providing professional learning and career resources to over 13,000 investment industry professionals worldwide. To learn more about CFA Society San Francisco, visit our website or connect with us on LinkedIn.
The information contained in this podcast does not constitute financial or investment advice. Please consult your own financial advisor for information concerning your specific situation.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Lindsey Helman (00:05):
Hello and welcome to this month's chat
segment of the FinancialPerspectives podcast.
Our chats episodes featuredynamic conversations between
industry experts from some ofour recent and most popular
webinar recordings.
This month, you'll hear adiscussion on donor-advised
funds from Alyssa Heath, ChiefOperating Officer and Director
(00:25):
of Social Impact at Fire CapitalManagement, and Pamela Doherty,
Senior Director of GiftPlanning at the San Francisco
Foundation.
William Reynolds (00:38):
Good afternoon everyone, and thank you for
tuning in today.
My name is William Reynolds andI am a member of CFA Society
San Francisco and part of theYoung Leaders Council.
It's with my pleasure towelcome you to our edition of
the Wealth Management WebinarSeries, Philanthropy in Wealth
Management - a conversationabout donor-advised funds.
I would now like to introducemy friend colleague and our
moderator for today, AlyssaHeath.
(00:58):
A is the COO and Director ofSocial Impact at Fire Capital
Management, a boutiqueinvestment management firm
providing private wealthmanagement, multifamily office
and foundation OCIO services.
Since joining the firm in 2019,she's been working with FCM's
clients to support them inachieving their impact and
philanthropic goals.
Prior to FCM, Alyssa workedwith the philanthropic sector,
(01:21):
most recently serving as theExecutive Director for Golden
Bridges Foundation.
Alyssa, I'd now like to turnthe floor over to you.
Alyssa Heath (01:27):
Thank you Will, and thank you to t CFA Society
of San Francisco for hostingthis event and inviting us here
today, and thank you to everyonetuning in.
We are here today with PamelaDoherty, senior Director of Gift
Planning with the San FranciscoFoundation, and so we're here
today to discuss the rise ofdonor advised funds, also called
DAF.
We'll discuss what they are,how they work, the recent trends
(01:49):
and criticisms related tostaffs, and more.
Pamela has been with the SanFrancisco Foundation, one of the
nation's largest communityfoundations, for the last seven
years and focuses on buildingrelationships and strategic
partnership with prospects,donors and professional advisors
.
She works closely withindividuals, families,
businesses and privatefoundations and with their legal
, financial and wealth advisors.
(02:10):
Ms Doherty has 30 years ofexperience in the philanthropic
arena and prior to joining theSan Francisco Foundation, she
spent seven years as a nonprofitconsultant, served as the CEO
for the Carondelet Foundationand was the founding executive
director for the Center forPlanned Giving at the Community
Foundation for Southern Arizona.
She holds a master's in publichealth and is a certified life
coach as well.
(02:30):
So let's get started, Pamela.
It's great to see you.
So over the last decade, therise of donor-revised funds have
really changed thephilanthropic landscape and the
way that donors many of whom arelikely clients of those
attending the webinar todayengaged with their allocations
(02:50):
of wealth and charitable giving.
So we'd love if you could juststart by setting the stage of
the donor advised fund landscape, and then we can launch into
our discussion from there.
Pamela Doherty (03:00):
That sounds good , thank you.
I'm so happy to be here withyou and Will today and CFA
Society, and so what I'm goingto do is share my screen.
I've got about 10 minutes ofcontent, of PowerPoint to set
the stage, and then you and Ican continue on with our
discussion, so let me share myscreen.
Alyssa Heath (03:21):
And just a reminder, as Pamela's setting up
the PowerPoint, you know, asyou have questions, please feel
free to put them in the Q&A chatand we'll get into them at the
end, towards the end of thediscussion.
Pamela Doherty (03:31):
All right, hold on.
Okay, all right.
So we talked about what we'regoing to cover, and so I just
want to spend a few minutessetting the table, if you will.
I'm going to talk a little bitabout philanthropy in the US,
because I think that's animportant backdrop.
Then I will hit the highlightsof donor-advised funds.
(03:51):
I'll talk to you a little bitabout their scope and size, and
then I'll give you a briefoverview of the mechanics of
DEFs, just to make sure thatwe're all on the same page.
I do want to touch a little biton donor advised fund sponsors,
and then I'll say a little bitabout why DAFs are getting so
(04:12):
much attention, and, if we havetime, we can talk further about
that in our discussion.
Okay, so I think it's importantto know that Americans, by and
and large, are considered verygenerous and philanthropy has
(04:37):
always been a really importantpart of our society, part of a
democracy, part of our society,part of a democracy, and so
Americans give a total of almost$500 billion, gave almost a
total of $500 billion in 2022.
(04:57):
And obviously that's lagging Inphilanthropy.
We have very much laggingstatistics.
So 2022 is really the mostrecent year we have.
So 2022 is really the mostrecent year we have.
It's important to know thatindividuals make up the largest
section of philanthropy.
Sometimes, I think others mayhave a sense that corporate
giving or foundation giving is alarge part, but if you combine
(05:19):
individuals and bequests, whichare counted separately, they
make up the largest swath.
Here are some stats for donoradvised funds For those of you
who are not familiar and don'thave a sense of the size and the
scope contributions into donoradvised funds are really
(05:41):
tremendous and it's a reallyfast-growing segment of
philanthropy.
The number of donor-advisedfunds, or DAFs, is almost 2
million.
Total assets you can see on thescreen almost $230 billion,
with an aggregate payout thatexceeds 20% annually.
(06:02):
So, unlike private foundations,donor advice funds do not, by
law, have a legal requirement topay out every year.
Private foundations, as youknow, 5% DAFs don't have that
requirement and yet theaggregate for national DAFs is
20% annually.
(06:23):
I will say that all of thesenumbers are impressive and huge
in terms of the breadth, of sizeand scope, but charitable
giving in the US has actuallydeclined over the past few years
.
There was a spike during thepandemic and so people really
(06:44):
rallied and contributed more tocharity.
Granted more out of donoradvised funds In 2022,.
I don't have to tell this groupwe had a volatile stock market,
and I will say that activityinto donor advised funds is
often very much tied to how thestock market is doing.
(07:05):
People can contribute all sortsof assets into donor advised
funds, the most common notsurprising being cash, but, of
course, appreciated securities.
There is no limit to the amountthat someone can contribute
into a donor advised fund, andcertainly no limit in terms of
the amount that can besubsequently granted out.
(07:27):
Our CFO here at the SanFrancisco Foundation kind of
jokingly says that this is theonly environment where she could
work, where we celebrate thefact that more sometimes goes
out the door in a given yearthan what comes in, and that's
because, when you work at acommunity foundation, like I do,
(07:48):
one of our key indicators ofsuccess is making sure that
charitable dollars get out intothe communities that they're
intended to serve.
So what I'm wanting toillustrate with all of these
facts and figures is that donoradvised funds, within the
context of philanthropy, reallyhave the potential to make an
(08:12):
impact.
Your clients are very muchengaged in philanthropy, and so
what I want to say to you as aprofessional advisor, if you're
not already.
I hope that you take notice.
With respect to philanthropy,you know I've worked in the
nonprofit arena for 30 years andI do so because I think
(08:34):
philanthropy is a reallyimportant tool for social change
, and so there's like thisintrinsic value right that comes
with philanthropy.
But when you're a professionaladvisor, engaging in
conversations about philanthropyand harnessing the popularity
and the interest that yourclients have is definitely, in
(08:56):
my opinion, in my experience andobservation, a really good
strategy right for advisors toengage.
We know from the data and youprobably know this better than I
that as wealth gets transferredfrom generation to generation,
the potential to lose thatfamily as a client is great
(09:22):
right, and so one of the ways toretain that relationship with
that family or that client is toengage them where they are, and
where they are is most probablyin philanthropy in some ways.
Okay, so I'm going to take astep back now and just talk a
little bit about the mechanics.
(09:44):
So let's start with thedefinition.
What is a donor advised fund?
It is a charitable givingvehicle administered by a public
charity.
It is created to managephilanthropic giving on behalf
of individuals and families andorganizations.
I also work with municipalitiesand other nonprofits and so
(10:04):
it's not just somethingrelegated to the individual or
the couple.
You can have a donor advisedfund if you are a corporate
entity, if you're the city ofSan Francisco, like where I, you
know where many of us on thiscall live, many of us on this
call live.
In the financial setting it'soften called an account, we call
(10:34):
it a fund, which is a legaldefinition.
Okay, so how does the donoradvice fund work?
So if you don't know, a donorwhich is again an individual or
a corporate entity ormunicipality, or a corporate
entity or municipality makes acontribution, using a variety of
different assets, to a fund,qualifies for an immediate tax
deduction in the year that it isgiven.
(10:56):
And because they're giving to apublic charity, they are
qualifying potentially,depending on their circumstance,
for deduction at the highestlevel.
And when they establish theirfund, they are electing, within
the bounds of that publiccharity, that organization, that
is, the sponsor they'reelecting how those funds will be
(11:18):
invested, potentially tomaximize their gift and grow
over time.
And I'm going to say a littlebit more about how that works at
the various DAF sponsors in amoment or shortly.
But at a community foundation,we have our own investment pools
(11:38):
and we work with our donors ontheir time horizon for giving
and we help them select thepools that support their
objectives In our world.
We have impact investingoptions as well.
We have program-relatedinvestment options as well, but
for many, donors would like tomaximize their giving and see it
(12:02):
grow so that they haveadditional dollars to grant out
over time.
So immediate deduction, the yearthat the gift is given to a
public charity and then timewithout any requirement to make
strategic decisions and grantsat a later date.
And in most cases, donors areusing an online platform and a
(12:26):
portal that's very muchautomated so that they get the
money out the door in a timelymanner when they are ready.
I will say that there is a mythsometimes that donors abuse the
donor advised fund times, thatdonors abuse the donor advised
(12:49):
fund, that sometimes donorsthink of it as a tax shelter to
warehouse money and thatpotentially, money languishes in
donor advised funds for whoknows how long.
And when I say it's a myth,it's because at least community
foundations have a policy thatrequires donors to be active.
It's pretty flexible, but weare working closely with donors
(13:09):
to get a sense of what theirvision is and what their
strategies are and we help themcreate those strategies.
We try to inspire and encouragedonors to be active At a
community foundation because weare a grant maker and we work
with thousands of charities.
We have great information toshare with donors about the
(13:30):
organizations doing good work inthe place that they call home.
So Give Grow Grant is prettymuch your standard formula for
donor advised funds, no matterwhere that fund has been
established.
I want to give you just a littlebit of history, because I don't
think that people realize thatDAFs really didn't come on the
(13:50):
scene until the 90s.
But the first donor advice fundsupposedly was created in the
1930s through the New YorkCommunity Trust, one of the
oldest community foundations inour country.
By the way, there are about 800community foundations across
the US and so if you're callingin from somewhere other than San
(14:11):
Francisco or the Bay Area,you've got a community
foundation near you and I wouldsay that as a professional
advisor, that communityfoundation is likely a great
resource for you and yourpractice, not to mention your
clients.
So then in the 90s, fidelitygot permission from Congress
(14:32):
basically to start their ownpublic charity, their own donor
advised fund offering, andthat's when donor advised funds
really hit the map in terms ofnot only the commercial
providers or sponsors, but alsocommunity foundations.
The IRS codified it in 2006,and it's only today that they
(14:53):
are coming out with regulationsrelated to the law that passed
in 2006.
And if we have time, we cantalk a little bit about those
regulations and how they mightaffect you as advisors and how
they might affect others in thespace.
So I want to quickly touch uponthe different types of DAF
(15:13):
sponsors, because those of youwho are working in the financial
industry, I'm guessing you arepotentially at a firm that
either works with a commercialprovider or you are at a firm
that offers DAFs yourself, andso all of these sponsors are
(15:33):
public charities, right 501c3public charities.
They each approach theirmission as a public charity a
little differently.
I think in the donor advice fundand the philanthropic space
there's room for everyone.
They play slightly differentroles.
(15:53):
So commercial funds inparticular have lower minimums
to establish a fund.
So some of them that I'm awareof it's $5,000 to start a donor
advice fund.
At my community foundation it's$10,000, and I know other
community foundations and othersingle-issue charities sometimes
have higher thresholds.
Single-issue charity refers tosometimes educational
(16:17):
institutions like Stanford has aDAF program.
Others I know in the past, likeUnited Way, has had a DAF
program and other Jewishfederations that kind of thing.
A community foundation offersdonors who want to establish
DAFs an opportunity to be partof, as the name would imply, a
(16:37):
community.
So we try to promotephilanthropy, we try to educate
our DAF holders, we try to haveopportunities for them to learn
about the most pressing issuesof the region so that they can
keep that in mind when they'rerecommending from their DAF.
They get to talk to other fundholders, they get to exchange
(16:59):
ideas, they get to go intotrainings and learn.
And so if you are in a positionas a professional advisor to
recommend a direction to yourclient, you need to understand,
in my opinion, what makes thatclient tick, what would make
that client excited, where thatclient could really feel
(17:22):
connected.
And I will tell you, as someonewho sets up the donor advised
funds at my foundations, it isoften people that people are
coming because they want to bepart of something larger and
they want to interact withothers.
And a community foundation, nomatter where that is we've got
several in the Bay Area, butagain they're across the country
(17:43):
A community foundation is agreat place to be for those
types of donors, whether theyhad a windfall right, they went
public and now have this moneyfor philanthropy that they don't
know what to do with, orwhether they're like a seasoned
veteran and just want to be, youknow, in the circles of other
philanthropists and everybody inbetween.
(18:05):
Commercial deaths, in my view,are a great place to be.
If you care about really superlow fees, you don't need the
customer service and thephilanthropic advising that's
offered at community foundationsand if you kind of look at your
philanthropy or your DAF aslike a charitable checkbook and
(18:27):
you're kind of just worriedabout the transaction, then in
my opinion, a commercial donoradvice fund might fit that bill.
Okay, just a couple of benefits.
So benefits for the donor orthe client or your client.
Donor advice funds are flexible, meaning again, you get to set
(18:48):
it up and we take care of allthe paperwork right.
So you really only are givingto one charity and so you get
that one charitable deductionand that one receipt that you
have to keep track of, becausethere is no tax event when
grants go out the door.
And for most staff providers,the portal that I referred to
(19:11):
outlines all of your givinghistory, outlines all of your
grants, kind of keeps everythingorganized for the donor.
Again, the tax deduction,depending on the client's
circumstances, happens in theyear that they contribute to the
donor advised fund.
But they have time to make thedecisions about where to
distribute those funds, which wecall grants, later on down the
(19:35):
road.
It's a great platform for familyphilanthropy and it's also
known sometimes as analternative to a private
foundation.
And you know many of you knowthat a private foundation can be
costly with respect toadministration.
You have to have a board, youhave to have all sorts of
compliance and it's notsomething that you set and
(19:57):
forget.
A private foundation requires alot from you know, the family
behind it, depending on whetherthey can hire staff or not.
A donor advice fund kind of isthat miniature version, and so
families often engage with oneanother around a donor advice
fund and then one of them isnamed the primary advisor and
(20:21):
that's the person who canrecommend the grant out.
Recommend is a word that I'mchoosing intentionally, because
that is the law.
The donor has relinquishedcontrol over the asset by making
a charitable contribution,getting that tax deduction, and
it is the DAF sponsor who hasthe ultimate power to approve
(20:45):
that grant and, by and large,that DAF sponsor will absolutely
approve that grant.
I will say, at the SanFrancisco Foundation and many
community foundations, we have apolicy against approving grants
to known hate groups.
But other than that, donors arefree to support the nonprofits
(21:07):
that they care about, whetherit's where the community
foundation or that publiccharity is located, whether
that's across the country oraround the world.
Community foundations, becausethey play other roles and serve
as grant makers themselves, havea lot of information to share
with donors about where theymight potentially give.
We have values that we're veryclear about.
(21:29):
We're trying to make our home abetter place for everybody, and
so sometimes that really jibeswith a donor or one of your
clients, and so that might behow you would differentiate
where you send that client.
And, as I mentioned before, adonor advised fund or
philanthropy in general, offersyou as an advisor a benefit
(21:54):
other than the reward that youget in your heart from being
part of philanthropy.
It is a great opportunity tobuild and retain relationships.
I will say a very tangiblebenefit is that in some
circumstances, a financialadvisor and investment or wealth
(22:14):
manager can manage the assetsheld in a DAF outside of the
pools of that sponsoringorganization separately managed
funds program, which means thata donor can ask us to work with
their advisor and you get toretain those assets under
(22:35):
management rather than sendingthem out the door to the pools
of the community foundation orthe deaf sponsor.
We work with you to continue toinvest and manage those funds
and be part of an equation and Ithink that that is, you know, a
great benefit if that works outfor everybody.
(22:56):
Some advisors really need thatincentive and other advisors
don't feel that that's important, and no judgment.
I think whatever works for theclient-advisor relationship is
great.
I'm going to just end on thisslide because I know we want to
get into discussion, but donoradvice funds over the last few
(23:19):
years have certainly beengetting increasing attention
from a variety of differentvantage points.
First of all, philanthropistsin and of themselves are calling
on their colleagues and theirpeers peer philanthropists to
make sure that they distributemoney from their donor advice
funds in a timely manner.
(23:40):
There is a couple who arewell-known philanthropists who
started a movement called Halfmy DAF, meaning they want people
to accelerate their grantmaking and give out half of
their DAF in a shortened periodof time.
There are critics in thephilanthropic arena who again
(24:01):
think that donors are kind ofsitting on money, or that DAFs
are competing with nonprofitorganizations, or that DAFs hide
the identity of philanthropistsand that it's potentially a
place to fund nefariousnonprofits.
(24:22):
And all of that is potentiallytrue in some ways and I think we
as community foundations needto look at those hard questions.
We as community foundations areopen to reform and doing things
differently.
Bills that have been proposedin recent years that actually
(24:52):
community foundations foughtbecause we thought they were
poorly written and sort of like,based on certain premises that
actually did do not hold up whenyou're, when you're in it and
in terms of how donor advicefunds actually work.
And then the IRS recently hascome out with new regulations
based on that Pension ProtectionAct of 2006 and are now more
(25:17):
narrowly defining or defining inmore detail what is the donor
advised fund and who is anadvisor.
And one of their definitionspotentially jeopardizes that
ability for communityfoundations to have separately
managed funds and outsideinvestment advising and managing
(25:39):
.
And I'll just kind of leave itat that in case we want to talk
about it further.
But you know, stay tuned,there's a lot swirling out there
.
I think that in our industry wethink that there is some room
for improvement.
We think that you know, placingregulations and unnecessary
(26:03):
rules on things can havepotentially unintended
consequences that we don't wantto see in the field.
But I think you know wedefinitely are keen to move this
forward because donor advicefunds are not going away and so
we need to make sure thatthey're working the way that
(26:24):
they are intended to work.
So with that I will stopsharing and happy to discuss
anything you wish Alyssa.
And back to you.
Alyssa Heath (26:34):
Well, thank you, pamela, for setting the stage
there and getting a clearpicture of what is the donor
advised fund landscape.
Let's dive a little deeper.
I think you know perhaps whereyou just left off, actually
talking about the proposed IRSregulations for donor advised
funds, I think everyone herewould be interested to know.
Just in the last few weeks,they held a public hearing to
(26:57):
discuss its plan to regulatedonor advised funds, so it's
very topical and many of thosetoday here in the audience are
likely investment advisors.
Can you go into a little moredetail about how actually these
new potential regulations couldimpact them or others in the
space?
Pamela Doherty (27:13):
And you touched a little bit on the Community
Foundation piece, and so we'dlove to hear more about that
have been swirling around outthere with respect to required
minimum payouts or the identityof donors at a fund level, or
(27:40):
requiring that DAFs have acertain life cycle.
These are things that have beenin the news and have been
talked about by lawmakers, andnone of that has been addressed
by the IRS.
What they're doing right now isjust further defining what is a
donor-advised fund and who is afund advisor and fund advisors.
(28:06):
In most cases, we think of fundadvisors as the donor who sets
up the fund and who recommendsthe grant, so they are the
advisor to the fund.
As you might imagine, per thelaw, an advisor cannot derive
any benefit from that role,right?
So the fund or the grant cannotbe used to satisfy any pledge
(28:31):
or debt or purchase a ticket orpay any expense, right, so the
advisor cannot have any benefit.
Well, these proposed regulationsare suggesting that now an
outside investment manager is anadvisor, and so if that is true
, then that advisor cannotderive any compensation from
(28:54):
being connected to the fund, andthat basically kind of
torpedoes this idea that acommunity foundation can retain,
per the donor's way, affect thecommercial funds.
This is just something that isbecause of the way we work.
(29:15):
It's something specific tocommunity foundations, and we
think that that is a problembecause it certainly puts us at
a disadvantage when we have thepotential to work with an ultra
high net worth individual whohas a long standing relationship
with a financial advisor thatwe, in turn, would like to
(29:36):
continue to honor and for all ofus to be at the table.
Alyssa Heath (29:39):
Yeah, absolutely so, like you said.
I mean, I think we'll have tostay tuned to see how things pan
out, but hopefully there'll bea world in which you know this
can still be a more generaldefinition of a donor advised
fund advisor, but we'll see.
Thank you for that, and youknow you also touched on how
donor advised funds could be agood avenue to encourage family
(30:02):
philanthropy.
I'd love to hear you know inyour experience how that may be
an example of how ADAPF hasserved as a way for one of your
clients to get you know theirfamily members involved, or how
an advisor might be able to goabout that.
Pamela Doherty (30:18):
Yes.
So, unlike a private foundation,you know, dafs, as I mentioned,
are a bit more streamlined anddon't have those compliance
issues, don't require a boardboard, have greater benefits in
terms of the deduction of gifts,but it is a vehicle where
(30:39):
families can come together tomake collective decisions about
how to distribute money from afund and support the
organizations that they careabout.
At a community foundation, everyfund holder at least at ours,
every fund holder is assigned aphilanthropic advisor, and that
person can often play a key rolein meeting with a family and
(31:03):
helping them coalesce around avision for their fund.
That person can help the familyintegrate the interests and the
perspectives of the nextgeneration, who may come along
and view the world andphilanthropy quite differently
than their parents or theirgrandparents who came before
(31:26):
them, and so a donor advice fundis a great way sometimes to
help people have, you know,cooperate around giving.
It's a great way to teachyounger people how to become a
leader, how to have a sense ofresponsibility, civic engagement
(31:48):
.
Again, sometimes these arefamilies that are ultra high net
worth and they have to learnhow to make informed decisions,
how to deal with the sometimesvery real pressure that comes
with having so much wealth andthe obligation that their family
(32:11):
may or may not feel todistribute that wealth.
Alyssa Heath (32:15):
Thank you for that and I think you know, like you
said before, it's a greatopportunity for families to come
together on their philanthropyand also a good potential way
for advisors to engage withtheir clients.
So with that, I'd love to hearyou know what are some of the
opportunities for you knowadvisors and their, for us as
(32:38):
advisors, really to get engagedwhen it comes to donor advised
funds.
You know, what have you foundto be helpful to incorporate
philanthropy into a practice foran advisor who may not already
be engaging in philanthropy and,you know, even bringing up the
topic of donor advised fundswith their clients?
Pamela Doherty (32:56):
Yeah.
So I think you know, a lot oftimes as wealth advisors you're
talking to your clients aboutwhat their vision is for the
future or for their family, andI think that's the time where it
could be easy to ask aboutphilanthropy and the changes
(33:19):
they want to see in the world,or the kind of world they want
their children to grow up in, orwhat keeps them up at night, or
the most pressing issue thatthey think we as a society face,
or just what their passions are.
I think you know I'm not aprofessional advisor, but I
(33:40):
think that that makes sense tobe part of the larger planning
conversation, and there are allsorts of studies and data where
clients have wanted theiradvisor to bring up philanthropy
but their advisor has not, andso you should check out the
reports, I think, on how clientsfeel about their advisor
(34:06):
bringing up or not bringing upphilanthropy, and I, you know I
don't see too often where peopleare offended at least in my
line of work when you'rebringing up philanthropy or, in
my case you know, a charitablegift or a potential, you know,
contribution, and so I thinkthat there are ways to
(34:28):
incorporate it intoconversations very naturally,
and I would say don't worryabout the right words, just get
started, because, as I tried todemonstrate, americans are prone
toward generosity andphilanthropy, and so it's
unlikely that you're going totake someone aback when you
(34:51):
bring it up.
I will say that it's also a wayto continue to engage with your
client, especially if webelieve that the next gen really
cares about social issues andsocial change and issues of
justice.
That's a way to retain thatbook of business.
One advisor that I know, andactually I think we all know One
(35:21):
advisor that I know andactually I think we all know,
was just saying the other daythat he had a client to engage
in a significant charitable giftand he followed up to see how
that went.
That's another touch point,another way to stay in contact,
a way to demonstrate that you'veheard what your client values
and that you actually care andthat you want to be part of
right, that whole endeavor orsolution.
Alyssa Heath (35:36):
We couldn't agree more.
I mean, with us at Fire Capital, that's something that we
really like to bring in from thestart of a conversation with a
client so that if you startthose conversations about their
values from the very beginning,you know it's easier to one, you
can get to know them as theirfull selves and have charitable
giving be a part of the wholepicture as you're working with
them.
(35:56):
Do you find that comfortable?
Yeah, we find it comfortable, Iknow, but it is something, for
example, that some advisors mayhave in-house more of that
expertise than others.
So I think you know, perhapsthat's a great way to lean on
others in the community, likesomeone like yourself, and in a
community foundation to be ableto bring that expertise in, if
(36:20):
that's not something thatperhaps an advisor is
comfortable talking about indepth.
Pamela Doherty (36:24):
Absolutely.
I don't think that any advisorneeds to be an expert.
You know there are actually alot of technical vehicles and
techniques and that is why youknow you all work with other
advisors as well, and someonefrom a particular community
foundation is, you know, another.
That relationship with thecommunity foundation is like
(36:45):
another tool in your toolbox,you're.
If you refer someone to acommunity foundation, you're
referring.
You're not like showing refersomeone to a community
foundation, you're referring.
You're not like showing apreference for a particular
charity, right?
You're like referring to yetanother philanthropic resource,
right?
That can help your client getwhere she wants to go.
Alyssa Heath (37:02):
Yeah, definitely, and so let's take a question
from our Q&A here.
We've got one coming in askingabout the current IRS rules on
the maximum tax deduction thatan individual can receive for
contributing to a donor-advisedfund in a given year, and can
these deductions be spread outover multiple years if it's over
(37:25):
the IRS maximum?
Pamela Doherty (37:26):
Yeah, donor-advised funds have higher
limits for charitable deductionsthan private foundations, and
it's 60% of AGI to a publiccharity and 30% to private
foundations.
And then there's a five yearcarry over right, depending on
that person's tax situation.
So either you know, there againis another advantage, I think,
(37:51):
for a private foundation.
Alyssa Heath (37:53):
Thank you, and another one here are there any
differences between the types ofactivities that a donor advised
fund can engage in versus aprivate foundation?
So you know, perhaps that canbe a little bit of what might,
what a client might choose whenfaced with the decision of
opening a donor advised fundversus a private foundation.
Pamela Doherty (38:12):
Yes, that's a good question and, as you know,
obviously I've been singing thepraises of a donor advised fund
and holding it up as analternative to a private
foundation, and there are manybenefits and reasons to look to
adapt.
However, a private foundationdoes offer other benefits, which
is to say that a privatefoundation can employ people and
(38:37):
members of a family and forsome families that's important
that family members have a paidposition or get compensated for
the family board retreat, andthat's just not something that's
allowed with a donor advisedfund and that might be important
(38:59):
to a family to be able to coverexpenses or to give somebody a
job as executive director, the5% payout requirement that you
have with a private foundation Idon't know if there's a benefit
, but one of the differencesthat that 5% can also be used to
cover private foundationexpenses, whereas that that is
(39:23):
not a premise that exists with adonor advised fund.
Um I I think there's certainlymore donor control with a
private foundation than there iswith a donor advised fund and
for some that might be importantwhen you flipping back.
When you have a DAF you canmake grants and remain anonymous
(39:47):
, whereas a private foundationyou have your 990 and all of
that's visible, whereas with aDAF it's not a separate tax
entity, right?
So it just rolls up under the990 of the sponsoring
organization.
So a private foundation is itsown separate taxable entity.
Alyssa Heath (40:05):
Right.
So it's really dependent onwhat the client's objectives are
and, like you said, that'd besomething that would be on a
case-by-case basis that you'dunderstand by having a deeper
conversation on.
Pamela Doherty (40:16):
For sure, and it's not uncommon that I get
calls about people who want tounwind or terminate private
foundations, and pouring it overinto ADAPT provided that their
organizing documents allow for,that is certainly an option.
Some private foundations alsohave donor advice funds, and so
it's not necessarily an eitheror proposition.
(40:39):
It just depends on the donor orthe client's objectives.
Alyssa Heath (40:42):
Well, this just went so quickly and here we are
already almost at time, so Ijust wanted to you know before
we close.
Thought it'd be helpful.
If you know, people in theaudience today wanted to
continue to learn aboutphilanthropy and donor advice,
funds, you know.
Do you have any resources thatyou could recommend?
Pamela Doherty (41:01):
Yes, for sure.
So, besides getting engagedwith your local community
foundation and we're going tosend out the PowerPoint and I'll
have my contact information onit.
So if you want to follow upwith me, if you need more
information, I'd be happy torespond to you.
But in addition to that, I knowhere in the Bay Area we have,
for example, a plan givingcouncil, northern California
(41:23):
Plan Giving Council.
That is an organization bothfor professional advisors and
for nonprofit development peoplewho want to come together to
learn sort of more of thetechnical aspects of
philanthropy.
That's a great resource.
I would say get engaged inphilanthropy yourself.
Think about opening your owndonor advised fund.
(41:43):
A lot of employers havematching funds that make it a
little bit easier to set up yourown fund.
It'll give you some experienceon how that all works.
I think there are a lot ofgreat websites out there, a lot
of advisor networks out there.
(42:05):
For example, we have anemerging advisors network.
A lot of organizations haveprofessional advisors councils
and they're a great way to learnabout philanthropy and interact
with your peers and haveconversations.
Alyssa Heath (42:18):
Well, thank you.
I think that we've all learneda lot more about donor advice
funds today and have somepractical tips on how to
incorporate philanthropy intoour practice.
And so we, you know, at the endof the day, we all want to
better serve our clients, andalso a great way for us, as
individuals, to become moreengaged as well by potentially
having our own donor advisedfund.
(42:40):
So I wanted to thank you,pamela, and for everyone who
submitted questions today, andfor tuning in and I'll pass it
back to you, will.
William Reynolds (42:49):
Thank you, Alyssa, and again thank you
Pamela and the San FranciscoFoundation.
Really insightful stuff.
If anyone has any questions,please feel free to reach out to
anyone that's on the call andthank you again for joining us
today and have a great rest ofyour afternoon.
Thank you.
Alyssa Heath (43:05):
Thank you, bye-bye .
Lindsey Helman (43:11):
Thank you for listening to this month's chat
segment on donor advised funds.
Chats is a monthly segmentfeaturing audio from our
recently recorded webinarsairing on the second Tuesday of
the month.
To view the video recording ofthis episode and discover
additional society webinars,visit the CFA Society San
Francisco YouTube channel.
(43:34):
Join us next month for ourregularly scheduled Financial
Perspectives podcast episodeairing on the last Tuesday of
the month, and make sure to sendin a message to the show using
the link at the top of eachepisode description or by
emailing podcast@ cfa-sf.
org.
We'd love to hear what youthink of our new chat segment or
any suggestions on futuretopics you'd like us to cover.
(43:55):
Thank you for being a dedicatedlistener.
This podcast is produced by CFASociety San Francisco, a
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(44:15):
To learn more about CFA SocietySan Francisco, visit our
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.
Hello and welcome to this month's chat
segment of the FinancialPerspectives podcast.
Our chats episodes featuredynamic conversations between
industry experts from some ofour recent and most popular
webinar recordings.
This month, you'll hear adiscussion on donor-advised
funds from Alyssa Heath, ChiefOperating Officer and Director
(00:25):
of Social Impact at Fire CapitalManagement, and Pamela Doherty,
Senior Director of GiftPlanning at the San Francisco
Foundation.
William Reynolds (00:38):
Good afternoon everyone, and thank you for
tuning in today.
My name is William Reynolds andI am a member of CFA Society
San Francisco and part of theYoung Leaders Council.
It's with my pleasure towelcome you to our edition of
the Wealth Management WebinarSeries, Philanthropy in Wealth
Management - a conversationabout donor-advised funds.
I would now like to introducemy friend colleague and our
moderator for today, AlyssaHeath.
(00:58):
A is the COO and Director ofSocial Impact at Fire Capital
Management, a boutiqueinvestment management firm
providing private wealthmanagement, multifamily office
and foundation OCIO services.
Since joining the firm in 2019,she's been working with FCM's
clients to support them inachieving their impact and
philanthropic goals.
Prior to FCM, Alyssa workedwith the philanthropic sector,
(01:21):
most recently serving as theExecutive Director for Golden
Bridges Foundation.
Alyssa, I'd now like to turnthe floor over to you.
Alyssa Heath (01:27):
Thank you Will, and thank you to t CFA Society
of San Francisco for hostingthis event and inviting us here
today, and thank you to everyonetuning in.
We are here today with PamelaDoherty, senior Director of Gift
Planning with the San FranciscoFoundation, and so we're here
today to discuss the rise ofdonor advised funds, also called
DAF.
We'll discuss what they are,how they work, the recent trends
(01:49):
and criticisms related tostaffs, and more.
Pamela has been with the SanFrancisco Foundation, one of the
nation's largest communityfoundations, for the last seven
years and focuses on buildingrelationships and strategic
partnership with prospects,donors and professional advisors
.
She works closely withindividuals, families,
businesses and privatefoundations and with their legal
, financial and wealth advisors.
(02:10):
Ms Doherty has 30 years ofexperience in the philanthropic
arena and prior to joining theSan Francisco Foundation, she
spent seven years as a nonprofitconsultant, served as the CEO
for the Carondelet Foundationand was the founding executive
director for the Center forPlanned Giving at the Community
Foundation for Southern Arizona.
She holds a master's in publichealth and is a certified life
coach as well.
(02:30):
So let's get started, Pamela.
It's great to see you.
So over the last decade, therise of donor-revised funds have
really changed thephilanthropic landscape and the
way that donors many of whom arelikely clients of those
attending the webinar todayengaged with their allocations
(02:50):
of wealth and charitable giving.
So we'd love if you could juststart by setting the stage of
the donor advised fund landscape, and then we can launch into
our discussion from there.
Pamela Doherty (03:00):
That sounds good , thank you.
I'm so happy to be here withyou and Will today and CFA
Society, and so what I'm goingto do is share my screen.
I've got about 10 minutes ofcontent, of PowerPoint to set
the stage, and then you and Ican continue on with our
discussion, so let me share myscreen.
Alyssa Heath (03:21):
And just a reminder, as Pamela's setting up
the PowerPoint, you know, asyou have questions, please feel
free to put them in the Q&A chatand we'll get into them at the
end, towards the end of thediscussion.
Pamela Doherty (03:31):
All right, hold on.
Okay, all right.
So we talked about what we'regoing to cover, and so I just
want to spend a few minutessetting the table, if you will.
I'm going to talk a little bitabout philanthropy in the US,
because I think that's animportant backdrop.
Then I will hit the highlightsof donor-advised funds.
(03:51):
I'll talk to you a little bitabout their scope and size, and
then I'll give you a briefoverview of the mechanics of
DEFs, just to make sure thatwe're all on the same page.
I do want to touch a little biton donor advised fund sponsors,
and then I'll say a little bitabout why DAFs are getting so
(04:12):
much attention, and, if we havetime, we can talk further about
that in our discussion.
Okay, so I think it's importantto know that Americans, by and
and large, are considered verygenerous and philanthropy has
(04:37):
always been a really importantpart of our society, part of a
democracy, part of our society,part of a democracy, and so
Americans give a total of almost$500 billion, gave almost a
total of $500 billion in 2022.
(04:57):
And obviously that's lagging Inphilanthropy.
We have very much laggingstatistics.
So 2022 is really the mostrecent year we have.
So 2022 is really the mostrecent year we have.
It's important to know thatindividuals make up the largest
section of philanthropy.
Sometimes, I think others mayhave a sense that corporate
giving or foundation giving is alarge part, but if you combine
(05:19):
individuals and bequests, whichare counted separately, they
make up the largest swath.
Here are some stats for donoradvised funds For those of you
who are not familiar and don'thave a sense of the size and the
scope contributions into donoradvised funds are really
(05:41):
tremendous and it's a reallyfast-growing segment of
philanthropy.
The number of donor-advisedfunds, or DAFs, is almost 2
million.
Total assets you can see on thescreen almost $230 billion,
with an aggregate payout thatexceeds 20% annually.
(06:02):
So, unlike private foundations,donor advice funds do not, by
law, have a legal requirement topay out every year.
Private foundations, as youknow, 5% DAFs don't have that
requirement and yet theaggregate for national DAFs is
20% annually.
(06:23):
I will say that all of thesenumbers are impressive and huge
in terms of the breadth, of sizeand scope, but charitable
giving in the US has actuallydeclined over the past few years
.
There was a spike during thepandemic and so people really
(06:44):
rallied and contributed more tocharity.
Granted more out of donoradvised funds In 2022,.
I don't have to tell this groupwe had a volatile stock market,
and I will say that activityinto donor advised funds is
often very much tied to how thestock market is doing.
(07:05):
People can contribute all sortsof assets into donor advised
funds, the most common notsurprising being cash, but, of
course, appreciated securities.
There is no limit to the amountthat someone can contribute
into a donor advised fund, andcertainly no limit in terms of
the amount that can besubsequently granted out.
(07:27):
Our CFO here at the SanFrancisco Foundation kind of
jokingly says that this is theonly environment where she could
work, where we celebrate thefact that more sometimes goes
out the door in a given yearthan what comes in, and that's
because, when you work at acommunity foundation, like I do,
(07:48):
one of our key indicators ofsuccess is making sure that
charitable dollars get out intothe communities that they're
intended to serve.
So what I'm wanting toillustrate with all of these
facts and figures is that donoradvised funds, within the
context of philanthropy, reallyhave the potential to make an
(08:12):
impact.
Your clients are very muchengaged in philanthropy, and so
what I want to say to you as aprofessional advisor, if you're
not already.
I hope that you take notice.
With respect to philanthropy,you know I've worked in the
nonprofit arena for 30 years andI do so because I think
(08:34):
philanthropy is a reallyimportant tool for social change
, and so there's like thisintrinsic value right that comes
with philanthropy.
But when you're a professionaladvisor, engaging in
conversations about philanthropyand harnessing the popularity
and the interest that yourclients have is definitely, in
(08:56):
my opinion, in my experience andobservation, a really good
strategy right for advisors toengage.
We know from the data and youprobably know this better than I
that as wealth gets transferredfrom generation to generation,
the potential to lose thatfamily as a client is great
(09:22):
right, and so one of the ways toretain that relationship with
that family or that client is toengage them where they are, and
where they are is most probablyin philanthropy in some ways.
Okay, so I'm going to take astep back now and just talk a
little bit about the mechanics.
(09:44):
So let's start with thedefinition.
What is a donor advised fund?
It is a charitable givingvehicle administered by a public
charity.
It is created to managephilanthropic giving on behalf
of individuals and families andorganizations.
I also work with municipalitiesand other nonprofits and so
(10:04):
it's not just somethingrelegated to the individual or
the couple.
You can have a donor advisedfund if you are a corporate
entity, if you're the city ofSan Francisco, like where I, you
know where many of us on thiscall live, many of us on this
call live.
In the financial setting it'soften called an account, we call
(10:34):
it a fund, which is a legaldefinition.
Okay, so how does the donoradvice fund work?
So if you don't know, a donorwhich is again an individual or
a corporate entity ormunicipality, or a corporate
entity or municipality makes acontribution, using a variety of
different assets, to a fund,qualifies for an immediate tax
deduction in the year that it isgiven.
(10:56):
And because they're giving to apublic charity, they are
qualifying potentially,depending on their circumstance,
for deduction at the highestlevel.
And when they establish theirfund, they are electing, within
the bounds of that publiccharity, that organization, that
is, the sponsor they'reelecting how those funds will be
(11:18):
invested, potentially tomaximize their gift and grow
over time.
And I'm going to say a littlebit more about how that works at
the various DAF sponsors in amoment or shortly.
But at a community foundation,we have our own investment pools
(11:38):
and we work with our donors ontheir time horizon for giving
and we help them select thepools that support their
objectives In our world.
We have impact investingoptions as well.
We have program-relatedinvestment options as well, but
for many, donors would like tomaximize their giving and see it
(12:02):
grow so that they haveadditional dollars to grant out
over time.
So immediate deduction, the yearthat the gift is given to a
public charity and then timewithout any requirement to make
strategic decisions and grantsat a later date.
And in most cases, donors areusing an online platform and a
(12:26):
portal that's very muchautomated so that they get the
money out the door in a timelymanner when they are ready.
I will say that there is a mythsometimes that donors abuse the
donor advised fund times, thatdonors abuse the donor advised
(12:49):
fund, that sometimes donorsthink of it as a tax shelter to
warehouse money and thatpotentially, money languishes in
donor advised funds for whoknows how long.
And when I say it's a myth,it's because at least community
foundations have a policy thatrequires donors to be active.
It's pretty flexible, but weare working closely with donors
(13:09):
to get a sense of what theirvision is and what their
strategies are and we help themcreate those strategies.
We try to inspire and encouragedonors to be active At a
community foundation because weare a grant maker and we work
with thousands of charities.
We have great information toshare with donors about the
(13:30):
organizations doing good work inthe place that they call home.
So Give Grow Grant is prettymuch your standard formula for
donor advised funds, no matterwhere that fund has been
established.
I want to give you just a littlebit of history, because I don't
think that people realize thatDAFs really didn't come on the
(13:50):
scene until the 90s.
But the first donor advice fundsupposedly was created in the
1930s through the New YorkCommunity Trust, one of the
oldest community foundations inour country.
By the way, there are about 800community foundations across
the US and so if you're callingin from somewhere other than San
(14:11):
Francisco or the Bay Area,you've got a community
foundation near you and I wouldsay that as a professional
advisor, that communityfoundation is likely a great
resource for you and yourpractice, not to mention your
clients.
So then in the 90s, fidelitygot permission from Congress
(14:32):
basically to start their ownpublic charity, their own donor
advised fund offering, andthat's when donor advised funds
really hit the map in terms ofnot only the commercial
providers or sponsors, but alsocommunity foundations.
The IRS codified it in 2006,and it's only today that they
(14:53):
are coming out with regulationsrelated to the law that passed
in 2006.
And if we have time, we cantalk a little bit about those
regulations and how they mightaffect you as advisors and how
they might affect others in thespace.
So I want to quickly touch uponthe different types of DAF
(15:13):
sponsors, because those of youwho are working in the financial
industry, I'm guessing you arepotentially at a firm that
either works with a commercialprovider or you are at a firm
that offers DAFs yourself, andso all of these sponsors are
(15:33):
public charities, right 501c3public charities.
They each approach theirmission as a public charity a
little differently.
I think in the donor advice fundand the philanthropic space
there's room for everyone.
They play slightly differentroles.
(15:53):
So commercial funds inparticular have lower minimums
to establish a fund.
So some of them that I'm awareof it's $5,000 to start a donor
advice fund.
At my community foundation it's$10,000, and I know other
community foundations and othersingle-issue charities sometimes
have higher thresholds.
Single-issue charity refers tosometimes educational
(16:17):
institutions like Stanford has aDAF program.
Others I know in the past, likeUnited Way, has had a DAF
program and other Jewishfederations that kind of thing.
A community foundation offersdonors who want to establish
DAFs an opportunity to be partof, as the name would imply, a
(16:37):
community.
So we try to promotephilanthropy, we try to educate
our DAF holders, we try to haveopportunities for them to learn
about the most pressing issuesof the region so that they can
keep that in mind when they'rerecommending from their DAF.
They get to talk to other fundholders, they get to exchange
(16:59):
ideas, they get to go intotrainings and learn.
And so if you are in a positionas a professional advisor to
recommend a direction to yourclient, you need to understand,
in my opinion, what makes thatclient tick, what would make
that client excited, where thatclient could really feel
(17:22):
connected.
And I will tell you, as someonewho sets up the donor advised
funds at my foundations, it isoften people that people are
coming because they want to bepart of something larger and
they want to interact withothers.
And a community foundation, nomatter where that is we've got
several in the Bay Area, butagain they're across the country
(17:43):
A community foundation is agreat place to be for those
types of donors, whether theyhad a windfall right, they went
public and now have this moneyfor philanthropy that they don't
know what to do with, orwhether they're like a seasoned
veteran and just want to be, youknow, in the circles of other
philanthropists and everybody inbetween.
(18:05):
Commercial deaths, in my view,are a great place to be.
If you care about really superlow fees, you don't need the
customer service and thephilanthropic advising that's
offered at community foundationsand if you kind of look at your
philanthropy or your DAF aslike a charitable checkbook and
(18:27):
you're kind of just worriedabout the transaction, then in
my opinion, a commercial donoradvice fund might fit that bill.
Okay, just a couple of benefits.
So benefits for the donor orthe client or your client.
Donor advice funds are flexible, meaning again, you get to set
(18:48):
it up and we take care of allthe paperwork right.
So you really only are givingto one charity and so you get
that one charitable deductionand that one receipt that you
have to keep track of, becausethere is no tax event when
grants go out the door.
And for most staff providers,the portal that I referred to
(19:11):
outlines all of your givinghistory, outlines all of your
grants, kind of keeps everythingorganized for the donor.
Again, the tax deduction,depending on the client's
circumstances, happens in theyear that they contribute to the
donor advised fund.
But they have time to make thedecisions about where to
distribute those funds, which wecall grants, later on down the
(19:35):
road.
It's a great platform for familyphilanthropy and it's also
known sometimes as analternative to a private
foundation.
And you know many of you knowthat a private foundation can be
costly with respect toadministration.
You have to have a board, youhave to have all sorts of
compliance and it's notsomething that you set and
(19:57):
forget.
A private foundation requires alot from you know, the family
behind it, depending on whetherthey can hire staff or not.
A donor advice fund kind of isthat miniature version, and so
families often engage with oneanother around a donor advice
fund and then one of them isnamed the primary advisor and
(20:21):
that's the person who canrecommend the grant out.
Recommend is a word that I'mchoosing intentionally, because
that is the law.
The donor has relinquishedcontrol over the asset by making
a charitable contribution,getting that tax deduction, and
it is the DAF sponsor who hasthe ultimate power to approve
(20:45):
that grant and, by and large,that DAF sponsor will absolutely
approve that grant.
I will say, at the SanFrancisco Foundation and many
community foundations, we have apolicy against approving grants
to known hate groups.
But other than that, donors arefree to support the nonprofits
(21:07):
that they care about, whetherit's where the community
foundation or that publiccharity is located, whether
that's across the country oraround the world.
Community foundations, becausethey play other roles and serve
as grant makers themselves, havea lot of information to share
with donors about where theymight potentially give.
We have values that we're veryclear about.
(21:29):
We're trying to make our home abetter place for everybody, and
so sometimes that really jibeswith a donor or one of your
clients, and so that might behow you would differentiate
where you send that client.
And, as I mentioned before, adonor advised fund or
philanthropy in general, offersyou as an advisor a benefit
(21:54):
other than the reward that youget in your heart from being
part of philanthropy.
It is a great opportunity tobuild and retain relationships.
I will say a very tangiblebenefit is that in some
circumstances, a financialadvisor and investment or wealth
(22:14):
manager can manage the assetsheld in a DAF outside of the
pools of that sponsoringorganization separately managed
funds program, which means thata donor can ask us to work with
their advisor and you get toretain those assets under
(22:35):
management rather than sendingthem out the door to the pools
of the community foundation orthe deaf sponsor.
We work with you to continue toinvest and manage those funds
and be part of an equation and Ithink that that is, you know, a
great benefit if that works outfor everybody.
(22:56):
Some advisors really need thatincentive and other advisors
don't feel that that's important, and no judgment.
I think whatever works for theclient-advisor relationship is
great.
I'm going to just end on thisslide because I know we want to
get into discussion, but donoradvice funds over the last few
(23:19):
years have certainly beengetting increasing attention
from a variety of differentvantage points.
First of all, philanthropistsin and of themselves are calling
on their colleagues and theirpeers peer philanthropists to
make sure that they distributemoney from their donor advice
funds in a timely manner.
(23:40):
There is a couple who arewell-known philanthropists who
started a movement called Halfmy DAF, meaning they want people
to accelerate their grantmaking and give out half of
their DAF in a shortened periodof time.
There are critics in thephilanthropic arena who again
(24:01):
think that donors are kind ofsitting on money, or that DAFs
are competing with nonprofitorganizations, or that DAFs hide
the identity of philanthropistsand that it's potentially a
place to fund nefariousnonprofits.
(24:22):
And all of that is potentiallytrue in some ways and I think we
as community foundations needto look at those hard questions.
We as community foundations areopen to reform and doing things
differently.
Bills that have been proposedin recent years that actually
(24:52):
community foundations foughtbecause we thought they were
poorly written and sort of like,based on certain premises that
actually did do not hold up whenyou're, when you're in it and
in terms of how donor advicefunds actually work.
And then the IRS recently hascome out with new regulations
based on that Pension ProtectionAct of 2006 and are now more
(25:17):
narrowly defining or defining inmore detail what is the donor
advised fund and who is anadvisor.
And one of their definitionspotentially jeopardizes that
ability for communityfoundations to have separately
managed funds and outsideinvestment advising and managing
(25:39):
.
And I'll just kind of leave itat that in case we want to talk
about it further.
But you know, stay tuned,there's a lot swirling out there
.
I think that in our industry wethink that there is some room
for improvement.
We think that you know, placingregulations and unnecessary
(26:03):
rules on things can havepotentially unintended
consequences that we don't wantto see in the field.
But I think you know wedefinitely are keen to move this
forward because donor advicefunds are not going away and so
we need to make sure thatthey're working the way that
(26:24):
they are intended to work.
So with that I will stopsharing and happy to discuss
anything you wish Alyssa.
And back to you.
Alyssa Heath (26:34):
Well, thank you, pamela, for setting the stage
there and getting a clearpicture of what is the donor
advised fund landscape.
Let's dive a little deeper.
I think you know perhaps whereyou just left off, actually
talking about the proposed IRSregulations for donor advised
funds, I think everyone herewould be interested to know.
Just in the last few weeks,they held a public hearing to
(26:57):
discuss its plan to regulatedonor advised funds, so it's
very topical and many of thosetoday here in the audience are
likely investment advisors.
Can you go into a little moredetail about how actually these
new potential regulations couldimpact them or others in the
space?
Pamela Doherty (27:13):
And you touched a little bit on the Community
Foundation piece, and so we'dlove to hear more about that
have been swirling around outthere with respect to required
minimum payouts or the identityof donors at a fund level, or
(27:40):
requiring that DAFs have acertain life cycle.
These are things that have beenin the news and have been
talked about by lawmakers, andnone of that has been addressed
by the IRS.
What they're doing right now isjust further defining what is a
donor-advised fund and who is afund advisor and fund advisors.
(28:06):
In most cases, we think of fundadvisors as the donor who sets
up the fund and who recommendsthe grant, so they are the
advisor to the fund.
As you might imagine, per thelaw, an advisor cannot derive
any benefit from that role,right?
So the fund or the grant cannotbe used to satisfy any pledge
(28:31):
or debt or purchase a ticket orpay any expense, right, so the
advisor cannot have any benefit.
Well, these proposed regulationsare suggesting that now an
outside investment manager is anadvisor, and so if that is true
, then that advisor cannotderive any compensation from
(28:54):
being connected to the fund, andthat basically kind of
torpedoes this idea that acommunity foundation can retain,
per the donor's way, affect thecommercial funds.
This is just something that isbecause of the way we work.
(29:15):
It's something specific tocommunity foundations, and we
think that that is a problembecause it certainly puts us at
a disadvantage when we have thepotential to work with an ultra
high net worth individual whohas a long standing relationship
with a financial advisor thatwe, in turn, would like to
(29:36):
continue to honor and for all ofus to be at the table.
Alyssa Heath (29:39):
Yeah, absolutely so, like you said.
I mean, I think we'll have tostay tuned to see how things pan
out, but hopefully there'll bea world in which you know this
can still be a more generaldefinition of a donor advised
fund advisor, but we'll see.
Thank you for that, and youknow you also touched on how
donor advised funds could be agood avenue to encourage family
(30:02):
philanthropy.
I'd love to hear you know inyour experience how that may be
an example of how ADAPF hasserved as a way for one of your
clients to get you know theirfamily members involved, or how
an advisor might be able to goabout that.
Pamela Doherty (30:18):
Yes.
So, unlike a private foundation,you know, dafs, as I mentioned,
are a bit more streamlined anddon't have those compliance
issues, don't require a boardboard, have greater benefits in
terms of the deduction of gifts,but it is a vehicle where
(30:39):
families can come together tomake collective decisions about
how to distribute money from afund and support the
organizations that they careabout.
At a community foundation, everyfund holder at least at ours,
every fund holder is assigned aphilanthropic advisor, and that
person can often play a key rolein meeting with a family and
(31:03):
helping them coalesce around avision for their fund.
That person can help the familyintegrate the interests and the
perspectives of the nextgeneration, who may come along
and view the world andphilanthropy quite differently
than their parents or theirgrandparents who came before
(31:26):
them, and so a donor advice fundis a great way sometimes to
help people have, you know,cooperate around giving.
It's a great way to teachyounger people how to become a
leader, how to have a sense ofresponsibility, civic engagement
(31:48):
.
Again, sometimes these arefamilies that are ultra high net
worth and they have to learnhow to make informed decisions,
how to deal with the sometimesvery real pressure that comes
with having so much wealth andthe obligation that their family
(32:11):
may or may not feel todistribute that wealth.
Alyssa Heath (32:15):
Thank you for that and I think you know, like you
said before, it's a greatopportunity for families to come
together on their philanthropyand also a good potential way
for advisors to engage withtheir clients.
So with that, I'd love to hearyou know what are some of the
opportunities for you knowadvisors and their, for us as
(32:38):
advisors, really to get engagedwhen it comes to donor advised
funds.
You know, what have you foundto be helpful to incorporate
philanthropy into a practice foran advisor who may not already
be engaging in philanthropy and,you know, even bringing up the
topic of donor advised fundswith their clients?
Pamela Doherty (32:56):
Yeah.
So I think you know, a lot oftimes as wealth advisors you're
talking to your clients aboutwhat their vision is for the
future or for their family, andI think that's the time where it
could be easy to ask aboutphilanthropy and the changes
(33:19):
they want to see in the world,or the kind of world they want
their children to grow up in, orwhat keeps them up at night, or
the most pressing issue thatthey think we as a society face,
or just what their passions are.
I think you know I'm not aprofessional advisor, but I
(33:40):
think that that makes sense tobe part of the larger planning
conversation, and there are allsorts of studies and data where
clients have wanted theiradvisor to bring up philanthropy
but their advisor has not, andso you should check out the
reports, I think, on how clientsfeel about their advisor
(34:06):
bringing up or not bringing upphilanthropy, and I, you know I
don't see too often where peopleare offended at least in my
line of work when you'rebringing up philanthropy or, in
my case you know, a charitablegift or a potential, you know,
contribution, and so I thinkthat there are ways to
(34:28):
incorporate it intoconversations very naturally,
and I would say don't worryabout the right words, just get
started, because, as I tried todemonstrate, americans are prone
toward generosity andphilanthropy, and so it's
unlikely that you're going totake someone aback when you
(34:51):
bring it up.
I will say that it's also a wayto continue to engage with your
client, especially if webelieve that the next gen really
cares about social issues andsocial change and issues of
justice.
That's a way to retain thatbook of business.
One advisor that I know, andactually I think we all know One
(35:21):
advisor that I know andactually I think we all know,
was just saying the other daythat he had a client to engage
in a significant charitable giftand he followed up to see how
that went.
That's another touch point,another way to stay in contact,
a way to demonstrate that you'veheard what your client values
and that you actually care andthat you want to be part of
right, that whole endeavor orsolution.
Alyssa Heath (35:36):
We couldn't agree more.
I mean, with us at Fire Capital, that's something that we
really like to bring in from thestart of a conversation with a
client so that if you startthose conversations about their
values from the very beginning,you know it's easier to one, you
can get to know them as theirfull selves and have charitable
giving be a part of the wholepicture as you're working with
them.
(35:56):
Do you find that comfortable?
Yeah, we find it comfortable, Iknow, but it is something, for
example, that some advisors mayhave in-house more of that
expertise than others.
So I think you know, perhapsthat's a great way to lean on
others in the community, likesomeone like yourself, and in a
community foundation to be ableto bring that expertise in, if
(36:20):
that's not something thatperhaps an advisor is
comfortable talking about indepth.
Pamela Doherty (36:24):
Absolutely.
I don't think that any advisorneeds to be an expert.
You know there are actually alot of technical vehicles and
techniques and that is why youknow you all work with other
advisors as well, and someonefrom a particular community
foundation is, you know, another.
That relationship with thecommunity foundation is like
(36:45):
another tool in your toolbox,you're.
If you refer someone to acommunity foundation, you're
referring.
You're not like showing refersomeone to a community
foundation, you're referring.
You're not like showing apreference for a particular
charity, right?
You're like referring to yetanother philanthropic resource,
right?
That can help your client getwhere she wants to go.
Alyssa Heath (37:02):
Yeah, definitely, and so let's take a question
from our Q&A here.
We've got one coming in askingabout the current IRS rules on
the maximum tax deduction thatan individual can receive for
contributing to a donor-advisedfund in a given year, and can
these deductions be spread outover multiple years if it's over
(37:25):
the IRS maximum?
Pamela Doherty (37:26):
Yeah, donor-advised funds have higher
limits for charitable deductionsthan private foundations, and
it's 60% of AGI to a publiccharity and 30% to private
foundations.
And then there's a five yearcarry over right, depending on
that person's tax situation.
So either you know, there againis another advantage, I think,
(37:51):
for a private foundation.
Alyssa Heath (37:53):
Thank you, and another one here are there any
differences between the types ofactivities that a donor advised
fund can engage in versus aprivate foundation?
So you know, perhaps that canbe a little bit of what might,
what a client might choose whenfaced with the decision of
opening a donor advised fundversus a private foundation.
Pamela Doherty (38:12):
Yes, that's a good question and, as you know,
obviously I've been singing thepraises of a donor advised fund
and holding it up as analternative to a private
foundation, and there are manybenefits and reasons to look to
adapt.
However, a private foundationdoes offer other benefits, which
is to say that a privatefoundation can employ people and
(38:37):
members of a family and forsome families that's important
that family members have a paidposition or get compensated for
the family board retreat, andthat's just not something that's
allowed with a donor advisedfund and that might be important
(38:59):
to a family to be able to coverexpenses or to give somebody a
job as executive director, the5% payout requirement that you
have with a private foundation Idon't know if there's a benefit
, but one of the differencesthat that 5% can also be used to
cover private foundationexpenses, whereas that that is
(39:23):
not a premise that exists with adonor advised fund.
Um I I think there's certainlymore donor control with a
private foundation than there iswith a donor advised fund and
for some that might be importantwhen you flipping back.
When you have a DAF you canmake grants and remain anonymous
(39:47):
, whereas a private foundationyou have your 990 and all of
that's visible, whereas with aDAF it's not a separate tax
entity, right?
So it just rolls up under the990 of the sponsoring
organization.
So a private foundation is itsown separate taxable entity.
Alyssa Heath (40:05):
Right.
So it's really dependent onwhat the client's objectives are
and, like you said, that'd besomething that would be on a
case-by-case basis that you'dunderstand by having a deeper
conversation on.
Pamela Doherty (40:16):
For sure, and it's not uncommon that I get
calls about people who want tounwind or terminate private
foundations, and pouring it overinto ADAPT provided that their
organizing documents allow for,that is certainly an option.
Some private foundations alsohave donor advice funds, and so
it's not necessarily an eitheror proposition.
(40:39):
It just depends on the donor orthe client's objectives.
Alyssa Heath (40:42):
Well, this just went so quickly and here we are
already almost at time, so Ijust wanted to you know before
we close.
Thought it'd be helpful.
If you know, people in theaudience today wanted to
continue to learn aboutphilanthropy and donor advice,
funds, you know.
Do you have any resources thatyou could recommend?
Pamela Doherty (41:01):
Yes, for sure.
So, besides getting engagedwith your local community
foundation and we're going tosend out the PowerPoint and I'll
have my contact information onit.
So if you want to follow upwith me, if you need more
information, I'd be happy torespond to you.
But in addition to that, I knowhere in the Bay Area we have,
for example, a plan givingcouncil, northern California
(41:23):
Plan Giving Council.
That is an organization bothfor professional advisors and
for nonprofit development peoplewho want to come together to
learn sort of more of thetechnical aspects of
philanthropy.
That's a great resource.
I would say get engaged inphilanthropy yourself.
Think about opening your owndonor advised fund.
(41:43):
A lot of employers havematching funds that make it a
little bit easier to set up yourown fund.
It'll give you some experienceon how that all works.
I think there are a lot ofgreat websites out there, a lot
of advisor networks out there.
(42:05):
For example, we have anemerging advisors network.
A lot of organizations haveprofessional advisors councils
and they're a great way to learnabout philanthropy and interact
with your peers and haveconversations.
Alyssa Heath (42:18):
Well, thank you.
I think that we've all learneda lot more about donor advice
funds today and have somepractical tips on how to
incorporate philanthropy intoour practice.
And so we, you know, at the endof the day, we all want to
better serve our clients, andalso a great way for us, as
individuals, to become moreengaged as well by potentially
having our own donor advisedfund.
(42:40):
So I wanted to thank you,pamela, and for everyone who
submitted questions today, andfor tuning in and I'll pass it
back to you, will.
William Reynolds (42:49):
Thank you, Alyssa, and again thank you
Pamela and the San FranciscoFoundation.
Really insightful stuff.
If anyone has any questions,please feel free to reach out to
anyone that's on the call andthank you again for joining us
today and have a great rest ofyour afternoon.
Thank you.
Alyssa Heath (43:05):
Thank you, bye-bye .
Lindsey Helman (43:11):
Thank you for listening to this month's chat
segment on donor advised funds.
Chats is a monthly segmentfeaturing audio from our
recently recorded webinarsairing on the second Tuesday of
the month.
To view the video recording ofthis episode and discover
additional society webinars,visit the CFA Society San
Francisco YouTube channel.
(43:34):
Join us next month for ourregularly scheduled Financial
Perspectives podcast episodeairing on the last Tuesday of
the month, and make sure to sendin a message to the show using
the link at the top of eachepisode description or by
emailing podcast@ cfa-sf.
org.
We'd love to hear what youthink of our new chat segment or
any suggestions on futuretopics you'd like us to cover.
(43:55):
Thank you for being a dedicatedlistener.
This podcast is produced by CFASociety San Francisco, a
not-for-profit professionalassociation providing
professional learning and careerresources to over 13,000
investment industryprofessionals worldwide.
(44:15):
To learn more about CFA SocietySan Francisco, visit our
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