Donor-advised funds (DAFs) have become increasingly popular among individuals and families looking to streamline their charitable giving while maximizing tax benefits. Last week, we covered the benefits and drawbacks of using donor-advised funds.
Today, let's delve into a comparative analysis of some of the most prominent DAFs available, exploring their features, benefits, and potential drawbacks.
Understanding Donor-Advised Funds
Before we dive into the comparison, let's quickly recap what DAFs are. Donor-advised funds are charitable giving accounts administered by public charities.
Donors contribute assets to these funds, receive an immediate tax deduction, and then recommend grants to qualified charitable organizations over time.
Think of DAFs as a philanthropic investment vehicle, allowing donors to strategically plan their charitable contributions while enjoying the tax benefit of bunching many years' donations together for a tax deduction in the year of initial contribution to the donor-advised fund.
Now, let’s take a closer look at the most popular DAF’s.
The Vanguard Charitable Fund
Features
Cost: Vanguard Charitable is renowned for its low administrative fees, making it an attractive option for cost-conscious donors. Its fee structure is based on a percentage of assets under management, with reduced rates for larger balances.
The first $500k is charged 0.60% in administrative fees, the next $500k is charged 0.30% in administrative fees, and the percentages decrease from there. In addition, there would be specific investment fees. See Vanguard’s site for more details.
Investment Options: Vanguard Charitable offers a diverse array of investment options, including Vanguard mutual funds and exchange-traded funds (ETFs). This allows donors to tailor their investment strategy to align with their philanthropic goals and risk tolerance.
Minimum Contribution: To open a DAF with Vanguard Charitable, donors need a minimum initial contribution of $25,000, with subsequent contributions starting at $5,000.
Minimum Grant: Vanguard Charitable’s minimum DAF grant is $500. This makes it less attractive for people to make smaller donations.
Fidelity Charitable
Features
Cost: Like Vanguard Charitable, Fidelity Charitable boasts competitive fees based on a percentage of assets under management. Their administrative fee is 0.6% of Assets under management or a minimum of $100.
Like Vanguard, Fidelity also has tiered fee schedule that decreases in percentage with larger balances in the account. In addition to the administrative fee, each specific investment also has its own investment fee.
Professional management of the account accrues higher fees.
Investment Options: Fidelity Charitable offers a broad range of investment options, including mutual funds, ETFs, and separately managed accounts. This diversity allows donors to craft a customized investment strategy to support their charitable objectives.
See last week’s DAF article for the specific investment options available at Fidelity, in the step-by-step section.
Minimum Contribution: There is no minimum contribution to Fidelity’s DAF. This makes it more attractive to smaller donors.
Minimum Grant: Fidelity Charitable considers grant recommendations of $50 or more, or the balance of the Giving Account, whichever is less. A grant every two years is required to fulfill the minimum granting requirements.
Schwab Charitable
Features
Cost: Schwab Charitable follows a fee structure similar to its counterparts, charging 0.6% of assets under management as administrative fees for the first $500,000, with decreasing percentages for high tiers.
Investment fees would be charged in addition, like the others. Professional management of the account accrues higher fees.
Investment Options: Schwab Charitable offers a wide selection of investment options, including mutual funds, ETFs, and separately managed accounts. Donors can diversify their charitable investments according to their preferences and financial goals.
Minimum Contribution: There is no minimum contribution to open an account. To have the account professionally managed, the minimum is $100,000.
Minimum grant: The minimum grant at Schwab is $50, making the account appealing to smaller donors.
Charityvest
Features
Cost: Charityvest offers a free DAF that doesn’t include investing. The fees for an account that includes access to investing donations are 0.45% of assets under management, with a $4 per month minimum ($48/year), plus added investment expense.
Investment Options: Investment options are more limited at Charityvest than at Daffy, consisting of a standard portfolio made up of Vanguard ETF’s and a filtered portfolio that is more sustainable but has higher expense ratios. Unlike Daffy, investors can chose their own asset allocation.
Minimum Contribution: There is no minimum contribution to open an account.
Minimum grant: The minimum grant with Charityvest is $20, making the account appealing to smaller donors.
Daffy
Features
Cost: Daffy is a startup DAF provider that offers a more user-friendly experience than the traditional brokerages. Instead of a percentage of assets under management, Daffy charges subscription fees from $3 per month to $20 per month, which accounts with fund balances less than $100 accruing no fees. Investment fees are in addition to these fees, as usual.
Investment Options: Daffy provides three standard portfolios- conservative, standard, and ESG (sustainable) portfolios. They also offer a crypto portfolio. Picking individual investments is not possible.
The standard portfolio is made of low cost vanguard index fund at a 50%-50% stock to bond ratio. The Conservative and ESG portfolios have higher expense ratios.
Minimum Contribution: There is no minimum contribution to open an account. Daffy lets users set up monthly contributions easily.
However, Daffy has a limit of $25,000/lifetime in donated stock, ETF’s, mutual funds, crypto, or DAF transfer for their basic contributor level and $50,000 for the highest level has no limit to contribution and is $20/month.
Minimum grant: The minimum grant with Daffy is $18, making the account appealing to smaller donors. The family plan also allows others in the family to recommend grants.
Donor Advised Fund | Cost | Investment Options | Minimum Contributions | Minimum Grants |
Vanguard Charitable | 0.6% AUM | Diverse, low cost | $25,000 initially, $5000 for additional contributions | $500 |
Fidelity Charitable | 0.6% AUM or $100/ year minimum | Diverse, low cost | $0 | $50 |
Schwab Charitable | 0.6% AUM | Diverse, low cost | $0 | $50 |
Charityvest | 0.45% AUM or $48/year minimum | Limited | $0 | $20 |
Daffy | 0.0% for accounts less than $100, $36/year up to $240/year | Diverse but with less customization, crypto available | $0 | $18 |
Comparative Analysis
Vanguard, Fidelity, and Schwab offer traditional DAF experiences while Daffy is shaking up the market with a more user-friendly experience. Daffy has a nice app that allows for contributions to be scheduled directly from the app, while the traditional brokerages do not offer this.
However, the investment options at Daffy are limited to pre-designed portfolios. Daffy also has a lifetime limit of $25,000 for the most economical level of membership costing $36/month.
The highest level of membership without contribution limits costs $240/year and has no limits. Charityvest has higher fees than Daffy and limited investment options.
When comparing Vanguard Charitable, Fidelity Charitable, and Schwab Charitable, several factors come into play. All three DAFs offer competitive fee structures and a diverse range of investment options, providing donors with flexibility and control over their philanthropic endeavors.
Vanguard Charitable stands out for its reputation for low fees and association with the esteemed Vanguard brand, making it an attractive choice for cost-conscious donors but it does have high minimums for donation and grants.
I ended up going with Fidelity because I do plan to donate more than $25,000 in my lifetime and at the highest membership level, the Fidelity fees beat Daffy. I also enjoy the option to choose my own investments at Fidelity. Also, since I have other accounts there, it helps me streamline my financial life.
Conclusion
As a physician dedicated to making a positive impact through charitable giving, selecting the right donor-advised fund is paramount. Vanguard Charitable, Fidelity Charitable, and Schwab Charitable are all reputable options that offer distinct advantages and benefits.
Daffy is a startup with the potential to appeal to younger and smaller donors. By carefully evaluating factors such as fees, investment options, and minimum contributions, donors can choose the DAF that best aligns with their philanthropic values and financial objectives.
With the right DAF, physicians can leverage their resources to effect meaningful change in their communities and beyond. So keep thriving and sharing your wealth for the betterment of the world around you my friends.
And so you can do it all more effectively, remember to stay frugal, ya’ll!
Catch you next time,
Disha
Fantastic as both an overview and a medium-deep dive into Donor Advised Funds for charitable giving. It's my first exposure to this term and it was very easy to digest. I feel comfortable diving deeper with my financial and tax advisors to develop a plan that's right for us. Thank you!