The recent critique of donor-advised funds (DAFs) as instruments of a supposed Wall Street “takeover” of philanthropy is, at best, alarmist and, at worst, profoundly misleading.
The progressive Institute for Policy Studies’ (IPS) latest report frames the growing use of DAFs and foundations as a villainous plot to warehouse wealth and enrich financial intermediaries. In reality, these charitable vehicles represent an innovative and accessible means of driving impactful charitable giving—an effort that critics seem determined to resist.
IPS has a long history of taking a dim view of wealth creation. It regards prosperity as a fixed pie, where the success of one must inevitably come at the expense of another. This view is wrong because prosperity is not a zero-sum game. Wealth creation expands the pie, fostering innovation, improving living standards and generating resources that can be shared through philanthropy and investment in the common good.
Economic freedom and subsequent wealth creation is positively correlated with increased charitable giving. Ironically, IPS gets agitated when entrepreneurs create wealth, yet they seem even more incensed when those same wealth creators irrevocably commit their fortunes to charitable causes, as if generosity were a sin.
Let’s tackle the central claim: that DAFs “siphon off” charitable dollars. In truth, DAFs are not black holes swallowing up philanthropy but rather dynamic hubs that multiply its potential. For example, at Fidelity Charitable, since inception $13.2 billion in donated assets have been made available for charitable giving, while an additional $22.2 billion has been made available thanks to tax-free investment growth. Donors of assets were able to almost triple their initial donation value to charitable causes thanks to the ability to invest and grow their contributions over time.
When donors contribute assets to a DAF, they are committing those funds irrevocably to charitable purposes. The claim these funds languish in perpetuity is a caricature; DAF payouts routinely exceed the legally required minimum distribution rates imposed on private foundations. The recently released National Philanthropic Trust DAF Report revealed payout rates remained around 24%, exceeding 20% every year on record—hardly the behavior of a Scrooge-like hoarder.
The IPS report also casts aspersions on the tax benefits associated with DAFs, as if incentivizing generosity were inherently sinister. But tax policy has long been a tool to encourage giving. When individual donors direct funds into DAFs, they’re choosing to forgo personal control and redirect wealth toward the common good. Without these incentives, much of this money might never make its way to charity in the first place.
Critics like Bella DeVaan lament the “financialization” of giving, as if efficiency and strategic planning are somehow antithetical to altruism. On the contrary, treating charitable dollars with the same care and foresight as other investments ensures their long-term impact. DAFs allow donors to think big—funding multi-year projects, responding to crises as they arise and supporting causes in a way that’s flexible and sustainable.
Moreover, the supposed rise of for-profit players in the DAF landscape isn’t the moral compromise IPS would have you believe. Firms like Fidelity and Vanguard have democratized access to strategic philanthropy, enabling middle-income Americans to contribute to causes with the same tools once reserved for billionaires. If financial institutions have found a way to streamline charitable giving, lowering costs and increasing donor participation, isn’t that a win for everyone?
Finally, let’s address the broader picture. The growth of DAFs doesn’t signal a retreat from traditional charity but an evolution of it. These vehicles empower donors to be more intentional and consistent in their giving, fostering a culture where philanthropy becomes a lifelong habit. By providing mechanisms to plan and save for charitable giving, DAFs encourage a level of thoughtfulness that benefits charities, donors and society alike.
Far from being a threat to altruism, donor-advised funds and similar tools allow donors to engage in a more strategic approach to giving. Instead of stoking fear about Wall Street’s “takeover,” we should celebrate the innovation that is helping to ensure charitable dollars do the most good, now and in the future.
