A Better Donor Advised Fund

In 2013, I opened my first Donor Advised Fund (DAF), and 2022 is my 10th year using them. They’re a great way to donate money in the most tax-efficient way, which ultimately puts more money in the charity’s coffers for every dollar you’re willing to part with.

I have used DAFs from T. Rowe Price, Vanguard, and Fidelity. The latter has been my most favored up until now, primarily for their lower minimums for grant-making and additional contributions.

I have a new favorite, though, and it goes by the name of Charityvest. You can get started with as little as $20, make additional contributions of a minimum of $20, and grants can be as small as… you guessed it… $20.

That’s not why I transferred over $500,000 in donor advised funds, though. The reason I made that move is to take advantage of their exceptionally low administrative fees that top out at 0.45% and are 0.25% at my investment level. Compare that to the 0.60% or more that most other DAFs charge, including the ones I’ve been using for years.  Charityvest is actually offering 0% fees for nearly a year or two (see end of post for details), and they also have ESG options with very low expense ratios.

The following overview was written by Charityvest co-founder and COO, Ashby Foltz.

 

better-donor-advised-fund

 

A Better Way to Grow Your Giving

 

You may already be familiar with donor-advised funds, since this blog has covered them extensively over the years. In fact, this post summarizing the benefits of DAFs was one of the very first on Physician on FIRE. They’ve been described as a win-win for donors and charities, providing considerable up-front tax benefits for those who have made a commitment – large or small – to charitable giving. And, the list of financial bloggers who use DAFs is extensive.

If you’re not familiar with donor-advised funds, here’s a quick summary of the benefits:

  • You receive a tax deduction in the year you contribute to the fund, regardless of when you recommend grants to over 1.4 million eligible charities.
  • You can contribute appreciated assets like publicly-traded stocks and cryptocurrencies, increasing the value of your deduction while avoiding capital gains taxes.
  • You can grow your giving by investing your fund between when you contribute and when you recommend grants to charities.

 

DAFs enable you to make tax-deductible charitable contributions during the years when your income is the highest (as PoF did here), allowing you to support charities throughout your life as you have more time and inspiration. This is highly tax-efficient, since you’re able to make gifts during peak earning years, and the principal will continue to grow over time (tax-free) to increase the value of your gifts to charities.

It’s possible that this can also lead to more meaningful giving. You can give in the years when your income is low, and you can also be more strategic about funding charitable opportunities you are deeply passionate about — versus funding something quickly in the year it’s tax-efficient — and support them more significantly. You can also pass the rights to grant your charitable dollars from your DAF onto your kids.

 

The Magic of a Giving Account

 

In 2019, my wife and I were living in our hometown of Atlanta, while she was completing her residency at Emory University. A friend reached out to me to share a startup idea he was working on: a modern donor-advised fund.

After a career in consulting and finance, and having learned about the power of DAFs already, I was inspired by an idea that married my interest in modern fintech with something that could bring about some good in the world.

That summer, two co-founders and I began working on our platform Charityvest. We believed the market was lacking an innovative donor-advised fund that offered a modern robo-advised experience: one with an intuitive interface, low fees, robust capabilities, and cheerful online support.

When Charityvest launched publicly in December 2019, my wife and I made our first planned charitable contributions to our fund. We’d given to various charities and causes over the years, but something felt different this time. We had decided on a number we were able to contribute, and we determined how we’d do it (by donating stock, since we found it easier to give assets than cash flow, and the tax benefits were superior).

Now, we had that same amount of money in our Charityvest balance, asking us a clear question: this isn’t yours anymore, so what good do you want to do with it?

This was a distinct departure from the reactionary giving pattern we’d been part of in the past. Our donor-advised fund allowed us to make distinct decisions about how much to give, what to give, and when to give – for financial planning and tax purposes – and how we wanted those funds to have an impact in the world, as we were inspired to give.

That’s “the magic of the giving account.” It allows people who want to plan for their charitable giving to do so in a way that allows them to be as thoughtful about their impact as they are about their contributions.

 

Launching Investment Portfolios

 

Since December 2019, we’ve been backed by several prominent venture capital funds, including Y Combinator, and we’ve facilitated nearly $40 million dollars in charitable giving, making us one of the fastest-growing charities in the United States.

We’re ecstatic to complete our product by launching investment options, which are available as of the date of this publication, 3/8/2022. Investing your donor-advised fund with Charityvest allows anyone to access a DAF with industry-low all-in costs, and an exceptionally low minimum of $20.

Below, we’ll dive into the details of our launch portfolios, and why we think they are ideal for Physicians on FIRE – as well as the rest of the FIRE community.

 

We’re launching investments with two portfolio options that we think offer great value to the FIRE-focused donor:

  • Our Core Portfolio, which is built using Vanguard Select ETFs. These ETFs are selected by Vanguard’s Portfolio Review Department as ideal choices for portfolio building blocks because of their broad exposure to the indices they track, low expense ratios, and high daily liquidity.
  • Our ESG Portfolio, which uses ETFs from the BlackRock iShares Advanced ESG suite and broader Sustainable Spectrum product line. Advanced ESG provides an opportunity for donors to invest more heavily in companies with leading Environmental, Social, and Governance practices, while removing exposure to companies who participate in objectionable or controversial industries.

 

Our philosophy on developing these portfolios was simple: to offer single-asset class exposures through multi-ETF portfolios, at the lowest possible expense ratios; and to allow donors to express a preference for ESG, without sacrificing the primary objective.

 

Here are the actual ETFs that make up our launch portfolios:

Asset Class Core Portfolio ESG Portfolio
US Equities VTI USXF
Developed Market Equities VEA DMXF
Emerging Market Equities VWO EMXF
US Fixed Income BND EUSB
International Fixed income BNDX BGRN
Ultra-Short Duration Fixed Income VUSB VUSB
Cash Cash Cash

 

Contributions to donor-advised funds become the legal property of the 501(c)(3) that sponsors the DAF, so in general, investment portfolios must be pre-approved by the Investment Committee of the sponsor. These are the first portfolios we’re bringing to market, but we hope to expand our set of selections in the coming months.

 

 

How We Measure Up

 

We believe our model compares favorably to other donor-advised fund sponsors, not just from substantially reduced fees, but from superior features and experience:

  • All of our investment options are affordable by default. Our Core portfolio runs approximately 0.05%, and our ESG option is approximately 0.11%. You don’t have to go searching for the lowest expense ratio funds, or trade up into higher cost funds to get single asset class exposure.
  • Our lower-cost investment options give you more control. We provide access to various single asset class index ETFs for 0.05% all-in expense ratio, so you can construct the portfolio that is appropriate for your charitable goals. Compare this to Fidelity Charitable, whose single asset class pools have historically ranged from 0.35% to 1.04% expense ratios.
  • Being socially-conscious doesn’t require big tradeoffs. Our ESG portfolio provides access to the same asset classes as our Core portfolio, and costs only 0.06% more (0.11% total). At Schwab Charitable, for instance, the Socially-Responsible Fund will run you 0.67%, and is available only in a 60 / 40 mutual fund.
  • Our minimums work for everyone. Our minimum activity of any type is just $20. While Vanguard Charitable’s investment options offer a low expense ratio and are thoughtfully constructed, they have high minimums that may not be compatible with flexible giving. Vanguard Charitable’s minimum opening contribution is $25,000, with $5,000 minimum additional contributions, and $500 minimum grants.
  • We’re accessible to all. Local community foundations and bespoke donor-advised fund sponsors provide great philanthropic advice and insights, and can handle some additional complex bells and whistles, but generally can’t compare with our level of fees and self-directed charitable freedom.

 

Join The Future of Giving

 

We’ve brought intuitive, user-centered design and first-class technology to the foundations of DAFs. Over time, we’d like to bring this discipline to other complementary capabilities for Charityvest: charitable remainder trusts, philanthropic advisory, the charitable interface between financial advisors and clients, impact investing, and social giving.

If you already have a donor-advised fund, transfer your balance to us and we’ll waive the Charityvest admin fees through the end of 2023. Just send us a note to [email protected], and let us know you’re a Physician on FIRE reader.

Or, establish a new donor-advised fund with Charityvest – no minimum donation required – and we’ll waive fees through the end of 2022.

 

 

 

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7 thoughts on “A Better Donor Advised Fund”

  1. The point of giving is to give.

    Moving money from one investment vehicle while keeping 100% control over it is not giving. It is either procrastination or tax manipulation.

    I read many articles by people with DAFs but not one yet by a person who emptied their fund.

    May I ask what the ‘donating’ timeline is?

    Reply
    • We’ve made a healthy 6-figure sum in grants from our DAFs. Every year, for Giving Tuesday, we make well over 100 grants of $100 each to charities recommended by readers and site sponsors. We use our DAF to pay the salary of a physician in Honduras on a site at which my family and I have volunteered. We also donate to charities with local impact, those helping out in the pandemic, and many others.

      And still, we get comments like these.

      As I’ve explained in the linked articles above, we use our DAF as an endowment. I built up the balances while working and earning in a higher tax bracket. One of my retirement goals was to have a DAF equal to 10% of our nest egg before retiring from medicine, and I’ve continued to grow it as our net worth has grown since then.

      On average, I’d say we donate a high-single digit percentage annually. Last week, we sent $5,000 to charities helping Ukraine.

      The donating timeline is my lifetime, and I hope that our donor advised funds will provide the ability to continue to donate generously for a lifetime.

      Best,
      -PoF

      Reply
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  3. New to the DAF world. Is it possible to transfer dividends from a Vanguard taxable account to Charityvest automatically when dividends are distributed?

    Reply
    • I like where your generous spirit is at, but you definitely don’t want to do that. In that case, you’re donating cash. You’re going to be taxed on the dividends.

      It’s much better to donate appreciated assets than the cash dividends. That way, potential future capital gains taxes disappear. See this post for much more detail.

      Cheers!
      -PoF

      Reply
  4. One of the convenient things about having a DAF at the same brokerage that one has their stocks and MFs is the ease in transferring assets to the DAF. What is the paperwork required to donate from an account, say at Schwab, to CharityVest? How long is it expected to take?

    Also, for the fee waiver, the previous link that POF sent showed that the fees were waived “until 2023” while this note from the founder states that it is “through the end of 2023.” I’d like to verify that its the second, which is another year of no fees.

    Thanks!

    Reply
    • We’re waiving admin fees through December 31, 2023 on any account that transfers an existing DAF. The fee waiver applies to the full and ongoing account balance, not just the transferred portion.

      As for stock donations, each Charityvest fund has a unique DTC-addressable account number at Velox Clearing, so your shares can be sent directly into your DAF vs. to an omnibus clearing account. This provides for certainty and fast clearing times: generally 1 – 2 business days for Schwab to Charityvest. Read more here: Stock Donation Details | The Charityvest Guide

      You’re entirely correct that an instant, internal transfer from a brokerage account custodied by the same parent organization as the DAF sponsor is going to be quicker than any third-party process, including ours. You might consider leaving your existing DAF open for contribution convenience in certain circumstances, and sweeping funds to Charityvest for grantmaking and lower-fee investments.

      Thanks for your questions!

      Reply
    • I agree — I may keep my Vanguard DAF around for that reason, but first, I’ll try donating some lots directly from Vanguard to Charityvest to see how that goes.

      Interestingly, when I made a grant to my new Charityvest DAF from Fidelity Charitable, it was done via electronic funds transfer and it only took a few days. Vanguard Charitable sent a check via mail, and it still hasn’t cleared yet, nearly two weeks later.

      To answer the question, my understanding is that everyone starting a DAF can get 0 fees for the rest of the year by opening a new account now. If you choose to transfer money in from a different DAF, you can get that extended for a year. I’m sorry if that wasn’t clear.

      Cheers!
      -PoF

      Reply

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