Learned at Schwab Impact, Donor-Advised Funds Are Growing in Popularity for the Super Rich

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Schwab Charitable reported record activity through the first three quarters of 2010, with contributions jumping to $610 million--a 274 percent increase over the same period a year earlier. Why? Donor-advised funds are now being embraced by the ultra-high-net worth client. And many UHNW clients are converting their private foundations into donor-advised funds, too.

Kim Wright-Violich, head of Schwab Charitable, Schwab's donor-advised unit, says contributions have jumped because of appreciated stock, the usual fuel. (The S&P 500 was up by 70 percent from its 2009 lows of March 2009 through Oct. 26, 2010.) But there is another force at work: UHNW clients and their advisors are discovering the donor-advised funds are cheaper and easier to run than creating a charitable foundation of their own. And RIAs are discovering that above a $250,000 threshold, the RIA can manage the assets and select the investments.

"It costs 40 percent less, it's more private and it's easier," Wrigh-Violich told me at the Schwab Impact conference, which was held last week in Boston. (About 3,700 Schwab-affiliated advisors and vendors attended the event.) Clients also avoid "38 pages of regulation [of charitable foundations] in the U.S. tax code," she said.

Wioth $4.7 billion, Schwab has been targeting the UHNW RIA, and is now second behind Fidelity, which has a $10 billion-in-assets donor-advised fund program, mostly aimed at the DIY retail investor,Wright-Violich said. Perhaps some of Schwab Charitable's growth can be attributed to its Private Foundation Conversion Service, where UHNW clients and their advisors can get help in converting foundations into donor-advised funds, a growing trend, she said.

Another reason for the growth in donor-advised funds is that many RIAs are awaking to the fact that donor-advised fund platforms can accept complex gifts into the program, such as artwork, property, C-Corp stock and, in once case, a "piece of the Minnesota Vikings," Wright-Violich told me. Well, for those in the rarified threshold who can contribute $10 million and above.

"Donor-advised funds are no longer the poor man's version of a private foundation," she said.

Fidelity reported that its donors recommended more than 212,000 grants totaling over $741 million to nonprofits nationwide during the first nine months of 2010. In a release, Fidelity said, "This was up 22 percent and 13 percent, respectively, from the same period last year. It was the strongest first nine months for outgoing grants in the Gift Fund’s 19-year history. The Gift Fund also said that incoming charitable contributions reached nearly $610 million during the first nine months of the year, representing a 54 percent increase from the same period last year."

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