5 questions to ask when choosing a donor-advised fund sponsor

A donor-advised fund (DAF) provides a simple, flexible, and tax-efficient way for you to support your favorite charitable causes. It's like a charitable investment account that allows you to make tax-deductible donations, potentially grow your donations tax-free through a range of investment options, and then recommend grants to eligible charities—now or over time. As with any financial decision, however, there are several factors to consider when choosing the public charity that sponsors a DAF. Here are five key questions to research when choosing a DAF sponsor:

1. What is the minimum contribution size and grant size?

The rise in popularity of DAFs have led to a reduction in their contribution and grant minimums, thus ensuring that DAFs are accessible to a wide set of people and not just the wealthy. The larger DAF sponsors allow DAFs to be set up with initial donations as low as $0, while smaller community-based or affinity-based DAFs may have minimums that range from $5,000 to $25,000 or more. You should also consider the minimum allowable grant recommendation size, especially if you want to be able to recommend relatively small grants. Larger DAF sponsors allow grant recommendation minimums of $50, while other DAF sponsors may have grant minimums of $250 or higher.

2. What types of assets can be donated to the charity that sponsors the DAF?

Most DAF sponsors accept cash donations by check, bank wire, or Electronic Funds Transfer. Some of the larger DAF sponsors also accept of a variety of non-cash assets, which might not be possible for small nonprofits to accept. Such assets include:

  • Mutual fund shares
  • Long-term appreciated securities, including publicly traded stocks and bonds
  • Certain restricted, control, or lock-up stock
  • Certain complex assets, such as privately held C-corp and S-corp shares
  • Private equity and hedge fund interests
  • Life insurance policies

If you plan to donate these types of holdings, make sure your DAF sponsor will accept them.

3. How much can I expect to pay in fees?

DAF sponsors typically charge two types of fees: one fee covers administration of the DAF, which includes the cost of running a DAF program, including providing donor support. The DAF’s investments will also incur fees.

On the lower end of the scale, some of the larger DAF sponsors charge administrative fees of 0.60% of the balance within your DAF or $100, whichever amount is greater. Many DAFs offer breakpoint pricing, so that the larger the balance in your DAF, the lower your administrative fee (as a percentage of assets). For example, a DAF might charge an administrative fee of 0.60% on the first $500,000 of assets, 0.30% on the next $500,000 up to $1 million, 0.20% on balances between $1 million and $2.5 million, and so on.

Bear in mind, too, that recommending grants through a DAF can potentially be a less fee-intensive way of supporting charities than making direct donations to nonprofits via credit cards, which may incur processing fees of 2% or more, thus reducing your intended donation amount.

Investment management fees vary depending on the type of investments you choose. Index mutual funds or ETFs may have expense ratios as low as 0.01%. Actively managed mutual funds may have expense ratios of 1% or more.

4. What are the investment options?

While the DAF sponsor controls the DAF’s assets, you are able to recommend how the DAF assets are invested. Most DAF sponsors offer a variety of investment options, ranging from index-tracking investment pools to pools that seek growth, income, or a combination of growth and income. These investment pools—which can include socially responsible funds—may encompass a variety of strategies, including active and passive mutual funds that invest domestically and internationally. One additional variable to consider is whether the DAF sponsor allows you to nominate a financial advisor to manage the DAF's investments.

5. What level of donor service can I expect to receive?

As you size up potential DAF sponsors, consider whether the charity can provide the level of support you need. For example, does the DAF sponsor provide an easy-to-navigate website that allows you to make your donations and grant recommendations online? Is the website designed to work on a mobile device? What are the DAF sponsors’ hours of operation and do they have experienced staff members who can provide guidance? Do they offer programs that provide access to personalized philanthropic support tied to nonprofit research, family engagement, or impact measurement?

Donor-advised funds offer a convenient, cost effective way to support your favorite charities, while also providing you with an opportunity to reduce your tax exposure. Before establishing a DAF, do your homework to make sure the sponsoring organization is a good fit with your particular needs.

And as you do your own research, also consult with your financial professional. They can advise you on strategic ways to use a DAF that keep your entire wealth management plan in mind.

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Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

Fidelity Charitable is the brand name for Fidelity Investments® Charitable Gift Fund, an independent public charity with a donor-advised fund program. Various Fidelity companies provide services to Fidelity Charitable. The Fidelity Charitable name and logo, and Fidelity are registered service marks of FMR LLC, used by Fidelity Charitable under license.

Fidelity Charitable is the brand name for the Fidelity Investments® Charitable Gift Fund, an independent public charity with a donor-advised fund program. Various Fidelity companies provide services to Fidelity Charitable. The Fidelity Charitable name and logo, and Fidelity are registered service marks of FMR LLC, used by Fidelity Charitable under license. Giving Account is a registered service mark of the Trustees of Fidelity Charitable.