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The two major problems with DAFs stem from the fact that they are designed to give advantages to donors immediately but not require any further interaction. Pr
by russnewcomer 8y ago
The two major problems with DAFs stem from the fact that they are designed to give advantages to donors immediately but not require any further interaction.
Problem - the organization most benefited by DAFs seem not to be charities, but Vanguard/Fidelty/etc that take management fees for the DAF for the next 10 years. Just running a ballpark with 4% interest and a 1 percent total management fee, putting 500k into a DAF makes the manager about 70k, and grows the fund about 170k. Not bad, but the benefit goes almost entirely to the fund manager.
Problem - Giving to organizations is deferred to a later point in time, leading to grander visions. Theoretically, this should result in charities in the future receiving large checks, which is good. One problem with this, however, is that as numbers being donated get larger, it seems that charitable giving becomes more 'results' or 'mission' oriented. People give big chunks to bigger picture, systemic problems like curing cancer, fighting climate change, etc. These are good things. But the charities working on day-to-day problems get marginalized. My argument is certainly not that we should look for structural fixes to problems like pandemics, homelessness, or institutional racism. But a society that only gives to research universities to look for cures for pediatric cancer, and doesn't also help fund something like St. Jude, is a society with deep problems.
DAFs have significant advantages and good things. But perhaps we have, as an American society, gone the wrong way to give incentives to high-net-worth individuals to give mainly to big causes, and not to day-to-day problems.
- namibj 8y agoYou are implying that Vanguard takes 1%. It's under 0.14% for the Total Stock index, which broadly goes f or marketcap weighted US stocks. If the DAFs broker takes that much of a premium, they have the wrong broker. E.g. at the volumes you are talking about, Motif Investing seems to have significantly lower costs. Please don't think that these are what you should choose, they are just an example for what I'd potentially (depending on what the specific goals are) choose if I'd be running a DAF in the US.
- russnewcomer 8y agoGoing by this : https://www.philanthropy.com/article/What-Donor-Advised-Funds/156495 https://www.philanthropy.com/article/What-Donor-Advised-Fund... it looks like average fees are around 1% for DAFs. Vanguard is cheaper, at .6 percent, but the SVCF, referenced in the article, is at 1%.
- namibj 8y agoYes, the average investor get's sold relatively expensive funds. Yes they are different, but there are strategies like GDP-weighting that offset most of the benefits. As in, the returns of GDP-weighted Worldwide stock are much closer to a good manual fund, when compared to a simple marketcap-weighted fund encompassing the same stocks.
- MichaelDickens 8y agoVanguard Charitable charges a 0.6% management fee* on top of the mutual fund fees: https://www.vanguardcharitable.org/individuals/fees_and_expenses https://www.vanguardcharitable.org/individuals/fees_and_expe... *assuming you have <$500K
- namibj 8y agoYes, and I did not mention Vanguard as a broker, due to them not being nice fee-wise for small fish.