Tag Archives: Goldman Sachs Philanthropy Fund

Charity, Incorporated

It seems that every time I set out to write about topics other than donor-advised funds, fresh news explodes on the scene that requires my attention, and yours. This week it’s the astounding – but not at all surprising – announcement by the Chronicle of Philanthropy that six of the ten top fundraising organizations in the nonprofit world in 2016 were donor-advised fund sponsors.

Five of those organizations – Fidelity Charitable (#1 on the list for the second year in a row), Schwab (#6), National Christian Foundation (#8), Silicon Valley Community Foundation (#9), and Vanguard Charitable (#10) were among the eleven top fundraisers the year before. The newcomer at the top of the charts, bursting onto the scene at number three, with a jaw-dropping one-year increase in donations of 450%, was the Goldman Sachs Philanthropy Fund, which brought in over $3.1 billion.

That Goldman Sachs, the corporate embodiment of Wall Street avarice and power, should appear on the list of top charitable fundraisers is not surprising to those of us following this story: there’s money to be made in donor-advised funds, and if the folks at Goldman Sachs know one thing, it’s how to turn a profit. It’s only surprising that it took them this long.

One aspect sets Goldman Sachs apart from Fidelity, Vanguard, and Schwab. Those other three mega-funds have always marketed themselves to the general public. Most of their assets in fact come from very big donors. (Keep in mind that the average size of an individual donor-advised fund is $269,180: despite the hype, DAFs primarily are tools for the very wealthy.) That said, at Fidelity or Schwab the average Joe or Josephine can indeed create a DAF with only $5,000 or $10,000.

Because of this low entry point, defenders of donor-advised funds often say that DAFs represent a “democratization of philanthropy.” Donor-advised funds, they say, let regular folks – not just the gazillionaires who can afford to create private foundations – be philanthropists. Leaving aside my usual argument that a person does not need to create a fund or foundation to be philanthropic (in the old days, you’d just write a check to charity – a rather simple and effective form of philanthropy!), I feel obliged to point out that Goldman Sachs’s arrival as a DAF powerhouse underscores that by far the largest portion of the money in DAFs is deposited by extremely wealthy people. That’s certainly the case with the Goldman Sachs Philanthropy Fund. Goldman Sachs donor-advised funds are available exclusively to Goldman Sachs clients, and you can’t even get in the door as a client at Goldman Sachs unless you have investible assets worth at least $20 million.

This echoes a point made recently by University of California at San Diego economist and charitable giving guru James Andreoni, who noted in a new study that DAFs are indeed primarily used by the very wealthiest Americans, and that their motivation largely centers around tax avoidance. Professor Andreoni adds that in 2014 fully one out of every ten dollars donated to charity went into donor-advised funds. That percentage is clearly much higher now, what with Fidelity reporting a 68% increase in donations for their June 2016 fiscal year, and Goldman Sachs, well, doing what it does, which is to take over markets. It was only five years ago when I wrote with great concern that donations to DAFs had reached 3.6% of charitable giving from individuals. That now seems like a quaint time.

Clearly, when Goldman Sachs and Fidelity are raising vastly more money than the Salvation Army, something is askew with charitable giving. But when those of us looking clear-eyed at the situation make modest recommendations, such as requiring that gifts given to donor-advised funds be distributed to charity within a certain number of years, defenders of the status quo (who tend to be employees and beneficiaries of the DAF industry itself, or anti-government cranks employed by libertarian think tanks) holler about protecting the purity of donor-advised funds from the soiling hands of regulators.

It’s important to note that there is nothing constitutionally sacred about donor-advised funds. DAFs are essentially an unplanned phenomenon that have grown up from a combination of clever manipulation of the tax code, poor oversight by regulators, and unchecked market forces.

As Temple University historian Lila Corwin Berman noted in a 2015 presentation on donor-advised funds (her talk begins at the 13:20 mark on the video), DAFs arose because “tax lawyers did what they do… find the gaps in tax policy and read them with a certain permissiveness.” As Professor Berman described in a subsequent article in The Jewish Daily Forward, a Cleveland-based attorney named Norman Sugarman found a particular gap in 1969 and got the IRS to say that the as-yet-unbranded entities we now know as donor-advised funds were indeed part of the public charities that sponsored them, with all the associated tax benefits. This 1969 IRS “private letter ruling” essentially handed practical control of grantmaking to the donor, with none of the restrictions, oversight, or required annual distributions that, by contrast, private foundations receive and warrant.

If Norman Sugarman exploited this gap in the tax law, Goldman Sachs and its brethren have driven through that gap in Sherman tanks. Consequently, today philanthropic giving is dominated by virtually unregulated entities called donor-advised funds that can hold charitable assets in perpetuity, enriching their sponsors, while vital community needs go unmet. (I do need to point out that community foundations provide many kinds of support for their regions above and beyond serving as conduits for DAFs. The commercial funds — Fidelity, Goldman Sachs, et al. — are, by contrast, charities in name only.)

The punch line from the past few days is that the monstrosity that is the House Republican tax reform bill closes with a mention of donor-advised funds. The reference there strikes me as being the feeble, negotiated result of Congressional staff members’ recognition that the federal government needs to curb DAFs’ increasingly unbridled power. The bill, which observers say is unlikely to pass in its current form, includes a requirement that DAF sponsors annually report their average overall payout, and that they indicate whether they have a policy in place for encouraging donors to distribute grants. That’s it: A requirement that DAF sponsors report their overall payout (with no consequences if it’s low, and no expectation that individual funds make any payments at all), and that they simply say if they have a policy to encourage fund holders to recommend grants to actual charities. This “clamping down” on DAFs would be laughable if the consequences were not so grim.

So, there you have it, folks. Charitable giving in America now largely means that people worth tens of millions of dollars save huge amounts on taxes by hiding assets in utterly nontransparent “charitable” vehicles called donor-advised funds at places like Goldman Sachs.

There are twelve million hungry children in America. The sea waters are rising from climate change. Lead-contaminated drinking water is poisoning children in Flint, Michigan, and no doubt other cities. The vast majority of the population in Puerto Rico is still without electricity. The homeless population is on the rise. Species are dying. But instead of using charitable dollars to ameliorate these and thousands of other good causes, we’re watching money pile up in untraceable accounts held by Wall Street firms, all subsidized by the federal government through the charitable deduction.

How can I not keep talking about this?

Copyright Alan Cantor 2017. All rights reserved.

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