The Rich Must Step Up Right Now, Say These Silicon Valley Philanthropists

When I give money to a worthy cause — my alma mater, my local food bank, et cetera — I typically do so directly. Wealthy donors, especially these days, are typically steered into something else: a financial vehicle called a donor-advised fund (DAF).

According to the National Philanthropic Trust, the national pool of assets parked in DAFs clocked in at a whopping $121.42 billion in 2018. Charitable grants issued from that stash last year? Just $23.42 billion.

The discrepancy between those two numbers has led to heated public debate.

If donors get the tax benefit of a charitable donation to a DAF in the tax year they donate, shouldn't they be directing the organizations that manage their DAFs to give all that money away in the same year? Or much of it?

Opinions vary, but in the midst of the COVID-19 pandemic and resulting recession — and a nationwide reckoning over racism and social justice in the wake of the police killing of George Floyd — the DAF world has been under increased pressure to deliver more now.

'I Was Overwhelmed'

David and Jennifer Risher of San Francisco made their money with Amazon and Microsoft, and they readily admit they got into to a donor advised fund years before they gave much thought to how they wanted to use it.

"I think we opened the first DAF in 2002," said Jennifer Risher. "I was overwhelmed. Like, what do I do? How do I do it?"

When David Risher founded a nonprofit called Worldreader, aimed at getting 1 billion children reading digitally, they got to see the world of nonprofit funding from the other side.

"In an era when there is enormous potential for nonprofits to address the world's biggest problems, DAFs are keeping funds from getting to the people who need them the most," he wrote in an editorial on LinkedIn, called "You’ve Given to a Donor Advised Fund. Great! Now, Finish the Job."

On Giving Tuesday last May, the couple launched an initiative designed to challenge other DAF holders to finish the job. They called it #HalfMyDAF. The Rishers promised to match up to $1 million, through their personal DAF.

"You give money to your nonprofits, you let us know, and then, as many as we can, we're going to give to match," David Risher said. "So the first round is July 15. The second round is September 30."

As of June 12, they got 72 people and couples to commit to giving, and a few others to commit to matching those grants. Total so far? Roughly $2.9 million.

Why are the Rishers doing this?

"The rainy day is here," said Jennifer Risher.

They've also been reading the news articles and opinion pieces in recent years that argue DAFs have become a form of “zombie philanthropy.”

DAFs are easy to set up with sponsoring organizations ranging from Wall Street giants like Fidelity Charitable to community foundations and universities. You can park unconventional assets like pre-IPO stock or cryptocurrencies in them, which explains why DAFs are popular among Silicon Valley’s elite. You get the tax break in the year you move your money into the DAF, but you don’t have to tell your DAF manager right away where you want the money to go: schools, food banks, whatever.

There’s no legal deadline, which troubles East Bay Assemblywoman Buffy Wicks.

"If you look at the people unemployed right now, if you look at the evictions that are going to be taking place, if you look at the challenges that our communities are facing, if you look at the health impacts of COVID-19 to communities of color in particular, if you look at what is happening to our society, today is the day to spend the money," she said.

She is pushing a bill co-sponsored by CalNonprofits, among others, that would codify the legal definition of a DAF and require the state attorney general’s office to establish a classification for sponsoring organizations. That’s it: just to lay the groundwork for future regulation, that might be the inspiration or impetus for change at the federal level.

But modest as AB 2936 is, the League of California Community Foundations is opposed. The group's 30 members have just over 7,200 donor-advised funds under management with about $10 billion in assets, though not evenly distributed.

One community foundation in particular dominates that scene. The Silicon Valley Community Foundation reports $8.74 billion in advised funds in 2019, in large part because of its donor base in Silicon Valley. Marquee donors include Mark Zuckerberg and Jack Dorsey.

SVCF has policies in place to nudge donors who are letting their DAFs lie dormant.

"If fund advisors do not recommend grants for two years, we contact them to request that they do so. If the fund remains dormant, SVCF can absorb the fund into our endowment and the money will be deployed to our community," wrote Communications Director Chau Vuong.

Fidelity Charitable, arguably the big fish in the industry with 140,000 DAFs in 2019, follows a similar protocol.

"After two years in which no grants are distributed from a Giving Account, Fidelity Charitable will make grants from the Giving Account to IRS-qualified public charities approved by the Trustees of Fidelity Charitable," wrote the company's Director of Media Relations Nabil Ashour.

How Long Is Too Long?

Vuong argues SVCF is delivering to the nonprofits that depend on it.

"In general we have a payout rate of 9‐15% each year, which is significantly higher than the 5% required of private foundations," Vuong said. "This year, with the onset of COVID‐19, CEO Nicole Taylor initially put out an urgent call to action in which she encouraged fundholders to deploy an additional 1‐5% more from their accounts, on top of what they were already giving or planning to give this year, to support COVID‐19-related causes."

But not everyone is convinced donors should feel compelled to empty their DAFs as fast as they fill them.

James Head, CEO of East Bay Community Foundation and chair of the League, argues the vast majority of DAFs are not set up by Silicon Valley bigwigs, but smaller operators keen to make a difference over the long term.

"You know, we have COVID-19 today. We may have a wildfire tomorrow," Head said. "We could have an earthquake the following week. There are constantly needs."