Donor Advised Fund Fees

[jgoody]

Is anyone else annoyed at the high account fees for Donor Advised Funds?  I just set one up for the first time (at Charles Schwab) and had mild annoyance when I saw the additional 0.6% annual fee on top of individual fund fees, but then I noted in fine print that the minimum fee is $100 per year.  With a minimum account opening of $5K, that equates to a 2% fee per year!  When I called to make sure this minimum fee was correct, the rep said yes and that no one had ever complained about it before, so probably unlikely to change in the future. 

In the end, I decided it's still worth it to erase some long-term-capital gains and concurrently get a tax write-off this year since I may not be able to itemize next year.  Anyway, I decided to really "show them" by doubling the minimum account so I'm only paying 1%. 

Just curious if anyone else got their hackles up over these fees - or perhaps someone can educate me on why DAFs inherently require higher expenses than other accounts.

[seattlecyclone]

I have the same criticism. The ability to easily donate stock and shift deductions to a different tax year can make up for it, but I still haven't pulled the trigger on one of these.

As far as I can tell, the big reason why these folks might need to have a higher fee structure than a standard brokerage account is mostly because they mail checks to charities from time to time, and need to verify that your favorite charities meet the necessary criteria. Seems like a fairer way to pass this fee along to the consumer would be a flat per-distribution fee rather than a percentage of assets that has nothing to do with how much you're distributing to charities or how many distributions you're making.

[FiveSigmas]

I agree it's lame. Like you, though, I did the math and a DAF was still far and away the best way to structure my gifting. The ability to gift appreciated securities (even to charities that won't take securities directly) and to smooth over multiple years is huge.

I don't think there's much pressure for DAFs to reduce their fees because the benefits are so ridiculously good. Also, in the grand scheme of things, it's still a pretty niche market -- Vanguard Charitable, for instance, has $7.2 billion in aggregate investments, while Vanguard itself has $4.5 trillion AUM.

[FiveSigmas]

Actually, come to think of it, the total number of donors/investors is probably a better metric of scale than AUM. DAFs are ideally just a conduit between investors and charities, with money pumping through (with a possible time-delay).

Even under this measure, though, Vanguard Charitable is pretty small with only 14 thousand accounts (vs 20 million for Vanguard itself).