From hunger, housing, healthcare and more, there are thousands of people in Massachusetts who are just trying to “get by.” Their lives are difficult, something that’s made slightly easier by the many wonderful charitable organizations doing important work in Massachusetts. And we all know the need has never been greater.
How dollars are distributed can make a huge difference in the life of a charitable organization, and thus in the lives of those it serves.
About 10 years ago, charitable contributions made through donor-advised funds (DAFs) became popular. They are appealing for donors who place a lump sum of money in charitable fund – Fidelity is probably the most well-known — and get the tax deduction up front. The fund then invests the money. At any time, donors can direct their fund manager to distribute a specified amount to a specific charity with a stipulation as has to how it needs to be used. It seems pretty simple, but unfortunately, studies have shown charities don’t always benefit the way you think they would.
DAFs stand in contrast to something called trust-based philanthropy (TBP), which is an attempt to reimagine how philanthropic dollars are spent through a model of mutual accountability between the donor and the charity. With TBP, the donor contributes to the non-profit but does not stipulate a certain use, trusting the non-profit to use it in a way that will best serve the community.
Northeast Arc, a non-profit organization on the North Shore that serves individuals and their families with intellectual disabilities and autism, has been the recipient of both kinds of contributions and we are grateful for the generous support.
In our opinion, TBP is disrupting the traditional philanthropic model in a positive and impactful way. It can be a much more efficient mechanism when it comes to driving the essential work being done in our communities in a more equitable and sustainable manner. TBP flips the power to those who know the landscape best by allowing non-profits to use their judgement as to where the money is needed most. For instance, perhaps a key piece of infrastructure needs replacing, such as a boiler. Without it a facility might need to close. Or maybe it means not laying off staff who are integral to the operation of the charity.
In a world with grocery prices going up and affordable housing out of reach for far too many, getting money to non-profits on a more immediate timeline is imperative.
That’s where DAFs fail. A Boston College study estimates that in just five years (2014-2019), donors contributed $300 billion into DAFs and private foundations. That’s $300 billion that sat earning money for fund advisors, managers, and corporate investors instead of helping charities that needed it then and now. And there’s no evidence that DAFs increased the amount of money being donated.
What if the charities that actually do the work held the billions of dollars that sit in DAFs like Fidelity Charitable, Schwab, Vanguard, Goldman Sachs, and TIAA? Instead of Fidelity Charitable, which earned over $175 million from fees and paid Fidelity Investments over $121 million in one year alone, it would be the non-profits themselves that earned the money.
We can tell you what might happen: Charities would be able to develop and sustain endowments. We could invest in our work. We could accommodate the fluctuations of government support and we could innovate. More people would have food, more would find shelter, more would get treatment and more would live safe and inclusive lives.
Trust-based philanthropy calls for donors to learn about the values of charities they want to help. Proven and publicly available track records, sound business practices and financial stability are all that’s needed to attract support from individuals and corporate donors.
The Trust-based Philanthropy Project is a wonderful resource to learn more about the philosophy behind the movement and locally Point32 Health Foundation is taking initiative in this direction by engaging in meaningful conversations with charities and making the grant process simpler.
Just think what we, and so many other charities who do important work, could accomplish if we didn’t have to spend a great amount of time on funder-imposed paperwork.
We are the ones who see the community needs on a daily basis. We ask you to get to know us, build a relationship with, and then trust us. Your support will be earned.
Jo Ann Simons is President and CEO of Northeast Arc, a disability services and support organization.
Steven P. Rosenthal is Chairman of West Shore, a Boston-based real estate private equity firm, and a philanthropist.
