The Fidelity Charitable Problem is One of Power and Greed

Fidelity, Schwab and Vanguard have received a lot of attention for blocking grant recommendations to the Southern Poverty Law Center. This is important (and we will get to it later) but it’s actually not the most important part of the DAF and philanthropy story that is emerging. It’s one we have been talking about for years and we are hoping that this increased scrutiny will wake people up to the impending point of no return for the power being amassed by the largest DAF providers.

We are going to focus on Fidelity Charitable because they are one of the 5 largest charities in the world. Yes, you heard that right. They are a 501(c)3 with all the tax benefits therein. But running a DAF is a business. And for Fidelity Investments, it is a great one. A $1.5 Billion business over five years and growing.

People think about philanthropic dollars as being nice. As being additive. As maybe needing some regulation, but generally doing good in the world. But what if we told you that large DAF providers and their donors are accumulating power at an alarming rate?

Fidelity Charitable was set up by Fidelity Investments in 1991 and is now the country’s largest donor-advised fund program. Legally, it is an independent public charity. Practically, Fidelity Investments runs nearly every part of it and gets paid for everything it does. Administrative fees, investment management fees, and the expense ratios on the in-house mutual funds where the dollars sit all flow back to Fidelity Investments.

We did the math against five years of audited financials, IRS filings, and SEC fund disclosures. Total revenue to Fidelity from running its charitable arm over the last five years runs between $1.45 billion and $1.76 billion. Most of it flows to a private company controlled by the Johnson family. Fidelity Investments has no public shareholders, no quarterly earnings reports, and no SEC accountability at the parent level.

The pool the fees ride on is growing fast. Thirteen years ago, Fidelity Charitable held $5.6 billion in assets. Today it holds $66.8 billion. That is twelve times the size in thirteen years, compounding at roughly 21 percent a year on what is supposed to be a charity.

Why won’t the growth slow? We are at the very beginning of the largest intergenerational wealth transfer in history. Cerulli projects $124 trillion will move from older Americans to heirs and philanthropy by 2048, with $18 trillion flowing to charity. DAFs are the preferred vehicle for the charitable share. Hold Fidelity Charitable’s same growth rate and they will hold $1 trillion around 2040. Fidelity Charitable could become America’s first trillion-dollar charity.

Now layer in three things that should bother people and one that should really alarm them.

First, every dollar that flowed into Fidelity Charitable arrived with a tax deduction. The donor took the write-off in the year of contribution. The dollars grow tax-free from there. There is no statutory requirement to ever distribute them.

Second, much of what does get distributed would have happened anyway. In the past, a donor wrote a check to her local food bank. Now she puts the money into Fidelity Charitable, gets her deduction, and tells Fidelity to forward some on to the food bank later. The food bank gets their same check, albeit slower. Fidelity gets the assets, the fees, and the headline grant numbers. When Fidelity Charitable celebrates that 20 percent payout rate, a meaningful share of it is gifts the DAF did not cause — they were grants that were going to happen anyway. The accounting is the trick.

Third, and this brings us back to last week, the same legal structure that lets Fidelity earn billions on a charitable pool is the structure that let Fidelity say no to those SPLC grants. The architecture pays out like this: the donor gets the tax deduction; the sponsor gets the fees, the custody, the headline grant credit, and the future veto; the recipient gets whatever is left, on whatever timeline. Are they actively tracking the lawsuits being brought against every nonprofit that is granted to from their platform? Highly doubtful.

And now for the alarming part. We often hear people say that “Once someone puts money in a DAF it can no longer benefit them personally.” But what if that is 100% not true?! We have seen firsthand many ways that money in a DAF can personally benefit and give power to the donors and organizations that shepherd those accounts. What has become clear to us is that the hoarding and stockpiling of money and power by both individuals and organizations is having a severe damaging effect on our communities.

Can you give to a nonprofit that does research on why a tax on the wealthy is problematic? Yes. And that report can then be used to lobby politicians or write policies that help the wealthy to retain their wealth.

Can you get access to the rich and powerful when you get invited to galas, exclusive events, and donor circles without actually having to give any money? Yes, the fact that you “control” that money and might give gets you in the room.

Can you enhance your public image and community standing? Definitely. 

Can you have your name put on buildings, endowments, scholarships, or programs? Yes!

Can you give to your friends and family’s favorite causes like a hospital or university? Yes. And does that donation get you different treatment from that hospital or university? Certainly.

We’ve seen the rise of quid pro quo… you give to my thing and I’ll give to yours. You invest in my thing and I will invest in yours. You give me a powerful position and I will… You get the (abhorrent) idea.

Now think about how much power and influence could come from a trillion dollars at Fidelity Charitable? Would it even be possible to regulate them at that point?

Think about what $1.5 billion could have done in the community’s hands instead. Sent to food banks and shelters, it provides 15 billion meals through networks like Feeding America. Sent to climate organizations, it equals nearly two years of U.S. foundation funding for climate adaptation. Sent to human rights groups, it sustains organizing and legal work through hostile administrations. Sent to public-interest journalism, mental health services, or any of thousands of working charities, it does the work charities exist to do. None of that happened. The charitable infrastructure that could fund this work is paying Fidelity instead.

So three actions.

Move the money. If you have a DAF, grant it now. Food banks, community lenders, climate work, shared-ownership transitions, human rights groups, and mutual-aid networks need capital this year. The SPLC story showed that you do not actually control those dollars while they sit. Move them before it is the sponsor’s turn to decide.

If you keep a DAF, change what it does while it sits. Multi-Donor Funds at sponsors like Impact Charitable and ImpactAssets already pool DAF dollars into community lending, climate solutions, and worker-ownership transitions while donors deliberate on grants. The community of DAF holders working to redirect the roughly $326 billion currently parked — likely closer to $400 billion today, since the figure trails the last year of market gains — is organizing through DAF Commons. Moving from one DAF provider to another is easy (at least for now).

Push for reform. One option, not currently in any proposals we have seen, is that for-profit organizations should not be legally allowed to sponsor DAFs over a certain size of AUM. Others are working on legislation to bring transparency to how that money is moving (and gaining influence) in the world. 

We are not against donor-advised funds. We are against an architecture in which the country’s largest asset manager has built a tax-advantaged, perpetually-growing fee stream by housing other people’s charitable dollars and reserves the right to decide where those dollars finally land.