If you’ve read through the first 3 parts of this series, by now you should have a good understanding of whether or not a donor-advised fund is right for you.
So what’s next? Well, you have to decide which DAF provider is the right fit for you.
When I first looked into DAFs for myself, I spent a lot of time comparing and contrasting the merits of each: what were the investment options, what did administrative fees look like, how easy was it to set up and manage an account, and what did the process look like for making donations. For the most part, the user experience was pretty similar, but I found there were some slight nuances that made me lean towards some over others.
In the process of comparing and contrasting, I stumbled upon a fantastic post by a fellow member of the effective altruism community, Michael Dickens. It is hands down one of the best comparisons of DAFs out there. Michael went out and documented his experience with some of the top DAF providers, and explains in detail the following to us:
What fees do they charge?
Do they have contribution/grant minimums?
What pre-selected investment options do they provide?
How flexible are their advisor-managed accounts?
Can you contribute complex assets such as cryptocurrency or real estate?
How good is the user experience?
So rather than me reinventing the wheel, I’ll point you to his great work!
Here’s his short answer:
"All of the big DAF providers offer similar features. For most people, it doesn't really matter which one you choose.
If you already have a DAF, you might as well keep using it.
If you have a brokerage account at Fidelity, Schwab, or Vanguard, then the easiest thing to do is to open a DAF with your brokerage account. That way, you can manage all your investments in one place.
Otherwise, I believe Schwab Charitable is the best DAF provider for most people."
Once you've read through Michael’s post, feel free to check out my additional thoughts below as to why I think it would have been worth paying more attention to Fidelity as a provider, although I do think Fidelity and Schwab are quite comparable.
…
First, let’s talk about investment options. Michael writes: “Fidelity is nearly identical to Schwab, but it offers fewer investment options, so let's exclude it”. Fidelity actually has a total of 25 investment pools to choose from, whereas Schwab only has 15 pools. But what Michael is referring to is low-fee index options, and highlights that Schwab offers a few more index funds than Fidelity. I found that also to be the case.
While Fidelity offers fewer options, the funds that they offer do a good job of replicating the overall market, and the fund fees are slightly lower. For example, you can invest in Fidelity's Total Market Index Fund (FSKAX), with an expense ratio of 0.015% vs. Schwab’s Total Stock Market Index Fund (SWTSX), with an expense ratio of 0.03%. And you can also invest in Fidelity’s International Index Fund (FSPSX), with an expense ratio of 0.035% vs. Schwab International Index Fund (SWISX), with an expense ratio of 0.06%. The difference in these expense ratios is negligible, but hey, I’m always down for as few fees as possible.
Second, Fidelity has more sustainable options to invest in as compared to Schwab. But with that said, Charityvest, one of the other providers Michael mentions beats them both out with more options and relatively lower expense ratios. Although you’ll want to feel comfortable investing with a start-up provider, as compared to a well established bank like Fidelity.
If you’re looking to integrate a financial advisor into the picture and increase your investment options, Schwab Charitable requires individuals to have an account balance of $250,000, whereas Fidelity only requires a balance of $100,000.
And lastly, I found Fidelity to be the most transparent of all DAF providers. Their marketing materials seem more open and honest. For example, they have a DAF Quiz on their website which allows you to explore if a DAF is right for you. It’s not the sexiest quiz I’ve ever seen, but it is the only quiz from a provider where they are willing to say, “Hey, we don’t think a DAF is right for you!”. And that level of honesty means something in my book.
For full transparency, I have banked with all three providers mentioned above – Fidelity, Charles Schwab and Charityvest.
...
That concludes our DAF Series! I hope you now have a complete picture of the DAF landscape and whether or not this type of account makes sense for you. If you have any thoughts, feel free to reach out!
Read the previous 3 posts in this DAF Series:
Disclaimer: The information contained in the Yield & Spread website, course materials and all other related content is provided for informational and educational purposes only. It is not intended to substitute for obtaining accounting, tax, or financial advice, and may not be suitable for every individual. Yield & Spread is not a registered investment, legal or tax advisor or a broker/dealer.