This DAF Has Open Architecture

Good news for donor-advised fund account holders at San Francisco-based Schwab Charitable: investment choices have opened up to include outside fund managers. The non-profit has also added asset allocation tools, which can help investors and their wealth managers select the most "appropriate" investment pools based on their "time horizon, granting behavior and risk tolerance." The biggest change from what was offered before, says Schwab Charitable President, Kim Wright-Violich, is that now there's "open architecture," in terms of investment choices--and more of them.

Those investment choices have expanded to include pools from American Century, Janus, Manning & Napier, Parnassus, PIMCO and Schwab. There are three asset allocation pools to choose from for one-stop diversification, or wealth managers and their philanthropically-minded clients can customize DAF assets, allocating to any or all of nine individual investment pools.

In addition, San Francisco-based Schwab Charitable is adding a new online feature, Wright-Violich noted over tea in New York on August 7, that helps advisors and their clients select the most "appropriate" of the investment pools for their accounts. They can choose from three asset allocation pools that are more of a one-stop, diversified portfolio, or from nine individual pools--with which advisors can help clients customize their DAF assets that haven't been granted out to charities yet.

Donor-advised funds are one way for investors to simplify charitable giving. Investors fund DAFs with cash, securities, or other assets such as real estate, art, or even the odd Ferris wheel. The investor gets an immediate tax deduction and then can direct their gifts to charitable (501(c)(3) organizations of their choice.

The DAF account holder directs the grants from the assets in the DAF, either all at once, or over time in a planned-giving strategy. DAF accounts at Schwab Charitable can be funded with as little as $5,000 but can be much higher than that. So far, the largest DAF at Schwab Charitable was funded with $250 million--and no, that one isn't Charles Schwab's personal DAF.

Money in DAF accounts that is not granted out immediately is invested as the donor and their wealth manager direct. Accounts that are funded with $5,000 to $250,000 select from the pools outlined above, but larger DAFs of over $250,000 have the option of naming an investment advisor to manage the assets, allowing the wealth manager to retain control of the assets. Registered investment advisors whose clients are larger philanthropists--those funding their DAFs with $10 million plus--can include alternative investments in those DAF portfolios.

But, "Schwab Charitable has to have control of the assets in order to trigger the tax deduction," Wright-Violich says. So, for all of the advisor-managed options, Schwab Charitable has fiduciary responsibility and performs due diligence on the proposed investments managed by the donor-named RIA firm.

Schwab Charitable has an unusual microfinance program available for donors who want to devote part of their philanthropic activities to projects in which very small grants can make a very big difference in poor parts of the world.

What's unique about this part of the program is that, of course the DAF account holders can make outright gifts or grants to organizations that help impoverished (mostly women) in many parts of the world by making loans to start businesses. But in addition, they can elect to use part of their account to guarantee the loans for a certain period of time, instead of, or in addition to, making the outright gifts. Michael Fischer covers this topic thoroughly in "Microfinance: Guaranteed" in the July-August issue of Wealth Manager.

Since its inception, Schwab Charitable, www.schwabcharitable.org, has raised more than $3.75 billion in assets and granted more than $1.5 billion to charities.

Kate McBride kmcbride@wealthmanagerweb.com, is editor in chief of Wealth Manager and a member of The Committee for the Fiduciary Standard.

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