Fidelity Investments vaults to top of charities

Mutual fund company's charity at No. 3 stuns philanthropy leaders

November 04, 1999|By NEWHOUSE NEWS SERVICE

WASHINGTON -- It isn't surprising that the Salvation Army and the YMCA top the Philanthropy 400 -- the list of charities that raised the most money last year. What is surprising, controversial and troubling to some in the nonprofit world is the newcomer to the No. 3 slot.

Right after those two big brand-name charities, and right before the venerable American Cancer Society, comes the Fidelity Investments Charitable Gift Fund.

Fidelity Investments is the world's largest mutual fund company. On this list, its charitable offspring is a giraffe grazing among the cows.

Fidelity launched the Charitable Gift Fund in 1992. The Vanguard Group and Charles Schwab & Co. recently started similar funds.

They work this way: You are, say, an investor who has just made a killing on the stock market. You donate some of your assets to the fund, get a charitable tax deduction for the current year, and take your time deciding which causes will eventually get your money. In the meantime, the fund invests the money so your gift can grow, tax-free. Because the fund itself is an Internal Revenue Service-registered public charity, you can't ever get the money back.

"This is a public charity like any other," said Cynthia Egan, Charitable Gift Fund president.

But it seems a strange animal to established philanthropy leaders. "It's a corporate for-profit entity creating a not-for-profit entity," said David Lawrence, chief development officer for the Mayo Clinic. "They ultimately get the money to charity, but there's a parking lot there."

"It's interesting that they should soar, when almost everyone else stays about the same," said Stacy Palmer, editor of the biweekly Chronicle of Philanthropy, which released the Philanthropy 400 list this week.

Biggest change

Palmer said the rise of the gift fund has been the biggest change she has seen in the list since 1991, when the Chronicle began its annual ranking of charities that raise the most money from private sources.

"They are touching some kind of a chord that is working with lots of people," Palmer said, "but it's still a controversial concept."

The booming economy accounts for both major trends in the Philanthropy 400. First, the top charities raised 16 percent more last year than in 1997, the largest jump since the Chronicle began publishing its list.

Second, the Fidelity Investments Charitable Gift Fund showed an increase of 25 percent, raising $572 million. The fund boasts more than $1.7 billion in assets and 18,000 active donors. By comparison, the Salvation Army took the No. 1 spot for the seventh year in a row -- raising $1.2 billion, an increase of 5 percent.

"People usually like to give to what's familiar and trustworthy -- the Salvation Army, but this kind of fund makes it easy for the donor," Palmer said. "I think that's what really interests people."

Egan also stressed convenience. "It's a great opportunity for people who have had a windfall: They've just sold a company; they've just sold stock. Heavens, they don't know what to do."

Many philanthropy leaders wonder why people can't write the check directly to a traditional charity.

`Creating a middleman'

"While it is placing money for charitable purposes, it is creating a middleman," Lawrence said. "Meanwhile, they're sitting there investing it and churning it and burning up a few fees for managing it."

Egan, however, sees the fund as a plus for charities. "Donors create a kind of giving account," she said. "It's much easier than setting up their own foundation, and their contributions grow tax-free so they end up giving more."

Egan said surveys of fund donors found that they not only give more in actual dollars but also give to a greater number of causes. The recipient must be a charity registered with the IRS; you can't have it sent to Uncle Harry or your toddler's day care center, unless they have registered.

The fund's quarterly reporting encourages year-round giving, Egan said. "Four times a year, bingo, every time the statements go out, people make grant recommendations," she said.

$10,000 minimum

The minimum needed to start a giving account in the Fidelity fund is $10,000.

"We genuinely believe we are democratizing charitable giving," Egan said. "The vast majority begin programs with less than $100,000."

At the country's largest community foundation, the New York Community Trust, spokesman Ani Hurwitz said: "Why pay somebody else to write a check for you? We've never quite understood what the value added is."

Community foundations were initially the most distressed by Fidelity's splash into the charity world. They seek the same kind of donors, people with $10,000 to $1 million or so to give, who are interested in pooling their money rather than establishing their own foundation.

At one of the country's 500 community foundations, you can get a tax deduction and yet still retain some control over your charitable giving by setting up a donor-advised fund. Most of the grants go to regional charities that have been vetted by the foundation.

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