Expert Testimony to the Treasury Department

Expert Testimony to the Treasury Department

Expert Testimony to the Treasury Department




Good morning and thank you for the opportunity to speak today on a matter of significant importance to the philanthropic sector and the broader community we serve.

My name is Daniel Blake and I am the Executive Director of University Impact. 

Our mission is to train university students to be the next generation of social impact leaders through hands-on learning experiences and exposure to social impact by funding organizations solving the world's most pressing problems. In order to accomplish this mission, and reduce barriers to charitable giving, we manage Donor-Advised Funds as well as other charitable funds like filed of interest funds, community funds, and fiscal sponsorships. 

We support clear and reasonable regulations that protect the integrity of DAFs while also allowing for flexibility and innovation in charitable giving. We believe in the need for regulations to maintain public trust and ensure charitable intent is honored.

Today my comments are directed at the potential implications of broadening the definition of 

1) Donor-Advisor 

as well as 

2) Donor-Advised Fund

First, the definition of Donor-Advisor 

The Department of the Treasury and the IRS have indicated that they have concerns about the investment advisor having influence similar to that of a donor-advisor and potential conflicts of interests that could lead to assets in a DAF not being deployed for charitable purposes as quickly as they could. Our comments are shared with those concerns in mind. 

The criteria under which investment advisors are not considered donor-advisors need further delineation. Practical scenarios and examples could offer clarity to DAFs and their advisors.

The practical scenarios below, we believe show that a personal investment advisor should be properly viewed as providing services to the sponsoring organization as a whole, rather than providing services to the DAF.

  • Risk Compliance and Annual Client Review 

    • Annual Reviews: Investment advisors should conduct annual reviews not with donor-advisors but with the sponsoring organization. These reviews must encompass all managed accounts, ensuring a comprehensive evaluation of the investment advisor's performance and strategy alignment with the organization's goals.

    • Risk Assessments: Sponsoring organizations, rather than donor-advisors, should execute annual risk assessments. These assessments should inform the investment strategies for all assets, aligning with the organization's risk tolerance and mission to ensure the charitable intent of the sponsoring organization is preserved.

  • Fee Structure 

    • Unified Fee Model: Fees charged by investment advisors should reflect the aggregate assets managed for the sponsoring organization, avoiding individual account-based fee structures. This approach promotes a holistic service model, focusing on the collective impact of all DAFs under the investment advisor's purview.

  • Number of Accounts 

    • Multiple Accounts: If an investment advisor is working for the sponsoring organization, and not an individual, the investment advisor should be managing multiple accounts for the sponsoring organization

    • Non-Exclusive Basis: An investment advisor should not be required to represent all of the accounts at a sponsoring organization. A sponsoring organization should be able to select multiple investment advisors based on expertise, geographic location, etc

  • Charitable Fund Deployment

    • If a sponsoring organization is going to work with investment advisors, the sponsoring organization should be required to have:

      • An investment policy statement that outlines appropriate management of assets in DAFs given that they are meant for charitable purposes. 

      • An investment philosophy statement that outlines the spirit in which funds should be managed.

It is worth noting that there are items that an investment advisor, and their staff, will do outside of their normal course of business when working for a sponsoring organization. The ability of a sponsoring organization to engage the services of multiple investment advisors is important in creating scalable and sustainable processes for the sponsoring organization.  

  • Liquidating funds on a more regular basis in order to issue grants to charitable organizations 

  • The movement of funds from a brokerage account to a “clearing account”, or similar, in order to manage the disbursement of funds to charitable organizations

We recognize that while one single point from the list above may not properly show that an investment advisor is providing services to the sponsoring organization, the collective implementation of these practices should provide regulators confidence that the investment advisor is indeed providing services to the sponsoring organization and not to a specific donor-advisor. 

Second, the definition of Donor-Advised Fund 

We are worried about the broadening definitions which might impact the functionality of funds with advisory committees that are not traditionally considered donor advised.

While the definition of a DAF did not change, the broadening of the specific components may create unintended consequences. 

First, the addition indicating that a formal record of the contributions fulfills the requirement of a fund being "separately identified by contributions" potentially broadens the scope to include just about any fund where donor contributions are tracked. Typically, this tracking is standard practice, not necessarily indicative of donor control or advisory status. This wide net could include numerous funds never intended under the DAF umbrella.

Second, the criteria under which a donor is appointed to an advisory committee have expanded to include more merit-based criteria. This change is particularly grey in areas such as defining what constitutes expertise, significant contributions, and the scope of 'related persons'. 

While these conditions aim to prevent undue influence, the term "significant contributor" remains undefined, leaving room for interpretation and potential inconsistency in application. Furthermore, the number of donors contributing to the fund does not mitigate the inclusion of the fund as a DAF, which adds another layer of complexity to the definition.

In a time where our communities need more engagement we should not create rules that will reduce that engagement. 

The implications here are two-fold:

  • There is a possibility of unnecessarily broad categorization of charitable funds as DAFs, thus subjecting them to restrictive rules and potentially reducing their efficacy.

  • Second, the nuanced requirement for donor-appointed members on advisory committees could discourage skilled donors from taking advisory roles, affecting the fund's effectiveness especially in specialized fields such as healthcare or education.

I urge a reconsideration of these definitions to ensure that:

  • They clearly distinguish funds traditionally understood as DAFs from other types of charitable funds.

  • Avoid overly broad criteria that could inadvertently sweep non-DAF charitable funds into these stricter regulations.

  • Provide clear definitions on what constitutes a "significant contributor" and clarify the percentage determination related to who is considered a ‘related person’ in contribution terms.

We appreciate the effort to regulate DAFs to ensure they serve their intended purpose without undue donor control, it's crucial that the regulations are crafted to not stifle legitimate charitable activities that operate within the spirit of the law. Thank you for considering our perspectives. 

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