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Investment strategies: Growing charitable dollars for bigger gifts

A Q&A with Dan Bergschneider, CFA®, CFP®, vice president of investment programs at Fidelity Charitable

Rows of growing plants.

One key difference between giving with a check and giving with a Fidelity Charitable donor-advised fund, or Giving Account? Fidelity Charitable donors’ contributions can grow tax-free over time by recommending how those contributions are invested. With about 20 carefully chosen investment options for a Giving Account, our donors are able to create a personal strategy based on philanthropic goals, assets, and risk tolerance. Dan Bergschneider, CFA®, CFP®, is the vice president of investment programs at Fidelity Charitable, where he oversees the investment programs that have altogether created an additional $3.8 billion for grants to charity over the last 25 years. We sat down with him to find out more.

Q: As a donor, how do investments in a Giving Account differ from donors' personal investments?

A: In some ways, thinking about investments within a Giving Account is very similar to thinking about any personal account a donor may have. There is a sum of money to be invested, a timeline and a goal in mind. Think of retirement planning or saving for college. What’s different is the ultimate purpose: With a Giving Account, we are in the unique position to grow a gift to charity in a tax-free setting, possibly providing much more money to charity over time. But it’s still about setting a goal.

For example, say a donor has recently sold a business and wants to contribute $800,000 to a Giving Account. Her goal is to recommend grants totaling 5-10 percent of the original gift every year for the next 10-20 years. Best practice for supporting this kind of granting goal is to focus on diversification in the investment allocation. If she thinks too conservatively about her investment recommendations, she won’t keep up with inflation. If she's thinking too aggressively or is too focused in one area, market volatility could erode her original contribution.

The Charitable Legacy Pool is specifically designed for donors like her. It’s very diversified, including real estate and liquid alternative investments, but also professionally managed. Because the goal is long-term, our investment strategy here is specifically designed to keep up with a certain return over multiple market cycles to help support regular giving over time.

For donors with short-term goals, who might use the Giving Account as a vehicle for making regular grant recommendations regardless of investment performance within the Giving Account, more liquidity is key. That’s where shorter term investments such as the Short Term Fixed Income Pool, Conservative Pool, or the Money Market Pool come in. We really have investment pools for every possible grant-making strategy.

Dan Bergschneider, CFA<sup>®</sup>, CFP<sup>®</sup>, Vice President of investment programs at Fidelity Charitable

“What’s different is the ultimate purpose: With a Giving Account, we are in the unique position to grow a gift to charity in a tax-free setting, possibly providing much more money to charity over time.”
—Dan Bergschneider, VP of investment programs at Fidelity Charitable

Q: What does Fidelity Charitable look for in the investment options it offers?

A: We have a range of donors with totally different goals for their Giving Accounts so our investment pools are flexible enough to work for everyone. For example, some are more confident in their ability to make investment recommendations, and others would prefer a simplified option. For the latter group, our asset allocation pools are key: They’re a pre-determined mix of investment options that donors recommend based on their Giving Account risk tolerance and time horizon. Plus, all of these pools are professionally managed.

Alternatively, some donors may wish to recommend their own custom investment mix based on their grant-making goals, and therefore we also offer single asset class pools. Our lineup includes both actively-managed as well as indexed pools to provide ultimate flexibility.

But we also have donors who already have a professional investment advisor, and that makes the Charitable Investment Advisors Program (or CIAP) a great fit. Here, advisors are able to manage a donor’s Giving Account in much the same way they handle their clients’ personal accounts.

Q: Are there any common mistakes people make or misconceptions they have about making investment recommendations for a Giving Account that you’d like to address?

A: There are two things we see a lot. One is making an investment recommendation based only on how well the pool performed last year or solely on the expense ratio of the underlying mutual fund. Although important, these are not the only factors to consider. It’s more important to think through your grant-making plan and select a well-diversified portfolio based on that. That’s what will help you achieve your goals over time.

The second mistake is really more of a missed opportunity. Some donors establish a Giving Account and begin recommending grants to charity. But they never come back to recommend an investment for the rest of the funds in the Giving Account. This leaves all of those funds most likely in the Money Market Pool, and the donor’s favorite charities might be missing out on one of the key benefits of a donor-advised fund: the chance for contributions to grow in a tax-free way over time.

Q: Can donors involve their advisors in helping manage their Giving Accounts?

A: In the Charitable Investment Advisor Program, a qualified investment advisor is permitted to manage the assets in the donor’s Giving Account, subject to certain guidelines. This program is popular among donors who may already be working with an investment advisor for their personal assets. But donors can also work with their advisors even if they’re not in the Charitable Investment Advisor Program. They can ask their advisors to recommend which Fidelity Charitable investment pools might make sense for the Giving Account to support the donors' charitable giving goals.

TIP

Review the investment strategy for your Giving Account as often as you review your investment allocation and approach for any personal accounts to make sure it still aligns with your charitable goals.

Q: What are some trends, if any, that you’re seeing?

A: There is a growing trend in the industry, and among individuals, to seek investment options that are socially or environmentally responsible. Fidelity Charitable has an impact investing pool that invests in companies that have favorable ESG (Environmental, Social and Governance) ratings plus solid track records from an investment performance standpoint.

Additionally, the Charitable Investment Advisor Program I mentioned earlier provides even greater customization. By allowing a professional advisor to manage a client’s Giving Account, we’re providing a second way for donors to use an investment option that’s consistent with their social or environmental objectives.

Q: Do you have a Giving Account? If so, how is it invested and why?

A: Yes, I do have a Giving Account, and those investments are diversified across several investment pools.

Our whole family actually uses it to plan our giving for the year, including our two children. My wife and I aim to strike a balance between providing financial support to charities from our Giving Account and volunteer work. We discuss with our kids the importance of giving back, of being part of a community. But one of the great things is being able to pull up our Giving Account online. There it is for them to see right on the screen. The kids can do their own research and find something that connects with them on a personal level, then immediately have an impact and track the gift through our own dashboard on the Fidelity Charitable site. This hands-on technology is a neat way to teach them to make a difference.

Learn more about Fidelity Charitable’s investment options to find an approach that matches your philanthropic goals.

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