In the near future, a significant portion of the individuals building today’s AI industry are expected to achieve immense wealth. However, Nick Allardice (CEO of GiveDirectly) and David Goldberg (Founder of Founders Pledge) warn that the current infrastructure for distributing this wealth is widening the gap between intention and action.
The DAF Dilemma
The primary vehicle for this new wave of wealth is the Donor-Advised Fund (DAF). The mechanics are straightforward: open an account, transfer pre-IPO equity, secure a tax deduction, and postpone the decision on where to donate. This "later" can often mean never, as the system’s incentives quietly favor keeping funds stagnant.
Currently, over $300 billion in philanthropic capital sits in American DAF accounts. Only about a quarter of these assets are paid out annually. A substantial portion of these payouts merely moves from one DAF to another, with no legal obligation to reach actual beneficiaries.
Incentives Over Impact
In 2024, the most successful charitable fundraiser in the U.S. was not a medical center or a food bank, but Fidelity Charitable, a DAF sponsor that took in nearly $16 billion. DAF providers typically collect fees tied to assets under management rather than assets deployed. Consequently, they have little financial interest in seeing money leave their accounts. Fidelity has generated over $1 billion in revenue from its charitable arm over the last five years.
A Call for Structural Change
Unlike private foundations, which are required to distribute at least 5% of their assets annually to prevent them from becoming indefinite tax shelters, DAFs face no such requirement. The authors argue that proposed reforms should aim to unlock the billions currently sitting dormant. The original social bargain—foregoing tax revenue so charities receive funds—is failing, as the system increasingly serves as a mechanism for financial institutions to collect fees on tax-advantaged assets.
