Jul 1, 2005 12:00 PM

, By Bruce B. Makous, major gifts and planned giving officer, American Association for Cancer Research

By Bruce B. Makous, major gifts and planned giving officer, American Association for Cancer Research

An unethical practice is widespread among charities with donor-advised fund (DAF) programs. Financial advisors¹ benefit financially from promoting and facilitating the contribution of their clients' funds to charities. These deals, in which donors' advisors are encouraged to do what may not be in their clients' best interests, do not violate federal law because of a loophole in the Philanthropic Protection Act of 1995.² Advisors should check to see whether they are violating state laws. But one thing is clear: They are definitely violating the ethical standards of the National Council on Planned Giving, the Association of Fundraising Professionals and possibly other philanthropic fundraising codes.

Most commercially sponsored DAF programs, and other types of programs that mimic them, not only pay advisors commissions when their clients give to the DAF but also allow the advisors or their firms to retain the contributed assets under management. In 2003, 66,979 new accounts were opened in leading DAF programs nationwide. As many as a third of these may involve some sort of asset-retention³ arrangement.⁴ The fact that these practices are widespread leads some people in the philanthropic community to say that charities must accept these deals as a necessary evil. Think again. Congress is cracking down on, and the public has no patience for, questionable practices related to charitable giving.