Giving Compass' Take:

• John Arnold explains his reservations around donor-advised funds: Belated giving, unclear purpose for the funds, and lack of accountability. 

• Can these challenges be overcome? Which giving vehicle is right for your giving? 

• Read about policy recommendations that could improve donor-advised funds. 

So few billionaires and wealthy people are willing to talk about DAFs and ways to reform them. Obviously a lot of people clearly benefit from the status quo. Why did you speak out about this?

I think giving is more effective whenever it is more directly tied to the individual who’s funding the decisions. One of the roles of philanthropy is to go further out on the risk spectrum than what government is willing to do, or even what the private sector is willing to do. But I’ve found that legacy foundations — when they did get managed by professional staff and have the whole board governance structure — that everything gets more bureaucratic and the willingness to take risk really starts to decrease. This is counter to one of the roles of philanthropy.

The second big problem is this idea of giving from the grave. And how do you define the mission, whenever you have to write down in your will, for how this money is to be spent in the future, oftentimes by people that you don’t even know?

So is the answer for why you felt compelled to speak out about this just that you were angry with current policy? A lot of people could say this, but they benefit from the status quo.

The philanthropic sector, especially foundations, have, by their nature, very little accountability. One of the benefits is that because they don’t have that strict accountability by outside actors, they’re able to take those types of risks that I talked about earlier.

So the accountability really comes from the public criticism — and they’ve endured a fair amount of public criticism over the past couple of years. And I think it’s important to step back and say, “What parts of the criticism is valid? And what’s more shaky?”

Your argument is that DAFs delay charitable giving. Do you think they actually reduce charitable giving over the long term? Because if not, the argument is: “Well, the money’s irrevocable. It’s still going to charity eventually.”

It’s two arguments. One is that I think this generation has a moral imperative to solve this generation’s problems and that putting this money away to be spent at some indeterminate point in the future — by somebody else with some mission statement — it’s just inefficient. And I think it’s just not in the spirit of what giving is supposed to be.

What I’ve seen firsthand is many people who have intent to give away very significant resources, but they delay the actual giving. So they build up the resources either just as a private net wealth or through some type of vehicle like a DAF. And the intent is always in the future. And then they get too close to death. And then the question is, “Okay, now what do I do?”

Whenever you’re trying to give away a lot of money in a short period of time, you either end up creating a legacy foundation that has the problems of legacy foundations, or you have to write large checks — and those large checks end up going to organizations that can accept a large check.

And then the three types who generally do accept these big checks are college fund institutions, universities, and hospitals, all that frequently have a capital campaigns to build new facilities. And so the money ends up going to those sectors that, I would argue, tend to be well-funded already, instead of going towards the operating expenses of smaller organizations that are doing social services.

Read the full article about John Arnold's criticism of donor-advised funds by Theodore Schleifer at Vox.