Looking Under the Hood at Schwab Charitable Fund
We take a close look at the ongoing fees and underlying investment options for the second-largest donor-advised fund in the U.S.
With $17.1 billion in assets as of June 30, 2020, Schwab Charitable Fund ranks as the second-largest donor-advised fund affiliated with an asset-management firm in the United States. (It's a distant second to Fidelity Investments Charitable Gift Fund, though, which has about twice the assets.)
As I covered in my recent article, donor-advised funds have several advantages. Donor-advised funds are public charities that qualify as section 501(c)(3) organizations. That means donors can benefit from an immediate tax deduction when they contribute cash or other assets to the fund. Although contributions are irrevocable (meaning you can't withdraw donations if you change your mind or need extra cash), the donor retains an advisory role and can recommend how to invest the assets and how much to contribute to various charities over time.
In this article, I'll dig into how Schwab Charitable stacks up in terms of its underlying investment options, as well as the administrative fees and account minimums.
Like Fidelity Investments Charitable Gift Fund, Schwab Charitable doesn't currently require a minimum contribution amount to set up a new account or to make additional contributions. Donors can recommend grants in any amount of at least $50.
Like nearly all donor-advised funds, Schwab Charitable also comes with an additional layer of administrative costs. The fund charges a 0.60% annual administrative fee (or a flat fee of $100, whichever is greater) for accounts with balances up to $500,000. Accounts with balances greater than $500,000 are subject to lower fees in percentage terms, as shown in the table below.
For accounts with assets of $1 million or less, Schwab Charitable's fee structure is identical to those of the Fidelity and Vanguard donor-advised funds, but Schwab's fee breakpoints are less generous for higher asset levels. (For comparison, Vanguard charges a tiered fee of just 13 basis points for asset levels between $1 million and $15 million, and the fee steps down to just 5 basis points for account values of $30 million or higher.)
These charges are in addition to the fees on the underlying investments (operating expenses for mutual funds and exchange-traded funds, or trading commissions for individual stocks and bonds). All of these fees come out of the amount donated, making donor-advised funds less cost-efficient than donating directly to a charity.
Schwab Charitable offers two main investment types: diversified asset-allocation pools with a range of risk levels and single-asset pools for a variety of asset classes. Both include sustainable investment options for investors who want to consider social and environmental factors.
The asset-allocation pools offer a diversified mix of equities and fixed-income securities, with risk levels ranging from conservative to more aggressive. The lineup contains fewer funds than those offered by Fidelity and Vanguard, with target equity allocations ranging from 30% to 80% of assets. As a result, investors looking for a lower equity allocation will likely have to supplement one of these offerings with a single-asset pool, such as the money market pool or the short-term bond pool. On the asset-allocation side, all four underlying funds are actively managed. Three of the four offerings earn Morningstar Analyst Ratings of Neutral, but T. Rowe Price Spectrum Moderate Growth Allocation (TRSGX) stands out with an Analyst Rating of Silver.
For investors who prefer to build their own portfolios, Schwab Charitable offers a variety of both active and passive vehicles covering domestic stocks, international stocks, bonds, and cash. It also includes an inflation-protected bond offering--a useful asset type missing from Fidelity and Vanguard's options for single-asset funds. The single-asset-class menu is relatively strong overall and includes standouts such as Metropolitan West Total Return Bond (MWTIX), which Morningstar analyst Brian Moriarty considers one of the best offerings in the intermediate core-plus bond category, and Schwab Total Stock Market Index (SWTSX), which offers broad equity-market exposure at a rock-bottom expense ratio. The lineup also includes environmental, social, and governance-focused offerings for both equities and fixed-income.
Other Investment Options
Like Fidelity, Schwab Charitable allows donors with balances of $250,000 to recommend a qualified investment advisor to manage their investment accounts. The investment advisor can build customized portfolios using mutual funds, ETFs, stocks, bonds, and CDs, as well as approved investments in hedge funds, venture capital, and private equity.
Schwab Charitable offers a decent lineup of investment options and is broadly accessible to a wide range of charitable donors. While its asset-allocation pools could be stronger, the single-fund pools are more compelling, especially given the prevalence of good, low-cost index options. In addition, investors who already hold assets at Schwab will likely find it easier to set up a donor-advised fund under the same umbrella instead of moving assets to another organization.
Amy C. Arnott does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.