If you are involved in the world of philanthropy, you are well aware of the splash donor-advised funds (DAFs) have made for charitable giving programs. DAFs have been the fastest growing charitable gift vehicle since they were commercialized by asset managers in the early 1990’s. From 2016 to 2017, the number of DAF accounts grew more than 60% to a total of 463,622 nationally. That alone is enough to grab the attention of any nonprofit administrator; and it has. I am privileged to be employed by RenPSG, the largest philanthropic gift administrator in the country and, along with my colleagues, I speak with representatives from nonprofit organizations on a daily basis who want to know more about a branded DAF solution and whether it is right for their organization.
My hope for this blog is to highlight a few reoccurring conversations we have had along the way and help shed some light on potential pitfalls nonprofits have found related to launching a branded DAF solution. Our approach at RenPSG is to make sure any DAF program we develop and administer for any organization is successful for our clients. If the program is not successful, the client is not successful, and we are not successful. And the hard truth is, not all DAF programs are successful.
DAFs Complement Existing Fundraising
A branded DAF program is not going to double donors and gifts overnight. For nonprofits, a DAF program should be considered to be a complement to established fundraising strategies that are in place. It can’t be thought of as a “be-all to end-all” fundraising strategy. A DAF program will help you attract the savvy investor who may already have a donor-advised fund. By that, I mean if you are receiving annual gifts from donors with checks from the larger national donor-advised fund programs like Fidelity, Vanguard, or Schwab, these donors already understand how a DAF works. Your advantage with them is they are already passionate about the mission of your organization since they have already given you a donation. It’s unlikely that they will have a reason to be passionate about those larger DAF programs. Educating these donors about your DAF program can result in some “easy-wins” and build the foundation for your program. Also, making them champions for your program is a key to its success. A well-connected advocate for your program can share your story with potential donors.
Restrictions Will Restrict Success
Putting restrictions on a donor-advised fund program will limit its success. The whole concept of a donor-advised fund is that they are simple and easy for donors to use. Any donor at any time can simply open one up at little or no cost, make a gift as low as $5,000 with a vast array of assets, invest their gift to get a desired return, make grants to qualified charities, and pass it down to the next generations. However, what we see happening is organizations talking about some of these benefits and/or putting restrictions on the way the program is administered. For example, requiring a dollar for dollar match of grant money going to outside charities coming back to their charity. Or, eliminating the opportunity to pass the DAF to future generations. What we’ve seen is the more limitations and restrictions on the DAF program, the least successful it will be. According to the IRS, there are over 3,000 DAF programs in the US. If one DAF program seems unappealing to a donor due to its restrictions, then the donor has a choice to go to another DAF program that is less restrictive. Donors are come to an organization to open their DAF because they want to donate money to that organization. Don’t make rules that say they have to recommend grants there.
Focused DAFs for Single-Issue Organizations
With the popularity of impact investing in the philanthropy world, we are seeing more “Focused” DAFs being created. This concept is one where the donor is extremely passionate about a particular cause/issue and they have dedicated their DAF to that cause/issue. For example, for a single-issue organization like a symphonic orchestra, a donor may have an extreme passion for the oboe section of that orchestra. The donor will make grants from their DAF to go towards repairs and maintenance of the oboist’s instruments so that their sound is never dreadful. Another example might be for a health-based organization. A donor could focus their DAF on finding a cure for a specific disease. They could solicit contributions from many donors, as well as their own gifts, and recommend grants to those institutions that are leading research in finding the cure for that disease – kind of like their own private foundation. It takes some creativity on behalf of the development team to market this, but we’ve seen some big dollars go into DAFs for this purpose.
These are only a few of the everyday conversations we are having. Keep in mind, a branded donor-advised fund program can be beneficial to your organization, but don’t get caught up in the all the buzz and feel like you must have one since every other nonprofit has one. If you decide your organization should have its own program, then think strategically, set realistic goals, and partner with your donors on how best to set-up your program. If this isn’t for you, don’t force it. There are a lot of other ways to fund raise.
If you’re not sure if your nonprofit organization is well suited for a Donor-Advised Fund, contact us and let’s talk through your fundraising goals. Give us a call at 800.843.0050 or send us an email at firstname.lastname@example.org and let’s work together to find a strategy for you.