The Future of Fundraising: Now Accepting—Donor-Advised Funds
With more than one million Donor-Advised Fund accounts and 1,000 DAF sponsors in the country, most nonprofit organizations understand that DAFs are here to stay. Many have taken steps to embrace them and determine how to receive grants from current and potential donors who have DAF accounts. Five or 10 years ago, many charities viewed them as possible threats to their fundraising efforts, but most have now received numerous and significant grants from Donor-Advised Funds.
Fortunately, because many donors have established DAFs and have set aside funds in these accounts that can only be used for charitable giving, they have maintained their level of giving, even during times of economic volatility. During the COVID-19 pandemic, DAF sponsors reported that their donors significantly increased their giving. Grants from DAF donors helped some charities survive.
Development professionals realize that DAF sponsors cannot provide a list of their donors and will not recommend specific 501(c)(3) organizations. At the same time, nearly all donors know which causes and charities they wish to support before they even set up a DAF account.
However, here are a few steps that charities can implement or items they should consider that involve DAFs that can result in additional or larger donations from their donors:
- Clearly indicate on charity websites that they accept contributions from DAFs (as well as from private foundations, bequests, appreciated stock, etc.). Though more charities are doing so now, many still only specify on their donation website that they accept credit card contributions and checks. Including content on the website that indicates organizations can receive grants from DAFs (and foundations, as well as bequests and donations of appreciated stock) will send a message that the organization is efficient and used to receiving large donations and donations from charitable vehicles.
- List the information on websites that donors can provide to their DAF sponsors so they can vet the organization and quickly send the grant. Provide the tax ID number, address, and contact information for a development staff member if the DAF sponsor has any questions or if they prefer to send funds via ACH.
- Evaluate contributions from DAF donors. Numerous studies have shown that donors who have DAF accounts are more generous when recommending grants from those accounts than if they were to write checks, donate by credit card, or donate appreciated stock.
- When meeting with donors, ask them how they prefer to donate, and if appropriate, determine if they have a DAF or other charitable vehicles. Some who have donated by check or credit card may instead donate from their DAF account.
- Engage donors every time a grant from their DAF is received. One of the reasons donors discontinue support is because they are not properly thanked—many DAF donors do not receive thank-you notes when they make grants from their DAF account. If a donor has taken the time to establish a DAF, they are likely interested in and serious about philanthropy. Invite the donor for a site visit, volunteer activity or fundraising event.
- A very small percentage of grants from DAFs are anonymous, but fundraisers should still send a thank-you to the DAF sponsor and request that the sponsor forward it to the donor. Not all DAF sponsors will do this, but it is worth the effort. Donors give anonymously for a number of reasons but welcome a thank-you note. Once thanked and engaged, these donors may increase the amount of their next grant or become public donors and advocates for the organization.
- Though it is difficult to ascertain the size of a donor’s DAF account, it is important to thank all DAF donors, even if the grant is small. Though the median size accounts of the largest commercial DAF sponsors is $20,000, they also have some very large accounts.
- Pay attention to which DAF sponsor has sent the grant check. If a donor sends a grant from a DAF sponsor that is a prominent bank or wealth management firm, that can indicate the institution manages their money and, therefore, the size of their DAF and wealth might be substantial, even if the grant received is small.
- Let donors know that the IRS has indicated that DAF sponsors can now fulfill pledges from DAF accounts as long as the DAF sponsor does not refer to a pledge in the grant letter to the charity. (DAFs still cannot pay for tables or auction items.)
- If your organization can receive direct contributions from the three DAF direct sponsors (Fidelity Charitable, Schwab Charitable, and BNY Charitable Gift Fund), also mention that they can receive grants from other DAF sponsors.
- Be aware that because certain assets have significantly appreciated in recent years, and because donors can donate large assets like privately-held stock, real estate or insurance, donors may not feel comfortable in making these large donations at one time to one charity. By donating these to a DAF sponsor, they still intend to make grants to their favorite charities, but they are able to do this over time instead of fearing that they have to give it all at once. Also, because the DAF sponsor does the work of accepting the asset, the charity saves much time, effort and expense and simply receives the grant checks from the DAF sponsors.
The tide has turned, and most charities now welcome grants from donors who have DAF accounts. The organizations that do not embrace this growing trend may miss an opportunity, while those that do will benefit from more frequent and larger donations. Implementing some of these small changes can have a significant impact on fundraising efforts.
Ken Nopar is the vice president and senior philanthropic advisor for the American Endowment Foundation. AEF has been the country’s leading independent donor-advised fund sponsor for nearly 30 years. Ken has written articles about charitable planning in many publications, including Financial Advisor, Accounting Today, and Chronicle of Philanthropy, and has been interviewed in the Wall Street Journal, New York Times, and Chicago Tribune.