The Donor-Advised Fund Boom: How Do Nonprofits Engage Donors?
Donor Advised Funds (DAFs) are increasingly becoming a more prevalent giving tool in philanthropy. In fact, DAFs are the fastest-growing form of philanthropy today. In 2017, there were 463,622 individual DAFs across the country, together holding assets that surpassed the $100 billion mark for the first time, as reported in The National Philanthropic Trust’s 2018 DAF Report. This Report goes on to reveal that DAF donor contributions and grants reached record highs in 2017; donors contributed $29.23 billion to DAFs, using them to recommend $19.08 billion in grants to nonprofits.
DAFs are attractive to donors because they are an easy, cost-efficient method individuals can use to donate to nonprofits, simplify record keeping around donations, and claim an immediate tax deductible charitable contribution. But how do nonprofit organizations approach DAFs? Most DAF fund managers do not offer an option for nonprofit organizations to apply for funds or introduce themselves, nor do they post an easily accessible listing of their managed DAF funds. Below, we explore the types of DAF funds available and provide suggested steps nonprofits can take to better their chances at receiving DAFs.
What Are The Basic Principles Behind Donor-Advised Funds?
DAFs accounts are administered by nonprofit organizations (called sponsoring organizations) that manage the donors’ contributions (cash, stocks, real estate, etc.) and provide a vehicle through which the donor can contribute to the charities that they want to support. Donors have the option of taking a hands-on approach and deciding which nonprofits to contribute their to, or can leave it up to DAF managers at sponsoring organizations. Every sponsoring organization has its own rules and procedures for managing DAFs. Generally, DAF sponsors require an initial investment ranging from $5,000-$25,000 to open the fund and many have their own policies that mandate regular giving. DAFs fall into three categories:
- Commercial funds: These are funds that were started by national financial-services firms, such as Fidelity Charitable, Goldman Sachs Charitable Gift Fund, Schwab Charitable, and Vanguard Charitable. Although they are separate nonprofit organizations from the financial-service firms, assets in the funds are often managed by the related investment company.
- Community Foundations:This is typically a nonprofit organization that supports a specific geographic area, offering grantmaking programs to address community needs and support local nonprofits. These Foundations will often offer to manage donor-advised funds and advise donors on local community needs or organizations that align with donor interests.
- Single-issue funds:These are sponsoring organizations that focus on a single issue and encourage giving to a particular cause or organization. This may include schools and faith-based organizations. Sometimes sponsors of these funds stipulate that donors must steer a certain percentage of their gifts to an institution, like a university.
How Do DAFs Determine Who To Support?
The DAF donor is the primary decision maker when it comes to determining who they wish to support with their funds. National DAF sponsors (such as Fidelity Charitable and Vanguard) ultimately leave these decisions up to donors. There were no opportunities found for nonprofits to submit an application for DAFs through national sponsors. Typically, national DAF sponsors encourage their donors to evaluate charities on their own through nonprofit assessment groups, such as:
- Guidestar:Users can search for nonprofits using a number of criteria, including: organization name, geographical area, cause area, revenue amount, and Guidestar profile level. Guidestar provides a platform for organizations to share a summary of their mission, programs, financials, and operations that can be viewed by potential donors. This appears to be the primary assessment tool that national sponsoring organizations recommend to their DAF fund donors.
- Charity Navigator:Users can search for nonprofits using a number of criteria, including: organization name, category/cause, location, and size (expenses). Charity Navigator currently only evaluates organizations with more than $1M in annual revenue, but does provide advice to users who want to evaluate a charity on their own; indicating that they should look at the financial health of the organization, accountability and transparency, and results. Descriptions of organizations are typically not as detailed as Guidestar summaries are, but users can donate directly to the nonprofit from the Charity Navigator website.
Community Foundations managing DAFs typically provide more advice to donors than national sponsoring organizations. Many donors open accounts with their local community foundations because these funders tend to have a good understanding of the area’s nonprofits and many offer services such as family philanthropic consulting. Often, these Foundations will provide public listings and summaries of local organizations that may be of interest to donors.
How do Nonprofit Organizations Tap into DAFs?
Since DAF fund contributions are largely controlled by individual donors, there is often no single, straightforward application process available for nonprofits to request DAFs. Additionally, listings of DAF donors for national sponsoring organizations are not readily available, making it difficult for nonprofits to target individual DAFs that may be aligned with their work. The best approach is to get to know DAF sponsors in your local area take steps to help DAF donors to learn about your organization on their own. A few action steps nonprofits can take to try and engage DAF donors are:
- Research the DAF sponsors in your geographic area and determine if they have any ways that the organization can approach donors (e.g., submittal of a summary of the organization that can appear in a listing of local nonprofits or if the Foundation releases any requests for proposals that are tied to DAFs).
- Ensure your organization is well represented on Guidestar (e.g., demonstrating high marks on the general targeted nonprofit assessment areas for donors such as financial health, transparency, program effectiveness) or any other applicable websites that offer donors nonprofit evaluation assessments.
- Let donors know on your website, and in all communications, that you can handle gifts from DAFs. Consider placing a prompt on your website allowing donors to give to your nonprofit directly from their DAFs.
- Provide avenues for DAF donors to find your organization. Publicize your work through media outlets to spark the interest of DAF donors. Make it easy for donors to learn about and discover your nonprofit.
Contact: Wendy McCoy, Resource Development Officer, firstname.lastname@example.org
Listing of Reviewed DAF Sponsoring Organizations:
DAF sponsoring organizations in New Mexico include:
- Santa Fe Community Foundation:This Foundation offers three kinds of donor advised funds: Gift funds, long-term invested funds, and permanent endowed funds. To assist donors in determining where to distribute their donor advised funds, The Foundation’s Giving Togetherprogram initiative summarizes all proposals it receives that meet basic due diligence, and includes them in a catalogue shared with donors each season. Donors are invited to make grants toward any proposal in the catalogue. Nonprofits that wish to be included in the Giving Together Catalogue can login into the online grant applicationand then click the option that allows applicants to complete a mini-proposal. This gives the Foundation just enough information to get the organization into the catalogue. Samples of past Giving Together catalogues are also available online.
- New Mexico Community Foundation: This Foundation offers a variety of funds to meet donor needs, including: donor advised funds, agency or nonprofit funds, geographic affiliate funds, fields of interest funds, etc. The Foundation helps donors identify where to distribute their contributions through grants, programs, and scholarships. One example, is a listing of program partnerson the Foundation’s website, where donors can learn more about local nonprofits and choose to support them through an online link. Nonprofits have the option of completing a Nonprofit Information Formso the Foundation can learn more of the work they do, and determine if they are a good fit with the Foundation’s program grants, donor interests, or other resources. The form can be updated annually.
- Albuquerque Community Foundation: This Foundation offers DAFs to individuals, families, and businesses. Types of funds include donor advised fund, family advised fund, fields of interest fund, now and forever fund, etc. There are no direct action steps needed to apply or be considered for ACF Donor Advised funds. The Foundation indicates that it is knowledgeable of most area nonprofits and can make donors aware of the greatest needs in the community, if they are unsure what they would like to support. Additionally, if there is a nonprofit that they are not familiar with, the Foundation will conduct research and provide the donor with the information.
- Community Foundation of Southern New Mexico: This Foundation manages and invests charitable funds for individuals, families, businesses and other nonprofit organizations. The Foundation has more than $15 million in assets under management and administers more than 200 philanthropic funds that make grants to charitable organizations and causes worldwide. The Foundation offers nonprofits the opportunity to apply for a few DAF funds through annual grant cycles. It also has an online list of nonprofit partners and their mission statements for potential donors to learn more about organizations they may wish to support.
- Jewish Community Foundation of NewMexico: The Foundation’s mission is to build and perpetuate support for a vibrant, caring Jewish community through partnerships with donors and organizations. Approach:The Foundation manages the following funds that accept applications from charitable organizations: Jewish Women’s Endowment Fund and Immigrant and Refugee Assistance Fund.
Leading national sponsoring DAF organizations include:
- Fidelity Charitable: Established in 1991, this organization manages DAFs for over 200,000 donors, providing nearly $35 billion in grants since its inception. In 2018, it made $5.2 billion in donor recommended grants and supported 140,000 charities in every U.S. state and internationally (Fidelity Charitable 2019 Giving Report, 2018). To connect with DAF donors, nonprofits are encouraged to:
- Ensure they are in good standing with the IRS as a 501(c)(3) public charity.
- Earn a GuideStar Seal of Transparencyand provide robust information in their Guidestar profile, giving donors background information about the nonprofit, the work it does, and demonstrating transparency.
- Put a link to DAF Directon their website, or include a link with the organization’s “donate now” messaging next to Mastercard, VISA, and PayPal. Donors who already have a donor-advised fund are able to submit their grant recommendations from the organization’s website immediately. Note: DAF Direct is a tool that enables donors to recommend grants through their donor-advised fund directly from an organization’s website. There are no transaction fees, and the full grant value goes to the recipient organization.
- Schwab Charitable: Established in 1999, this organization has served 2,525 investment advisory firms and has supported 142,000 charitable organizations, including the granting of $2.2 billion in 2018. To connect with DAF donors, nonprofits are encouraged to:
- Increase visibility by keeping GuideStar profile up to date.
- Include a DAF direct link on their website, making it easier for people to make donations.
- Vanguard Charitable: Established in 1997, this organization has made $8 billion in grants to charity since its inception, including 740,000 grants. It currently has 17,500 active accounts. Nonprofit approach:Vanguard encourages donors to get to know the organizations they wish to donate to before granting, and indicates that donors will often use GuideStar as a resource.
This post was filed under: Grant Writing