Donor advised funds Archives - Page 2 of 2

This week we welcome my colleague Michele Borucki to The Intelligent Edge. Michele has been spending a lot of time studying Donor Advised Funds (DAFs) lately, and our friends at iWave asked her to write an article for their wonderful blog on the topic. I thought it was terrificly informative, so I wanted to share it here with you as well. Re-shared here with kind permission of iWave, and with thanks to Michele! ~Helen

What is a DAF?

A Donor Advised Fund (DAF) is a charitable giving vehicle administered by a public charity created to manage donations on behalf of organizations, families, or individuals. DAFs are not new in the philanthropic realm, but they are certainly on the rise. According to the 2019 Fidelity Charitable Giving Report, donations made from Fidelity DAFs in 2018 totaled $5.2 billion, a 17% increase from 2017. Fidelity also stated that 60% of these donations were unrestricted. This a big deal and very good news for organizations seeking support.

Quick DAF facts:

DAFs can only distribute grants to 501(c)(3) organizations.
A fund can have multiple donors (ex: different members of the donor’s family can contribute) and advisors.
The threshold and fees to establish a DAF varies based on which sponsoring organization is holding the funds, but they all follow essentially the same structure: a minimum initial contribution (Fidelity’s is as low as $5,000), annual account management fees, and occasionally, a one-time setup fee is required.
Donors can elect to remain anonymous; however, according to this report from Vanguard Charitable, only 5% of their grants are anonymous, with Fidelity reporting that only 3% of theirs are anonymous. A quick iWave donations search can reveal an abundance of DAF donor information your organization can use to begin identifying and cultivating new prospects.
Funds being held in a DAF don’t have to be distributed immediately (although Fidelity reports that 75% of grant dollars are distributed within 5 years.) These funds can even outlive their donors, so a successor is often named to take over advisor privileges in the event of a death.
A donor receives tax benefits immediately after they put money into the fund, not when the funds are distributed to the charitable organization(s) of their choice.

Types of DAFs

Commercial Funds: Fidelity Charitable, Vanguard Charitable, etc.
Community Foundations: Silicon Valley Community Foundation, Community Foundation of Tampa Bay (The Council on Foundations has a foundation map to locate one in your area).
Institutional DAFs: Higher education organizations, Independent charities (ex: The Nature Conservancy).
Boutique/Hybrid: Family offices or investment management firms.

The attraction to using commercial funds or community foundations for a DAF is the ease of access for the donor. Apps and account access through the organization’s website allows the donor to make immediate contributions or to see the activity in their fund whenever they want.

Types of contributions

One of the primary benefits of using a DAF is that a donor doesn’t necessarily have to contribute liquid assets to their funds. The National Philanthropic Trust 2018 Donor Advised Fund Report stated that approximately 60% of contributions were non-cash assets including securities, business interests, real estate, fine art, and jewelry. Using illiquid assets for charitable grants is on the rise, and we will definitely see a significant increase in the next few years as donors see how easy it is for DAFs to turn these assets into grants that will make an impact for the organizations and causes they are passionate about. Some donors have already caught on and use their contributions for impact investments to double the influence of their philanthropy.

So, who are DAF donors?

The DAF donor is a savvy philanthropist. They understand the importance of financial planning and know how to maximize their philanthropic experience to benefit their personal financial well-being as well as that of the organizations they choose to support.

A few other characteristics of a DAF donor:

They understand that setting up a DAF is much easier, and significantly less expensive, than starting a foundation, as there is no overhead. The convenience and ease of access to their fund and their advisor provides a more streamlined giving experience so they are more likely to continue making contributions and grants.
These types of donors value relationships; they choose a sponsor organization and advisor that they can trust to understand their philanthropic priorities and execute their grantmaking. Cultivating and stewarding a donor is always an important step in the life cycle of a grant, but the opportunity to cultivate a DAF sponsor organization should not be missed either.
These donors are not new to philanthropy and are often members of philanthropic families.
They are planning for their future and establishing these funds in their 50’s and 60’s to continue giving through retirement and using the fund to make planned gifts.
Some donors have complex assets and use a DAF as an opportunity to leverage their illiquid assets to the benefit of the causes and organizations they care about.
DAFs aren’t just for the ultra-high net worth donor anymore. The median Fidelity account balance in 2018 was $17,760, which is less than a major gift for many charitable organizations, and only 42% of accounts had a balance over $25,000.
DAF donors focus their giving locally, with over half of grants being distributed to organizations in their home state.

Ways to attract a DAF donor

Introducing yourself and cultivating a DAF donor isn’t always possible, as sponsor organizations don’t offer an easy way to access their customers. The best way to let these organizations know you accept these types of donations is by advertising on your website and making it clear on gift acknowledgement letters. Also, getting to know the administrators of local sponsor organizations and community foundations can be beneficial; after all, they are the people with access and who can recommend your organization to their customers. Make it a priority to engage these donors by providing access to volunteer opportunities, major gift mailings, and events.

The rise in donors choosing DAFs as their giving vehicle shows us that this method of grantmaking is here to stay. It’s important to not let these donors go unnoticed, or your organization will have missed out on tapping a valuable resource.

Today I’d like to draw your attention to the Fidelity Charitable Giving Report, 2019 edition. You can download it for free here. The report summarizes Fidelity’s donor advised fund activity for the past year, and there are some important opportunities I noticed that I wanted to share with you.

In case you’re not familiar with Fidelity Charitable(™), it is the largest sponsor of donor advised funds (DAFs) in the United States. Fidelity is cagey about the total assets under management, but donations made last year from the superfund’s 204,292 (and growing) DAF donors totaled $5.2 billion.

While you might expect that a super-large fund of funds would be a great place for privacy-seeking billionaires to cache their philanthropic dollars, the median DAF size at Fidelity is $17,670. Just 8 percent of Fidelity DAF accounts hold over $250,000 in money waiting to be donated, but even so, that small slice of funders gave over 582 donations of $1,000,000+ last year.

That $5.2 billion in donations last year was an increase of nearly 20 percent over 2017. Fidelity says that the majority of donations – 60 percent – were specifically unrestricted. Normally with a DAF gift distribution, a donor can suggest a gift designation but the DAF sponsor – Fidelity in this case – can choose to honor or ignore the restriction.

Of course, they’d be operating at their peril to ignore the donor’s wish in all but the most outlying cases, so DAF managers generally pass that restriction along to the nonprofit. The fact that this growing number of Fidelity DAF donors largely gives unrestricted money is good news, considering that most foundations won’t cover overhead and major gifts from individuals tend to be restricted.

The report breaks down giving by recipient type and a companion piece slices the data by geography, and I found these two breakdowns fascinating:

Recipient type

DAF donors give differently than average Americans do (as described in Giving USA). Year after year, their pie charts show us that religious organizations receive the largest piece of the pie in terms of dollars. Last year, religion received 29 percent of total giving, which amounted to $124.52 million.

But although Fidelity’s DAF donors gave the highest volume of gifts to religion, the segment which received the most dollars was education, which at 29 percent of all giving was nearly double the amount of religious gifts, at 15 percent. Religion actually came in third place, just after ‘society benefit,’ which was 18 percent of DAF giving at Fidelity.

And that’s not unusual. In fact, according to the report:

Since Fidelity Charitable launched the Giving Report in 2013, education has regularly received the most yearly grant dollars; religion has received the greatest grant volumes.”

From a prospect identification / donor segmentation perspective, that’s pretty interesting, eh?

Geography

A companion piece to the report provides a closer look into what Fidelity calls the 2019 Geography of Giving, where you can drill down on each of Fidelity’s top 14 markets as it compares its “Top Cities for Giving“. They are:

Atlanta, Boston, Bridgeport, Chicago, Cleveland, Dallas, Denver, Los Angeles, Miami, Minneapolis, New York, San Francisco, Seattle, and Washington, DC.

There are all sorts of interesting statistics for you to find in each city’s one-sheeter. Take a look at Chicago, for example. Human services, religion, and education may be the top 3 charitable sector priorities for all Fidelity DAF donors in that city, but nestled among the top five most popular recipients of donations are two public media nonprofits.

Hmmm, that’s interesting! What about New York? The top three priorities are education, human services, and health, and (well, look at that!) at #1 for donations is New York Public Radio and at #4 is WNET. Again, two in the top five.

So of course I had to check out my home town, Boston. Top three priorities for Boston DAF donors? Just like New York, the top three are education, human services, and health. But look here: at number 3 for largest dollar support is the WGBH Educational Foundation (yay Masterpiece!) and at number 4, Boston University (which beside being a university also houses Boston’s other major public media station, WBUR).

In San Francisco, the number one spot for donations is KQED. In Atlanta, public media is at #4 (under the guise of the Atlanta Educational Telecommunications Collaborative).

If I were working in public media, I’d be paying a lot of attention to my Fidelity DAF donors right now (or maybe these numbers point to the fact that they already are…)

But even if you’re not in public media, there’s a whole lot more in these reports of interest to all organization types that can help you think creatively about donor engagement strategy. These are just two areas that I wanted to highlight that grabbed my attention. Take a look and see what information you find that’s relevant to your nonprofit – and if you find something that grabs you as fascinating, share it with all of us in the comments!

Profile of a DAF and its donor

Hidden gems in the 2019 Fidelity DAF report

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