Helen Brown Group

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Profile of a DAF and its donor

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:

  1. DAFs can only distribute grants to 501(c)(3) organizations.
  2. A fund can have multiple donors (ex: different members of the donor’s family can contribute) and advisors.
  3. 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.
  4. 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.
  5. 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.
  6. 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.      

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The scariest things about fundraising

“Citroulle préparée pour Halloween.” Photo by Carole Pasquier

Since today is Halloween, I thought you might like to help me by sharing some of the scariest things you’ve seen happen in a fundraising office. It doesn’t have to be your office, it can be an incident you heard happened elsewhere. Or you can pretend it did. I’ll start first, but please feel free to add yours in the comments!

Spooky Oversharing

My first story has to do with an email I received two weeks ago (and two months ago, and two years ago, and…) from someone sending confidential information via email. I recoil in horror every time I open up an email and see a list of donor names with addresses and giving information. Spouse names. Strategy statements. Or, heaven forbid, an attached un-password-protected Excel sheet.

Why this is so scary: email is not secure. In fact, email is the very least secure way anybody can send information in the universe. You may think, “I’m just sending it to Chris down the hall.” But in order to get to Chris, that email travels across state lines (and sometimes across country borders and several time zones) to get from your computer to Chris’s. It goes through a ton of servers, any one of which can siphon off your email to read later.

(Also please change your email password at least every three months. Two-factor authentication is a pain in the rear but could save that same rear.)

Scary Language

The second thing that scares me about fundraising is the language we use. Lori Hood Lawson started a great conversation on Twitter with this:

Those of us on the thread decided that “Prospects” as a term actually passed muster, but “Suspects” got a big, hearty, NO. Likewise “Portfolio penetration.” Ew. Just no.

Another word that was mentioned as needing to go was “pipeline” – not because it’s scary but because it can be confusing. Are we talking gift pipeline, prospect pipeline, or donor stewardship pipeline? The context needs to be specific but isn’t always. Which is another problem:

Fundraising language can be impenetrable like The Fog, (see the terms “Advancement” and “Development,” for example), and it would help if we had industry-wide research-and-development to find new terms.

And by new terms I mean good terms. Clearly descriptive terms. Not creepy terms like “suspect,” or “portfolio penetration.” And not amorphous terms like “resource development” or “prospect development” which sounds like we’re embarrassed about what we do so we hide it in a hazy term that doesn’t mean anything.

Ethical shadows

The last scary things I want to mention about fundraising are the topics of ethics, donor domination, and the #MeToo issues that have come to light lately. I think we can all agree it’s been a fairly stomach-turning season with the recent Epstein scandal; nonprofit decisions on how to handle past Sackler (and other disgraced donors’) giving; and a wellspring of discussions around sexual harassment and gender-based pay disparity.

It’s been a few seasons, actually, if you factor in the fairly constant media focus on the fundraising sector in the UK and the regulations and fines that have sprung from a few bad actors’ misdeeds.

Fortunately, now that it’s come to light, all of this is fixable with level heads convening to find workable solutions. The scary thing would be if nothing happened.

What scares you about fundraising?

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Why are we so afraid to talk about ethics?

Image by Peggy und Marco Lachmann-Anke from Pixabay

Since we’re getting near to the end of AFP’s “Ethics Awareness Month,” I thought today would be a good time to bring up the topic for discussion here on the Intelligent Edge. I have a couple-three questions for you:

  • When was the last time you went to a session at a professional conference that was solely devoted to ethics?
  • If you have a CFRE or other professional designation, were you required to take a certain number of hours of credit solely devoted to ethics?
  • Apra has recently updated its Code of Ethics and Professional Standards. Have you taken a look at it?

If we front-line fundraisers, researchers, prospect managers, fundraising data scientists, and advancement service professionals want to be a member of our professional associations, all we have to do is pay our money and tick off a box on our membership card promising to follow our association’s ethical standards.

Sure, I’m ethical. *check*

We don’t normally have discussions about ethics until some nonprofit does something really bad and/or accepts money from some bad guy. Then everybody gossips about it for a little while and when there’s no new information we generally go back to business as before.

Some organizations might take the opportunity to look at (or update) their gift acceptance policies, and others might add due diligence research to the requirements for soliciting a major gift.

But generally we tend to avoid really deep and meaningful discussions about ethics. We don’t hash out ethical scenarios or discuss our organization’s belief systems.

Heather R. Hill, chair of the CFRE International board of directors and of the philanthropy think tank, Rogare, laments in a recent Chronicle of Philanthropy article about the Jeffrey Epstein scandal that professional conferences don’t feature ethics sessions because they’re not well attended. Perhaps they’re not well attended because professional conferences don’t feature them.

What is this stigma that ethics sessions have? Is it that they’re perceived to be boring? That they’re not ‘how-to’ enough? That it’s just a bunch of namby-pamby kumbaya stuff?

Or maybe it’s that people are actually really afraid to talk about ethics.

You see, my ethics might be different than your ethics. In fact, they probably are. There are some research sources that you might use that I might not because of my ethics. And vice versa.

And ethics are a big deal culturally, too. What an American perceives to be a perfectly legitimate piece of information to gather for prospect research purposes might send a red flag up the pole for their colleague in the EU or UK. I taught Research 101 in another country several years ago and the group’s culturally-agreed ethical standards were completely Wild West to me.

Why should we even try to talk about ethics?

If we start talking about ethics in conference rooms, or in our offices, we might start arguing. The space we discuss them in might not feel safe. And what’s it all for, anyway? It’s not as if a certificate of participation in an ethics class is required for practicing in our sector, right?

And that’s where I think the problem lies. We are creatures of finding the slide.

Calculus or study hall? From scratch or store-bought? Netflix or the PBS News Hour? What’s the path of least resistance?

Talking about ethics and doing case studies are hard discussions. I think they’re necessary ones because trust and integrity are the foundation of the fundraising profession. If donors can’t trust the people that run and represent the organizations, they’re going to stop trusting the organizations. They’ll take their support to an organization they can trust.

If nonprofit professionals can’t trust their colleagues to be ethical, the honest ones will find jobs elsewhere. We’re already dealing with twin crises of donor and staff retention. I’m not saying that these crises and our fear and loathing of meaningfully discussing values are related, but what if they are?

This month, when we’re supposed to be talking about ethics, what actual solutions can we find? Can we make one ethics session during each fundraising conference a plenary so that everybody essentially has to be in the room? Can we make a unit on ethics a requirement for the CFRE? What can the prospect development field do to make meaningful conversations about this happen?

What do you think we should do?

ABOUT HBG

The Helen Brown Group was formed in 2002 with a goal to be different.

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