The Dangers of DAFs
contrast, organizations that provide support for children and youth (education) grew by 29% and social service grew by 5%. Fidelity Charitable Gift Fund, Goldman Sachs Philanthropy Fund and Schwab Charitable Fund rank in the top 6 Nonprofit Organizations as ranked by Philanthropy Today.
Why is a problem?
So many reasons. Fundraising for US nonprofits typically accounts for 12-20% of a nonprofit’s revenues. Not the largest bucket but often the one that ensures that the nonprofit’s mission can move forward. But fundraising is pretty dormant—and the vast majority of nonprofit struggle mightily to keep their doors open. Consider:
· Charitable giving remains at around 2% of the Gross Domestic Product. To the degree it goes up at all (to, say, 2.1%) it is almost exclusively due to well-reported natural disasters. Especially if those are US based.
· When charitable giving used to be reported, it was almost completely about gifts to public charities. Today, the top fundraiser is Fidelity—not exactly a public charity. And it is followed closely by Schwab.
· Other big charitable giving recipients are the private foundations of the very rich. Like when Michael and Susan Dell gave generously to their family foundation, or Warren Buffet provides support for the Gates Foundation. Yes, eventually these funds, and the DAFs that make Fidelity and Schwab winners in the fundraising sweepstakes will get to the charities—but at a disbursement rate of 5% of year, that will be in a very, very long time.
· Mega gifts—those over $10 Million—are increasing. But only a very small number of organizations are recipients
· Household giving is dropping both in number of households giving and the size of those gifts is also dropping
If you are picturing that hamster running around inside a wheel, getting nowhere, you are thinking about where most nonprofits are heading, fundraising-wise.
And those donor advised funds—the only beneficiaries seem to be financial advisors.
In 2017 donors contributed $20.23 billion into DAFs. Only $19.08 billion went to charities in the form of grants. And oh, assets in DAFs that year exceeded $110 billion.
Think of all you could do—all nonprofits could do—with some of that money.
While it is easy to simply wring one’s hands, moaning about this problem will not get any of us anywhere. Yes, there should be a requirement to give away at least something (preferably more than the 5% private foundations must disburse) every year. Right now, those funds can sit in a DAF for eternity. Yes, donors should NOT be allowed to claim a tax deduction when they place their assets into a DAF. That should happen only when the money gets to a charity.
Beyond that, we all know that larger gifts come from building relationships with our donors. However, it hard—very very hard—to build relationships with many of those who give through DAFs. Often the financial managers help select the nonprofits who receive the money for their clients. And because many DAFs can, and do, hide the identities of their individual donors, you cannot reach out and hug your donor, showing them how important their giving is.
What can you do?
· Reach out to formerly loyal donors who suddenly seem to have stopped giving. Find out if the reason is that they are now giving through their DAF
· Get to know who locally provides DAFs—such as community foundations—and get to know their managers and their policies. Try to become one of the organizations they recommend to their clients
· Remind donors that if they have a DAF, they can choose to give to you—and they can introduce you to their advisors
· Make it easy to receive online gifts from DAFs.
· Educate your donors on how DAFs can improve, rather than impede, their philanthropy—and how being transparent with the organization who is receiving their generosity will help to ensure that they learn first-hand about the impact their gift has made.