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Donor Advised Funds Are a Potential Fundraising Goldmine – If You Do the Right Things

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Donor Advised Funds (DAF) in the USA and UK (called PAFs in Australia)  are a very big deal, and getting bigger. They have gone from being a sort of fringe way some donors gave, to a massive and important donation channel.

None of us can afford to ignore DAFs any more.

A DAF is a giving account that allows donors to make a charitable donation, get an immediate tax deduction, and then recommend grants from the fund to charities of their choice over time. Most are created as Foundations by major investment houses like Fidelity or Vanguard in the US, or Fairfax Family and Cannon-Brookes in Australia. But some are run by local community foundations or other nonprofits.

There’s a lot of data around DAFs, so I’m going to focus on the US, but these lessons apply to all countries where there are similar mechanisms.

They are skyrocketing in number and in the amount of money in them. There was $234 billion in DAFs at the end of 2021 — up 40% over 2020.

And they’re giving out more money. DAFs granted $46 billion in 2021, 28% more than in 2020.

While most DAFs don’t have any minimum size, meaning almost anyone could have one, they are mostly used by more affluent donors — our mid-value and major donors — for their tax convenience.

Here’s what should really grab your attention about DAFs:

According to a recent survey, organizations that actively seek DAF grants raise a lot more money than those who don’t: 2.2 times more revenue. The survey also found that 54% of US nonprofits never solicit DAF donations at all. That used to be no real problem. But now, if you ignore DAFs, you could be leaving donations on the table!

They’re very engaged and involved. Generally, 79% of these donors volunteer. In comparison, only twenty-five per cent of the general population volunteers.

The average age is about 65, with most donors starting their DAFs around age 55.

They are close to or are recently retired and are thinking about the next stage in their life

These donors are at their highest-income-earning years, having paid off major expenses, and they want to “give back” excess funds. Most have modest amounts in their DAF funds (less than $25,000) though donors represent all income levels

2 problems with DAFs – and your solution to both

  1. DAFs can keep money intended for philanthropy locked up, not supporting the good work of nonprofits. The donors have technically given their donation when they deposited in the fund. They are not required to complete the transaction by granting the money out to charities. If they don’t do that, the money just sits in the fund. You can complain about this (like Sean does, a lot) or you can go get it. (Which to be fair, Sean agrees on this point.)
  2. Giving mainly happens separately from donors’ conversations with charities. They may be getting powerful fundraising pitches through direct mail and other channels, feeling motivated by them … but to donate, they have to go away to the coolly rational environment of their Fund website. Talk about a philanthropic buzz-kill!

As fundraisers, we can play an important part in solving both of these problems. And when we do, the financial benefit to us could be huge. Here are some things you can do that can make a big difference for you and your DAF donors …

Actively promote DAF giving

  • Promote DAF giving in your newsletter.
  • Have a link in the appropriate places of your website that’s something like, “Give from my Donor-Advised Fund.” And make sure it goes to a page that guides them through the DAF grant process.
  • Get a DAF Widget – a way that allows donors to tap into their funds directly from your site. There are several of these available.

Ask your donors if they have DAFs

  • Ask major donors, bequest prospects, and others if they have DAFs.
  • Include a “Do you have a DAF?” question in your next Supporter Connection Survey.
  • Add an “I have a DAF” check box to the back of your reply devices.
  • Send a letter to likely DAF holders. There are statistical models that can help you find them.

Keep your information current

  • Keep your charity watchdog profiles up to date, especially Guidestar. Many DAF sponsoring organizations rely on Guidestar to make sure nonprofits are in good standing and to make sure grants go to the right place.
  • Get to know the leaders of your local community foundations. They are much more active than financial firms in recommending organizations for grants.

Make DAF giving rewarding

  • Thank donors for their DAF grants. While a grant is technically not a donation, in the donor’s mind it is very much their gift to you. (But be careful not to send them a tax receipt. This could lead them to accidentally commit tax fraud.)
  • Treat them as the mid-value or major donor that their grants indicate. There’s a good chance they can give you more, with or without their DAF.
  • Encourage them to take advantage of the features of their DAF, especially automatic monthly grants and make your organization the death beneficiary of the fund.
  • Consider making DAF donors members of a special “society.”

Fundraising requires you to stay on top of a mountain of ever-changing details. It’s not for amateurs! It’s also not for go-it-alone types. That’s why you should join The Fundraisingology Lab by Moceanic. You’ll get the tools, the information, and the supporting community that will take you to new places in your fundraising career. Make your reservation now and be the first to know when the doors open again. Don’t miss it!

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Author

  • Jeff Brooks

    Jeff Brooks is a Fundraisingologist at Moceanic. He has more than 30 years of experience in fundraising, and has worked as a writer and creative director on behalf of top nonprofits around the world, including CARE, St. Jude Children’s Research Hospital, Dana-Farber Cancer Institute, Feeding America, and many others.

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