DAFs: Good, Evil …or a Bigger Trend?

Learning Edge Blog, News, , , ,
<a href="https://pixabay.com/photos/puzzle-money-business-finance-2500328/">Image</a> by <a href="https://pixabay.com/users/qimono-1962238/">qimono</a> on Pixabay
Image by qimono on Pixabay

by Jennifer Filla

There’s been quite a bit written about Donor Advised Funds, otherwise known as DAFs. The Institute’s resident provocateur, Rhode Warrior blogger Mark Noll, highlights some of the negative effects of DAFs, such as the ability for a donor to retain influence over the money in a DAF without being required to actually disburse funds. For example, foundations are required to give away five percent each year.

A recent and thoughtful post by Apra bloggers, Bond Lammey and Lindsey Nadeau, points out some of the positive effects of DAFs, such as the way they “democratize” giving with low gift thresholds, making them accessible to the masses, much the way mutual funds liberated investing.

I’ve collected some resources below if you want to learn more about the details and passions inspired by DAFs.

I’d also like to share with you my observations on where DAFs sit within the greater philanthropic landscape.

The most remarkable change I have observed researching philanthropists is that DAFs appear to have become yet another vehicle for wealthy individuals who desire to make monetary gifts. I’ve noticed that high-net-worth individuals (HNWIs) will often create a DAF and continue to give through all of the other vehicles they might have.

Sometimes the donor’s private foundation makes a gift to the donor’s local community foundation to create a DAF or the donor makes a personal gift to create a DAF. But most of the time all of the existing giving continues: personal, foundation, and sometimes business.

Although an unpopular position, I don’t believe tax is a primary driver in the majority of U.S. philanthropic giving choices such as DAFs. HNWIs, especially entrepreneurs, have the means and the talent around them to achieve their philanthropic objectives via whatever methods best fit their circumstances.

For too many years now, fundraising has been “chasing” people of wealth to give. Instead of listening and caring about each individual’s philanthropic goals and where they overlap with an organization, too often the prospect is pushed and prodded by fundraising into giving to what the organization cares most about. And it is no small consequence that fundraising has been aided and abetted in this pursuit by ever more effective prospect research.

I suspect that DAFs are part of the larger trend of wealthy donors to go anonymous and/or to take back more control over their philanthropy. Just as the wealthy buy up all the pieces of real estate around their home to create a privacy “mote,” so they are surrounding themselves with multiple giving vehicles, such as DAFs.

Priscilla Chan and Mark Zuckerberg created an LLC to free their philanthropic objectives from regulatory restraints and scrutiny (no, we researchers can’t see those gifts reported either!). Social impact funds are rising in popularity as emerging philanthropists look for different ways to reach their philanthropic goals. Could these be symptoms of a malaise in fundraising?

We are entering a new cycle in fundraising. Understanding how each of these new giving vehicles (including DAFs) play a role in that new cycle is critical knowledge for prospect research. Happy learning!

Learn More About DAFs