A $45 Billion Funding Opportunity: Donor-Advised Funds And The Business Of Philanthropy

Created By: CJ Orr
June 8, 2023

Grants made through donor-advised funds (DAFs) exceeded $45 billion last year. The accounts are putting wealth to work on behalf of health, education, the environment, and so on, and nonprofits can’t afford to ignore their promise.

Here are five things to know about DAFs.

1. DAFs are here to stay.

Looking back at the rise of DAFs and the debate that followed, there wasn’t really much of a debate. There was a lot of hand-wringing on the part of nonprofit leaders, but for the most part, the financial institutions that manage the vehicles remained focused on growing their client base and meeting the needs of these clients. The growth has been phenomenal: According to the National Philanthropic Trust, total DAF giving grew 28.2 percent in 2021 and 28.3 percent in 2020. As for the biggest complaint about DAFs—the money sitting around doing nothing for charities—Fidelity has instituted policies mandating distribution. The DAF grant payout rate was 27.3 percent in 2022, the highest on record.

>>> Read more: New Study Shows DAFs Self-Regulate

2. DAFs are part of an overall financial plan.

DAFs began as vehicles of community foundations and continue to operate in that environment, but financial services companies like Vanguard, Fidelity, and Schwab have driven most of the explosive growth. When these companies help an individual open a DAF, it is often in the context of asset distribution and estate planning, so DAF holders are likely to be both more fully aware of their overall financial picture and more philanthropically inclined—or they wouldn’t have opened a DAF in the first place.

3. In a weak economy, DAFs offer fundraising hope.

If the stock market is showing signs of decline, correction, or diminished growth, donors who are investors (that is, nearly all of them) may reflexively plead poverty when their friendly neighborhood major gift officer comes calling. This moment, however, crystallizes the value of DAFs, because the money is there for the giving. The tax benefits of the donation have already been incurred, so the account holder can’t claw it back to pay for a sailboat or luxury vacation. Furthermore, the nonprofit can make the case for the added urgency of its mission during these times, without regard for the ups and downs of the donor’s personal portfolio. This dynamic makes the conversation you want to have with a donor easier to have.

>>> Read more: DAF Giving Weights Toward Female Causes

4. DAFs are a perfect conversation starter.

Engaging with donors about their DAFs can lead to deeper and more personal dialogue about their priorities, their families, and their hopes and aspirations as philanthropists. It’s perfectly all right to ask if someone has a DAF. I recently heard from a major gift officer at an Orr partner organization who discovered that a donor had one but only thought of it as a vehicle for giving to her alma mater. This discovery led to a meaningful conversation about how she could turn her annual gift to the organization into a blended giving portfolio that included a planned gift. One easy thing you can do to capitalize on this opportunity is embedding the DAF Direct widget on your website’s donation page. Orr Group is happy to partner with organizations on engaging donors and leveraging DAFs.

5. DAFs represent the business of philanthropy in a nutshell.

Orr Group’s unofficial slogan, “bringing a business mindset to philanthropy,” captures an essential truth about giving: The people and institutions best positioned to make a transformative difference to nonprofits tend to think in terms of finance. They surround themselves with expert advisors to help them maximize growth, protect against risk, and meet their long-term goals, including the legacy they leave their heirs.  Our team speaks the language of finance fluently and translates it for nonprofit organizations, which have a range of missions for changing the world. Donor-advised funds represent a similar bridge between high-net-worth individuals and nonprofits.

Orr Group anticipates that DAFs will continue to play a growing role in the philanthropic landscape, and we hope that nonprofits will embrace the vehicles and their full potential. We were recently honored to speak with National Philanthropic Trust President and CEO, Eileen R. Heisman, ACFRE, to explore this topic further. A nationally recognized expert on charitable and planned giving, Eileen has appeared on NonProfit Times’s Power and Influence Top 50 list nine times.

Want to learn more? Watch our recent Orr Group TALKS “Fundraising in Uncertain Times: Strategies for Engaging Donors and Maximizing Philanthropy”.

CJ Orr is President and Partner of Orr Group. As an expert project and relationship manager with 10+ years of experience in the sector, CJ utilizes data, technology, and financially-backed trends to execute on the development of strategies and tactics to drive effective fundraising plans that meet or exceed targets.