The $110 Billion Treasure Trove For Nonprofits
Take a football field. Cover it to a depth of nine inches (actually, about 9.14 inches, if my math is correct) with $100 bills.
That’s $110 billion. That’s how much money is held in donor-advised funds (DAFs) in the United States right now. These funds are earmarked to go to a charity like yours. And the pot of money has grown by $10 billion each year.
Continuing Roger’s theme from Tuesday of “things we learned from the TNPA’s Pivot and Prevail conference,” Jack Doyle of Amergent talked about donor-advised funds (DAFs) there. They have a number of excellent additional resources available here and I’m indebted to him for the analysis below. My goal is to persuade you this is worth going after, then share some of his tips on how.
Why pursue DAFs?
Other than the $110 billion number, that is? Well, in 2017, DAFs donors contributed 10% of all individual giving in the U.S. For perspective, online gifts contributed 8.5% of all individual giving, per Blackbaud’s 2018 Charitable Giving Report.
So, of course, you dedicate 20% more resources to DAFs than to digital fundraising, right? No? Me neither. So there’s likely an opportunity for us to invest more in getting these gifts.
Further, DAFs are growing. In 2017, the assets from these funds went up 27% and the number of funds went up 60%. This means that more smaller (but still quite substantial) donors are getting into the game, largely through the American Online Giving Foundation, which gets consumers to set up DAFs by sending them CD-ROMs in the mail.
I’m sorry; that’s the America Online Giving Foundation. The American Online Giving Foundation helps large companies with workplace giving, including opening a DAF for each employee as a benefit. It’s a great system for employees because they can make their donations to the DAF and get the tax benefit now, then distribute it later (rather like a reverse 401(K) or IRA).
So, large and growing fit my two favorite criteria for a market or channel. How do we take advantage?
How?
Jack talks about how larger organizations like The Nature Conservancy and Sierra Club have set up private label DAFs. TNC has staff who set up the funds and handle the distribution, with the promise that 20% minimum will go to TNC. In reality, TNC gets 80% of the annual grants. Not bad when the minimum to open an account is $100,000.
But that’s beyond the scope of many organizations. For everyone else, there’s the DAF Direct Widget. This widget plugs into Fidelity, Schwab, and Bank of New York, three of the largest DAF managers. When you have the widget on your site or donation page, not only does it take someone to their account, it restricted it so that person can give only to you.
That’s a good passive way to encourage more DAF gifts. Now, let’s actively solicit some gifts, starting with the easiest targets: people who have used the vehicle before. This can be a bit of a mess. Your database may have soft credits for DAF grants or hard credits or no credits, where you will need to track back through Fidelity, Schwab, et al, who made the gift. These folks, along with those who have given stock and your mid/major gift prospects, are the most likely to have and use DAFs.
While digging through data can be rough, imagine that someone gave $500 to your organization in 2017, then gave you $5,000 through their DAF in 2018. If you have the data, you can treat this person like the princess or prince s/he is and cultivate future DAF gifts. If you don’t, you are treating this person like a lapsed donor, complete with your traditional “why hast thou forsaken us?” messaging to an incredibly valuable donor.
You can even try DAF messaging in acquisition. American Indian College Fund used an insert mentioning their DAF widget and found that it was responsible for 14% of new gift revenue. More than that, it was responsible for 33 of their 41 $1000 first gift donors. And, as you know, donors who start at larger amounts are more likely to retain, so there’s a chance those 33 donors were worth more than the 10,226 other donors brought in by the campaign in terms of lifetime value.
These are the tip of the iceberg for techniques you can use, but even steps like using the DAF Direct Widget and cleaning up your data can yield large returns. Thanks to Jack Doyle and Amergent for the great data and hope it helps!
Nick
9 responses to “The $110 Billion Treasure Trove For Nonprofits”
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I’m confused. I thought one of the limitations of DAFs is that the donor “advises” but cannot promise that a gift me directed to a certain charity. Hence the prohibition on pledge payments being made via DAFs.
So then, in the case of The Nature Conservancy how can there be a “promise that 20% minimum will go to TNC”???
Thanks
The donor to a DAF can advise the sponsor to make gifts. Legally, the sponsor isn’t required to follow that advice, but in reality, the sponsor almost always follows those wishes as long as the recipient is a tax-exempt nonprofit.
Thus, within DAF Direct, you can request even recurring gifts through a DAF.
TNC et al are able to ask for this because in the private label DAF, they are the sponsoring organization. The donor is giving the money to them for distribution and they put this proviso in ahead of time.
Thanks, Nick.
Do you know if the 20% promise is in lieu of, or in addition to, whatever management fee TNC charges each account holder?
In lieu of. Some of the details are at https://www.nature.org/en-us/membership-and-giving/donate-to-our-mission/gift-and-estate-planning/all-planned-giving-options/donor-advised-funds/?tab_q=tab_container-tab_element
Thank you for the great advice in helping orgs to figure out some ways to penetrate the anonymity. I heard tax policy expert Ray Madoff from Boston College speak at the Yale Philanthropy Conference this year all about DAFs. A fact she noted that has stuck with me. While DAFs claim they pay out between 16-20% per year, she noted that the biggest receiver of funds from DAFs is Fidelity Charitable Gift Fund… that a lot of the money in DAFs just circulates between DAFs. Ugh. “Waiting rooms for charity” And Do we know if the total given to DAFs quoted above includes all the money in DAFs at community goundations. DAFS are gold to the holder of them as they scoop up the management fees from the investments. So there is little incentive on the part of the DAF to pay those funds out.
This may, I hope, be changing a little. There’s been (IMHO, justified) pressure on DAFs to pay out to charity in the press. Folks like Schwab and Fidelity want the golden eggs, not the goose, so they’ve been more responsive with tools like DAF Direct to make it easier for donors to recommend payouts. But you are absolutely correct that absent that pressure, it would be fine with big DAF administrators if funds were with them in perpetuity. Thus, it’s important for we nonprofits to be pushing donors to make the distributions.
Interesting timing of your blog, Nick! Did you see this article from 5/31? Do you think this case could impact the way the law is written regarding the donor’s request to allocate to specific orgs? https://www.nytimes.com/2019/05/31/your-money/donor-advised-funds-charitable-giving-lawsuit.html
I did – thanks! This case is interesting because it doesn’t deal with the disbursement side of things (the plaintiffs are saying Fidelity promised not to sell their stock at once to keep price stability; Fidelity is disputing this and saying the funds are theirs once the donation is made). But, as you say, if could have implications for us. If Fidelity is able to ignore the wishes of a donor upon donation, you could have it say it refuses to donate organizations with a certain political slant (e.g., ACLU or Heritage Foundation) or religious bent or the like. They likely wouldn’t do that, because they want the fees that come with donations, but it’s possible. If that happens, I would expect DAF giving’s growth to cool somewhat.
On the other hand, if the donor can do anything and everything with the money after the gift, then it isn’t a gift – it’s a tax-exempt savings account.
So my guess (with my usual proviso that I’m not a lawyer) is that there’s likely to a shakeout to a middle ground where donors are able to put limitations on the gift initially (whether Fidelity should or should not have liquidated the assets immediately in this case, it seems like an acceptable thing to ask from donors and to accommodate on the DAF side), then are able to advise gifts thereafter as they have been doing.
That said, I think we are still a bit in the wild west of DAFs with more thought needed as to whether they serve a societal benefit beyond tax shelters. I wouldn’t be surprised if regs are tightened (for example, on what % is paid out per year) over time.
Other thoughts?
I think you’re probably spot on about regulations may be tightened. It would seem to make sense so that it’s not a “tax-exempt savings account” for the fund, either (so to speak). It’s definitely worth keeping an eye on. Thanks for your insight!