Donor-Advised Funds Deepen the Donor Pool, Create Opportunities for University Fundraisers
Americans are increasingly choosing donor-advised funds (DAFs) as their preferred charitable giving vehicle. They have become the fastest growing vehicle in philanthropy, outnumbering private foundations by more than two-to-one. In 2010 (the most recent available data), grantmaking from DAFs totaled more than $6.1 billion.
These statistics would indicate that many university donors are making charitable gifts from their DAFs. However, many fundraisers still ask me about finding and cultivating these donors. My answer is always this: to capitalize on DAFs, you have to know how to communicate with your donors and prospects who have DAFs and understand their flexible benefits.
DAFs create fundraising opportunities that are unique for universities. Administered by public charities, DAFs are created to manage charitable assets on behalf of a family, an individual, or an organization. A DAF’s main appeal is that it is convenient, low-cost and flexible. DAFs allow donors to recommend grants and maximize their tax benefits without being responsible for the complex administration.
However, their flexibility and multitude of benefits can appeal to universities. The key to success is for you to find the best way to work with donors who have DAFs.
How to find donors with a DAF
Cultivating alumni donors, and donors in general, who have a DAF is little different than cultivating donors who have a private foundation or practice checkbook philanthropy. There are some special considerations for donors with a DAF. Here are a few key facts about DAFs to keep in mind:
- Cultivation—In general, charities that sponsor DAFs do not disclose their donors’ names. They rarely accept unsolicited grant applications, either. Instead of searching for complicated avenues into a DAF, I suggest you ask donors to report the information voluntarily. You can target existing donors by including “a grant from a DAF” as a way to give on your solicitation materials. You may also want to expand prospect research beyond your pool of alumni, targeting those whose interests align with your university’s research programs or special projects in need of support.
- Tailor communications—A grant from a DAF cannot be used to pay member dues, purchase benefit dinner tickets, or to fulfill a pledge because donors are not allowed to receive any goods or services in exchange for their contributions. Once you have identified your school’s DAF donors, you can send communications geared toward taking advantage of DAF characteristics, such as the ease of setting up a recurring gift schedule.
- Start early…in-house—Some DAFs have a low initial gift requirement, which is appealing to young donors. DAFs can give them a way to invest their funds to maximize their charitable giving and tax benefits. Younger donors may also be inheriting DAFs. By making giving through a DAF easy for your alumni—young or old—you are increasing the likelihood of cultivating planned gifts and having predictable, ongoing support.
- Highlight special causes—DAFs are often created to fund a specific, named cause (e.g., the John Doe Cancer Research Fund). You may be able to cultivate these non-alumni donors for grants by approaching them directly as a medical research contributor or other university-sponsored special interest. Once you’ve captured a new donor’s attention by appealing to their interests, you can consider cultivating them directly.
- Remember the donor—When a grant is made from a DAF, the sponsoring charity will send a letter confirming the grant and identifying both the DAF and the donor, though some request anonymity. If the donor is identified, remember to thank the donor—whether they are a member of the university community or outside of it—as well as the charity when possible. This will cultivate them for the next gift.
Why focus on fundraising from DAFs?
Consider these advantages and the real-life examples of how DAFs can partner with fundraising in higher education:
- Wide variety of eligible assets—Most DAFs can accept illiquid asset contributions, such as securities, real estate and other tangible assets, meaning, a DAF can turn an asset you may not have considered into a charitable gift. One way for you to take advantage of this feature is by partnering with a DAF sponsor that is willing to liquidate the unusual asset and then the donor can recommend the grant to your institution.
In so doing, you are not only getting a new gift, but you are also minimizing the risk and cost to the university. A well-meaning alumnus might wish to give but have much of their wealth tied into illiquid assets, such as a house or a collection of artwork. For a university, the logistics of accepting such a donation can be an expensive and risky task that may outweigh the eventual monetary value of the gift. If that alumnus uses a DAF at a public charity, that same property can translate to a grant to the university without the administrative burden or risk.
- Higher output—The payout rate from DAFs was 17.5% in 2010. Giving from DAFs has averaged at least 16% for the last five years, notably through one of the worst economic downturns since the Great Depression. Private foundation payouts consistently averaged the required 5% during the same period.[ii] DAF payouts remain higher than those of private foundations even through tough economic times. If a donor has accumulated a comfortable balance in their DAF, it can serve as a stable source for grant opportunities while other giving outlets may be limited.
- Administrative ease—Individuals who contribute to DAFs benefit from the expertise of the public charity that administers their fund. The public charity has likely accepted dozens of assets, executed many grant agreements, and vetted thousands of qualified nonprofit organizations. This expertise doesn’t just benefit the donor, it can be an advantage to grant recipient organizations as well. For example, one of National Philanthropic Trust’s donors wanted to support university-based Alzheimer’s research in a meaningful and continuous way, but wanted oversight of the research progress. Working with both the donor and the university, we were able to set-up a benchmark grant that involves independent experts to help verify research results and attract other funding. NPT’s technical expertise in grantmaking helped to alleviate some of the administrative burden for the entire gift process.
Research indicates that DAFs are likely to continue experiencing tremendous growth in the coming years. University fundraisers and others are smart to be prepared for the growing impact of DAFs on fundraising and charitable giving as a whole.
—Eileen R. Heisman, is president and CEO of the National Philanthropic Trust (NPT)