When advocates of donor-advised funds look to the future, they see something like this: Banks that offer customers DAFs along with checking and savings accounts. Employers that give DAFs to workers as a benefit not unlike a 401(k). And digital giving platforms that provide users with accounts to stash cash in pursuit of charitable goals.
Donor-advised fund providers aim to make their products as commonplace as college savings and retirement accounts.
It’s not clear whether the industry can build such a future — in five years or 20 years or ever. But it is taking small steps with new low-cost offerings to attract more of the 60 million households that give to charity every year. The funds, which already have reshaped the culture of philanthropy, could change giving habits even more, to the chagrin of critics who worry that DAFs hurt nonprofits.
Today, DAFs are relatively rare — there are fewer than 2 million accounts — yet mighty, thanks to their collective $250 billion in assets, according to the National Philanthropic Trust. They are a giving vehicle that’s been embraced by the affluent. At Fidelity Charitable, the nonprofit offshoot of the financial-services giant, funds average nearly $300,000 in assets, according to the organization’s latest tax filing.
To expand its market reach, the DAF industry is taking steps to make funds more accessible. These include:
Two of the three largest DAF providers — Fidelity, as well as DAFgiving360, formerly Schwab Charitable — eliminated their minimum contribution to open an account. Typically donors are required to put in anywhere from $5,000 to $250,000 to open a fund. But now, half of the 10 largest DAF sponsors have no minimum.
At least three community foundations in large metro areas — Atlanta, Chicago, and Kansas City — do not require a minimum contribution. The Community Foundation for Greater Atlanta dropped its $100,000 minimum in 2020 “with the intention of living into the word ‘community’ that’s in our name,” says Tim Bresnahan, vice president for philanthropy. The move also aims to make DAFs available to individuals in their 20s or 30s who want to give more strategically but don’t have the wealth for foundations, Bresnahan adds.
Workplace giving programs are incorporating DAFs. The number of accounts hosted by the nonprofit arm of Benevity, which manages employee giving and corporate matching-gift programs, reached nearly 680,000 in 2023, according to tax filings — a nearly five-times increase since 2017. The average value: $305. The Blackbaud Giving Fund, launched in 2020, makes DAFs available to workplace giving and peer-to-peer programs. Serving chiefly as a pass-through — it doesn’t invest donations — it has distributed more than $2 billion to nearly 200,000 nonprofits.
Silicon Valley start-ups like Daffy and CharityVest are offering low-cost DAFs and encouraging individuals to set aside money each month for charity. In its second year of operation, Daffy donors put $105 million in their accounts, with 36 percent of transactions coming through recurring gifts. The minimum contribution: $10.
DAFs can become as widely used as individual retirement and college-savings accounts, says Adam Nash, co-founder of Daffy. “Most of the people who give to charity regularly are going to end up with a separate account for charity. And it’s very likely going to be a donor-advised fund.”
Will Nonprofits Lose Out?
Critics argue that the proliferation of DAFs will spread a harmful giving strategy in which donors contribute not to a working charity but to a third-party intermediary with plans to grow the amount and give later. “These are behaviors of the wealthy,” says Ray Madoff, a professor at Boston College Law School and longtime DAF skeptic. “We should not be encouraging tax deductions now and benefits to charities later.”
At least a few charities have noticed a change in who’s making DAF gifts. Prospect researchers and major-gift officers once viewed DAF ownership as a reliable indicator of wealth, one fundraiser told the DAF Research Collaborative recently as part of a study of DAFs and fundraising. No more. “What you’re really seeing … is that it’s a tool that is being used by the middle class to engage in philanthropy.”
Abigail Seldin, chief growth officer at Scholarship America, says it’s hard to know if new donors are making use of DAFs, if only because so many DAF contributions do not include the donor’s name. But not all the gifts are big, she adds. “Since 2019, we’ve received more than 2,000 gifts through donor-advised funds. And those gifts range in size from $5 to $100,000.”
At the international aid group Save the Children, data doesn’t yet suggest that DAFs are being widely used by a new class of donors, says Bleu Blakslee, senior adviser for emerging markets and philanthropy partners. “But I do think that there’s increasing awareness of DAFs as a tool,” particularly among younger donors.
Under a recent partnership, Daffy’s funds are being made available through Betterment, a “robo” wealth adviser whose more than 800,000 clients have a median age of around 40. DAFs embedded in workplace giving programs also will reach younger donors, says Matt Nash, head of the Blackbaud Giving Fund.
“The average worker is 38 years old,” he adds. “Fundamentally, I think that the workplace is a good place to get everyday giving going at a better rate than it is today.”
Still, it doesn’t appear that the low-entry-fee DAFs are transforming the landscape yet. Atlanta’s community foundation still has roughly the same number of funds as it did before it dropped the minimum. At Fidelity Charitable, median assets remain around $21,000 almost five years after making the move, according to the organization.
It’ll likely take five years or more to realize the opportunity to bring DAFs to large numbers of everyday donors, says Gideon Taub, founder of Pinkaloo, which aims to reach the mass market via banks, community foundations, and other institutions. “I don’t think it has grown yet in the way that we initially expected it to,” Taub says.
However, the opportunity with the “mass affluent” market — households making roughly $100,000 a year — “is ripe,” according to Taub. Pinkaloo was acquired in 2021 by Ren, a philanthropy technology and services firm. At the time, Ren CEO Joseph Fisher said the acquisition would help dispel the idea that DAFs and other giving tools are “rarefied air, designed and used predominantly for a small percentage of people.”
Taub agrees. “Over the next 12, to 24, to 36 months, we’ll see DAFs in the mass affluent segment much more commonly.”