Whenever Christine Benninger reviews the volume of grants from donor-advised funds that her charity received last year, the numbers take her by surprise.
“It’s really exploding,” says Benninger, president of Guide Dogs for the Blind.
Grants from donor-advised funds (DAFs) to the nonprofit increased from 47 gifts totaling nearly $30,000 in fiscal 2018 to 205 donors who gave $240,000 in fiscal 2019.
DAFs are irrevocable charitable accounts that allow donors to take an immediate tax deduction but disburse the invested money whenever they wish — it could be within the same year or many years later. Their popularity has grown exponentially in recent years, and charities are scrambling to figure out how to take advantage of the trend.
DAFs offer some advantages. In Benninger’s experience, gifts from DAF accounts are typically larger than those given by traditional means, and they are insulated from economic trends, allowing donors to give at a time when they might otherwise curb their spending and charitable giving.
“Somebody has already put aside the money, and that’s the big step,” Benninger explains. “It’s a lot easier to write a check for $5,000 because the donor has already had the pain of taking that money away. There’s a psychological aspect to it.”
Yet, DAFs also present challenges for fundraisers. Because the tax advantage is available upfront, some donors may take years to dispense money from the fund, delaying it from reaching nonprofits that need support. Once a donor transfers money into a fund, the sponsoring organization (often a community foundation or the nonprofit arm of a financial-services firm) becomes the owner but almost always directs the money according to a donor’s wishes. But some donors choose to be anonymous or to give through a vaguely named fund, which can make it difficult for charities to build relationships with them.
“It’s challenging from a donor-cultivation perspective,” says Benninger. Some sponsoring organizations, such as community foundations with a local focus, might pass along a message, recommendation or thank-you note to the donor who made the gift through the DAF. Others — often, large national shops with thousands of clients — are more reluctant to engage donors on behalf of charities and will make connections mainly at a donor’s behest, if at all.
“DAFs are here to stay,” Benninger continues. “We as charitable organizations have to figure out what the new normal is and how we work with that.”
Connecting With Gatekeepers
Benninger estimates that 60 percent of DAF donors to Guide Dogs for the Blind are easily identifiable, allowing her to cultivate them directly — which is always her preference. “If we can get to the donor, that’s so much more effective because you are not relying on somebody else to translate your message,” she explains.
To reach those who give anonymously or through a fund with a cryptic name, it is especially beneficial to build ties with sponsoring organizations.
Steward program officers at small and midsized sponsoring organizations. Christy Eckoff, the chief foundation officer for the Jewish Federation of Greater Atlanta, suggests charities focus their efforts on community foundations and other small and medium-size sponsoring organizations that have a local focus. Such organizations consider it part of their mission to develop an intimate understanding of the community’s charities and their donors’ preferences.
“To some extent you steward these sponsoring organizations the same as you would the donor. Send them information periodically of what you are doing,” Eckoff says. “Program officers have limited capacity as well. The more that you can proactively send them things they can read on their own, the better.”
Invite program officers to see your work in action. Besides sending program officers information throughout the year — items such as event invitations, news updates, and annual reports — Guide Dogs for the Blind hosts representatives from sponsoring organizations for tours of its campuses. These visits establish relationships that pay off when grant officers interact with DAF holders.
“The program officers can’t necessarily tell somebody who to give their money to, but oftentimes people will ask their thoughts,” she says. “It’s nice to have us at top-of-mind from that standpoint.”
Create opportunities to interact with representatives of sponsoring organizations. Julie Smith-Bartoloni, interim vice president for development and donor services at the Boston Foundation, encourages charities to get as much face time as possible with those who work at sponsoring organizations, especially those in the program and donor-services divisions. At community foundations, program officers spend the bulk of their time learning about local charities’ work and impact, she says. Staff members in development and donor services often rely on program officers to keep them informed so they can offer donors giving ideas and approaches.
Find informal ways of interacting with grant officers. Take advantage of small events hosted by community foundations, which range from intimate coffee hours aimed at helping donors explore specific causes to a public rollout of foundation-commissioned research on regional issues. Use meeting rooms and other resources provided by community foundations, allowing for informal interactions with grant officers and staff that help keep a charity in mind. Attend annual galas and award ceremonies to meet donors and their advisers.
Some organizations have an open call for proposals — any charity can make submissions to the Boston Foundation’s Open Grants Program, for example, and donors with funds at the foundation might take interest in a nonprofit by reviewing applications. Charities are encouraged to communicate freely and often with the Boston Foundation, whether that includes informal conversations or brief presentations. “When a nonprofit wants to come in and just get to know us . . . we relish that,” says Smith-Bartoloni.
Ask community foundations for more details about the person behind the DAF. Smith-Bartoloni recommends that charities reach out to sponsoring organizations if a DAF donor is listed as anonymous or is hard to identify. Her foundation, along with most other community foundations, will make connections if the donor is amenable and pass along notes if the donor wishes to remain anonymous.
“We see our job as helping be a liaison between those who house their philanthropic dollars here and those who are doing work in the community,” says Smith-Bartoloni, adding that the vast majority of donors who establish DAFs at the Boston Foundation want charities to know who they are. Donors “expect us to know the nonprofit community, and they expect us to make connections for them so they can make investments in the community.”
Ask donors with a DAF to make introductions to representatives at a sponsoring organization. Benninger at Guide Dogs for the Blind has found it especially successful to ask an active DAF donor to introduce the charity to the sponsoring organization that administers the account. The donor is usually happy to make the introduction, and the sponsoring organization is often more open to developing a connection when encouraged by donors.
“Typically you need some kind of in” to begin meaningful communication with grant officers and philanthropic consultants, Benninger says. It is particularly hard to build relationships with staff at national sponsoring organizations, which are responsible for the majority of DAF accounts in the United States.
Fidelity Charitable, for example, processed 1.5 million grants to nearly 155,000 charities on behalf of DAF accounts in 2019. Grants totaled $7.3 billion, a 39 percent increase from the year before. Fidelity does not typically recommend nonprofits to donors. Amy Pirozzolo, head of marketing for Fidelity, says the organization encourages charities to interact with donors directly.
It’s not possible for national sponsoring organizations to be experts about every cause, says Eileen Heisman, head of National Philanthropic Trust (NPT). Donors’ interests are simply too broad, she adds. (Organizations like NPT and Fidelity do offer limited philanthropic advising, but the service is usually reserved for their largest account holders.)
Tap into the financial advisory team. Jacqueline Valouch, head of philanthropy at Deutsche Bank Wealth Management, says that charities should consider connecting with all professionals who advise a donor, including accountants, wealth advisers, and lawyers. Wealth advisers who work at companies with a philanthropic mission and with legacy clients — large families with generous multigenerational giving plans, for example — are often engaged in giving conversations and decisions, Valouch says.
To reach these professionals, charities can leverage or form an advisory committee consisting of financial and legal professionals. In addition to receiving valuable advice on philanthropic approaches donors may take, charities also can tap these individuals to connect them with financial advisers who want to be knowledgeable about nonprofits.
Charities should also ask existing donors to introduce them to their wealth-management teams. Nonprofit executives might also consider participating in membership organizations, such as estate-planning councils, to network with wealth advisers, she says.
“If you are trying to capture a donor, you want to look at everyone who is surrounding that donor and working with that donor as an adviser,” Valouch says. “You want to be part of the team that is working on that donor’s philanthropy.”
Getting to the Donor Directly
Pirozzolo says 97 percent of grants awarded by Fidelity in 2019 included a donor or fund name, and 88 percent included an address and donor name.
“People feel like we are a gatekeeper,” she explains. “I would say, ‘No, most of these donors are already giving to you; you just need to make sure you’re recognizing who is giving through a DAF and make sure you are reaching out to them in an appropriate way.’”
“I tell people all day long, you ought to put those donors at the top of their stewardship and engagement list,” Pirozzolo says. “You know that if they are giving through a DAF, they are already very charitably inclined and they have already set money aside.”
Make sure processing departments carefully catalog DAF gifts. Checks might list a sponsoring organization as the donor, but they usually also include the name and address of the fund or the person who opened it. Despite the growth of DAF giving, experts say many charities are not tracking the gifts carefully.
Heisman, for example, directed a grant through her personal DAF account but never received a note of recognition from the recipient, a museum. When she called up the museum, she discovered it did not have a record of her gift, despite the fact that she disclosed her identity in the grant and, as a regular contributor, was in the museum’s donor database.
Encourage donors to solicit friends who also have DAFs. When communicating with donors giving through a DAF, don’t limit outreach to thank-yous. Ask them to encourage their friends to give too, says Kim Klein, a fundraising consultant.
Encourage donors to use the features and advantages of their DAF accounts. Many DAFs, for example, can name charities as successors to the original donor. DAFs can also be used to set up recurring gifts — more than a quarter of the grants awarded by Fidelity in 2019 were part of a recurring or scheduled gift.
“A DAF, at its most basic, is simply a tool that donors have to distribute their money. . . . a DAF is not some big massive thing; it’s a strategy,” Klein says. “You want to become known as a group that knows how to deal with DAFs.”
