PARTNER INSIGHTS: Why Donor-Advised Funds are Critical for Fundraising
There are many ways for philanthropic individuals to give to the causes they care about and make a meaningful, lasting impact. Over the past several years, however, donor-advised funds (DAFs) have become one of the most popular and fastest growing vehicles for giving in the United States. Understanding this type of fundraising and knowing how to target these types of donors can provide tremendous potential to boost revenue for your nonprofit.
1) What are Donor-Advised Funds?
A donor-advised fund is similar to a personal investment account that is established and maintained by a sponsoring organization. Most of these organizations are charitable extensions of financial service firms, such as Fidelity, Vanguard, or Schwab. Others are community foundations. In either case, the sponsoring organization is in charge of investing and managing the funds within the account. Donors can contribute as often as they’d like, and all assets deposited are immediately tax deductible.
One important distinction to note about DAFs is that the owner of the account can begin contributing immediately and on an ongoing basis without having to select a specific recipient. Once a recipient is chosen, the assets from the account can then be sent to the chosen nonprofit organization(s) in the form of a grant.
DAFs represent a tremendous revenue opportunity for charitable organizations as their popularity continues to rise. For example, since 2018, the number of individual DAF accounts has risen by an incredible 50%. And it’s not just the number of accounts that is noteworthy - it’s the amount of assets within them that’s truly remarkable. In 2019 alone, an estimated $38.81 billion was allocated to donor-advised funds. These numbers are expected to increase significantly as time goes on.
2) Why DAFs are Critical for Fundraising
The numbers don’t lie. More and more donors are choosing to contribute to DAFs as opposed to giving directly to charities. Nonprofit organizations who are not focused on targeting and acquiring these types of donations will unquestionably miss out on major funding opportunities. But aside from the volume and value of these donations, DAFs offer a number of other important benefits to nonprofits. A few of these advantages include:
● Funding Consistency – DAF donors typically contribute consistently over a multi-year period. This enables nonprofit organizations to better forecast their annual revenue.
● Donor Retention – Due to the long-term nature of DAFs, donors tend to be more engaged and therefore represent an opportunity for organizations to develop and nurture relationships for greater retention.
● New Ways of Giving – The availability, convenience, and tax incentives of DAFs enable donors to easily support the causes they care about.
3) How are other organizations prioritizing DAF donors?
Thankfully, as with most things in life, there’s no need to reinvent the wheel when it comes to adding DAFs to your nonprofit’s portfolio. Much can be learned from some of the other organizations that have been successfully prioritizing these types of donors for years.
One great example is St. Jude Children’s Hospital. They created an intentional strategy to reach and engage with donors who had either shown interest in donor-advised funds or already had a donor-advised fund. In particular, they amplified their digital presence to remain visible, particularly during the COVID-19 pandemic. They also made it incredibly quick and easy for donors to either contribute to or set up a donor-advised fund by adding digital icons on various giving paths.
The strategy for any organization should revert back to the best practices of relationship-based grant seeking used with any other donor. Specifically, proactive development and nurturing of connections, both with individual donors as well as the donor services staff at the various financial and/or community foundations. After all, these folks will ultimately be responsible for helping donors determine how to allocate their funds.
4) How to Identify DAFs
Of course, all of the tips and fundraising best practices in the world will be useless without the ability to identify and target individuals who have donor-advised funds. That’s where technology can really help up your game. By leveraging the power of data analytics, your nonprofit can quickly and easily pinpoint DAF donors, so you can focus your efforts to maximize your fundraising potential.
TouchPoints is proud to be a member of the Lipton Strategies Strategic Partner Network. Through our solutions we analyze your existing donors to identify which ones have key characteristics that fit your organization's specific fundraising goals and strategies. This saves your team countless hours and provides your development professionals the information they need to be even more successful.
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Lipton Strategies is excited to introduce PARTNER INSIGHTS from our Strategic Partners Network. The Strategic Partners Network is a curated collection of vendors and specialists who share our values and vision to create change and develop growth. PARTNER INSIGHTS allows for members of our Strategic Partners Network to share innovative concepts and strategies to support nonprofits and social impact organizations. Be on the lookout for future PARTNER INSIGHTS featured on the Lipton Strategies blog.