Beyond Wealth Management: The Expanding Applications of Donor Advised Funds
Donor advised funds have traditionally been associated with individual philanthropy and wealth management. An individual or family establishes a DAF, contributes assets, receives an immediate charitable tax receipt and recommends grants to charities over time.
But that is only one application of the model.
At its core, a donor advised fund is flexible charitable infrastructure. It separates the decision to contribute assets to charity from the decision about when and where those assets will ultimately be granted. That flexibility creates applications across a much broader range of markets.
Professional Advisors
Financial advisors have been central to the growth of DAFs, but accountants, tax advisors and estate lawyers are equally well positioned to introduce them.
These professionals are often involved at the moments when charitable planning becomes particularly valuable: the sale of a business, a significant capital gain, an estate transaction, a corporate reorganization or year-end tax planning.
A DAF gives advisors a relatively simple way to incorporate philanthropy into these conversations without requiring a client to establish and administer a private foundation.
M&A advisors, investment bankers and business brokers represent another interesting application. Entrepreneurs approaching a liquidity event can make charitable planning part of the transaction itself, rather than considering philanthropy only after the sale has occurred.
Corporate Giving
DAFs can also provide infrastructure for corporate philanthropy.
A corporate DAF can centralize charitable giving while allowing a company to support multiple programs, including community investment, employee matching, disaster relief and employee-directed giving.
For organizations that want a meaningful philanthropic program without establishing and administering a separate corporate foundation, the DAF structure can offer an attractive alternative.
Charities
Perhaps one of the most interesting emerging applications is for charities themselves.
Rather than viewing DAFs only as sources of grants, charities can potentially use DAF infrastructure to deepen their relationships with donors.
A charity-branded DAF program could allow supporters to establish their own charitable giving accounts within an environment associated with an organization they already know and trust.
The charity gains a new donor engagement tool. The donor gains access to structured philanthropic infrastructure. The underlying administration, compliance, investment and granting functions can be provided by a DAF platform.
This turns charities from recipients within the DAF ecosystem into potential distribution partners.
Professional Associations and Membership Organizations
Professional associations, unions, alumni organizations and other membership-based organizations already bring together communities with shared interests and values.
DAF infrastructure can provide these organizations with a new way to facilitate philanthropy among their members without requiring them to build charitable administration capabilities themselves.
The same concept can extend to cultural organizations, service clubs, community organizations and other groups seeking to mobilize charitable capital around a common community.
Employee Philanthropy
Employers are another potentially significant application of DAF vehicle.
A DAF-based employee giving program could allow an employer to contribute charitable dollars to individual employee accounts, enable employees to add their own charitable contributions and allow each employee to recommend grants to the charities they care about.
In this context, charitable giving begins to resemble an employee benefit rather than a traditional corporate donation program.
Private Foundation Alternatives and Conversions
DAFs can also provide an alternative for individuals and families who might otherwise establish private foundations.
For some donors, a private foundation remains the appropriate structure. Increasingly for others, the administrative burden, governance requirements, cost and succession challenges eventually outweigh the benefits.
A DAF can provide many of the characteristics donors value, including invested charitable assets, long-term granting and family involvement, with substantially less administration.
This creates opportunities both when donors are initially choosing a philanthropic structure and when existing foundations are reconsidering how they want to operate.
The Bigger Opportunity
The evolution of donor advised funds is ultimately about more than the growth of a particular charitable product.
It is about the emergence of strategic philanthropic infrastructure.
Wealth managers, accountants, law firms, corporations, charities, employers, associations and families all encounter the same fundamental challenge: how to make charitable giving easier to establish, administer, invest and distribute in a more strategic pro-active way.
Modern DAF technology can provide that infrastructure while allowing very different organizations to build philanthropic experiences around their own clients, employees, members and communities.
The next phase of the DAF market will therefore look quite different from the last one.