New research highlights DAFs’ growing influence and strategies for successful engagement.

A recent study, “Reinventing the Cycle: Adapting Relationship Fundraising for Donors Who Use DAFs,” reveals how donor-advised funds (DAFs) are reshaping the landscape of charitable giving.

The DAF Research Collaborative report offers crucial insights for professional fundraisers across the United States.

It details both the challenges and opportunities presented by DAFs. The insights can easily relate to or be applied in Africa.

The report says that fundraisers are actively working to enhance their engagement with DAF donors.

They are adopting new strategies for identification, cultivation, solicitation, and stewardship.

DAFs are charitable giving accounts. Donors establish them as 501(c)(3) public charity sponsoring organizations. Donors contribute to these accounts.

Then, they recommend grants from the accounts to other charities. DAFs act as intermediaries between individual donors and charitable organizations.

This structure changes individual philanthropy. It also impacts the relationship fundraising paradigm. This paradigm dominates major gift fundraising strategies.

DAFs’ Soaring Prominence

DAFs are increasingly prominent in the philanthropic sector.

In 2023, there were over 1,000 DAF sponsors. Nearly 1.8 million DAF accounts existed. DAFs received 11% of all charitable contributions that year.

Assets under management within DAFs totaled $251.52 billion. Contributions equaled $59.43 billion. Grants from DAFs amounted to $54.77 billion.

A 2020 survey found that 70% of participating nonprofits had received a DAF grant. DAF granting remained strong during the COVID-19 pandemic.

A survey of large nonprofits showed an 83% increase in DAF grants from 2019 to 2023.

DAFs are more accessible now. This is due to more sponsors and workplace giving platforms. Donors can also open DAFs with small initial contributions.

About half of DAF accounts hold less than $50,000 in assets. Around a quarter contains between $100,000 and $500,000.

Donors find DAFs appealing for various reasons. These include an up-front tax deduction. They offer extra time for philanthropic decisions.

They provide structure for donating appreciated securities and non-cash assets.

Increased privacy in giving is another benefit. Investment of assets within the DAF is also attractive. Many donors value a platform that simplifies contributions to multiple charities.

It also simplifies tracking those contributions. DAF sponsors offer philanthropic information. Many also provide philanthropic advising.

Despite their benefits, DAFs have drawn concern and critique. DAF accounts lack a federally-mandated payout rate.

This differs from private foundations. Critics question whether DAFs impede the flow of funds to programmatic charities.

Some believe donor anonymity compromises philanthropic transparency. Nonprofit administrators and fundraisers worry that DAFs disrupt donor-organization relationships.

This is due to the third-party intermediary. Organizations have reported administrative challenges with DAF grants. However, those receiving grants often have a more positive view of DAFs.

The Relationship Fundraising Standard

“Relationship fundraising” has guided fundraising for decades. It moved from a transactional approach to a relationship-based strategy.

This strategy values donors as strategic partners. Fundraisers create personalized strategies to engage donors.

This applies to potential and existing donors, especially those with significant giving capacity. Fundraisers learn about donors’ philanthropic priorities.

They align these with organizational missions and programs. The relational approach aims for lasting associations between donors and organizations.

This generates repeated and increasing philanthropic donations. Soliciting donations is part of a strategic, ongoing relational process.

This process includes identifying and qualifying donors. It involves developing a strategy and cultivating relationships. Soliciting and negotiating donations are key.

Acknowledging, recognizing, stewarding gifts, and seeking renewed gifts complete the cycle.

The report notes that standard fundraising cycles may not cover all adaptations for DAF donors. However, fundraisers take on roles like networkers and knowledge-brokers.

They also act as negotiators for donors, securing large gifts. Fundraisers consider organizational and donor interests.

This includes understanding gift vehicles and organizational systems. Accurate donor information and proper donation processing are critical.

Study Methodology

The report is based on interviews with 46 professional fundraisers. Participants came from across the US.

Recruitment happened through email and social media outreach. This was in partnership with The Fund Raising School at Indiana University Lilly Family School of Philanthropy.

Interviewees had an average of 17 years of fundraising experience. 54% were female, 15% were people of color, and 7% were of Spanish, Hispanic, or Latin origin.

Participants represented education (33% higher education, 11% other education), health (20%), and human service (20%) sectors.

Others came from various sectors. Some had multi-sector experience. The study included fundraisers from small organizations with limited capacity.

It also included those from large institutions with extensive development operations. All participants had worked directly with DAF donors.

A small portion (13%) also had experience at DAF-sponsoring organizations. Interviews took place from June to October 2023.

They lasted an average of 51 minutes. Recordings were transcribed and anonymized. The research team analyzed transcripts to find data patterns.

These patterns were related to known fundraising philosophies and practices. The report reflects the experiences and views of study participants.

It does not necessarily represent all US fundraisers’ experiences with DAFs. Fundraisers should apply recommendations considering their contexts.

DAF Donors and Relationship Building

Fundraisers engaged with DAF donors in various ways. This ranged from initial meetings to ongoing interactions.

Fundraisers overwhelmingly believed that strong relationships formed the basis for effective DAF fundraising.

One participant stated, “Fundraising-including DAF fundraising a relationship-based business with people'”.

Fundraisers noted that donor advisors should be treated like individual donors. This is “as if they were writing the check themselves”.

Interactions should be customized as part of a broader strategy. They should not be one-off transactional events.

Focus on building relationships that align donor interests with the organization’s mission. DAF grants naturally followed this approach.

Some fundraisers viewed DAFs neutrally. They saw them as a new development, “just a vehicle”. Others recognized DAFs’ strong benefits to donors.

They saw DAFs as an important avenue for contributions. Some used DAF knowledge to advance relationships.

They saw a DAF as a sign of a philanthropically savvy donor. This indicated readiness for complex conversations and a valuable relationship.

Fundraisers acknowledged DAFs could disrupt systems. Anonymity and special processing needs created challenges.

Concerns about DAFs’ broader consequences for philanthropy also arose. Despite this, fundraisers felt responsible for adapting.

They committed to “the hard work of relationship building and getting to know the person”.

Challenges in DAF Fundraising

The study identified six key challenges in DAF fundraising. These require targeted efforts from fundraising organizations. Most can be overcome.

Challenge 1: Verifying the Organization DAFs require organizations to verify eligibility for grants. IRS-registered public charities usually qualify.

However, some sponsors have additional criteria. Compliance questions lead sponsors to contact organizations for more information.

This process is challenging for new nonprofits. A fundraiser for a municipal entity found it frustrating.

She described “jumping through hoops and hurdles”. Some sponsors required verification every few years, which was time-consuming.

To streamline verification, some nonprofits pre-certified with large DAF sponsors. This enabled direct fund transfers.

One fundraiser noted, “If you pre-certify yourself, all [the sponsor does] is send you the wire”. Recommendations include making the EIN, 501(c)(3) status, and the address accessible online.

Updating organizational profiles on vetting platforms like GuideStar is advised. If tax status complicates verification, inform donors of delays. Proactively contact DAF sponsors about pre-certification options.

Challenge 2: Investigating DAF Donations DAF donors control information shared with recipient charities.

They can share all information, partial information (account name/their name without contact details), or no identifiable information (completely anonymous).

Research shows only 4% of grants are completely anonymous. 79% of partially anonymous grants include identifiable information.

Not knowing a donor’s identity concerned fundraisers. Anonymity was not particularly common. Fundraisers often did “detective work”.

For partially anonymous grants, the DAF account name often had donor names. For completely anonymous grants, historical data could reveal patterns.

Some contacted DAF sponsors for missing documentation. Others did not investigate, respecting presumed anonymity.

Sometimes, anonymity was unintentional due to donor mistakes. Clear communication during solicitation can prevent this.

Fundraisers are advised not to assume anonymity. Check the original DAF grant correspondence for donor information.

Examine historical data for donation patterns. Consider contacting DAF sponsors for more information after other methods. Sponsors may share details missed in processing within donor agreements.

Challenge 3: Entering DAF Grants. Accurate data entry is crucial for tracking DAF grants. It connects grants to individual donors and develops donor lists.

Fundraisers noted gift entry processes often focused on paper checks. Details on check stubs or additional correspondence were sometimes overlooked.

DAF grants often have critical information in correspondence. Gift entry personnel sometimes missed this. One fundraiser said, “We need to re-teach people how to open mail”.

Fundraisers typically “hard credit” the DAF account at the sponsor. They “soft credit” the individual donor advisor(s).

Some organizations used their CRM to add a DAF flag or group for DAF donors. This improved tracking and recognition. However, not all CRMs support such configurations.

Organizations sometimes had not optimized their systems.

Recommendations include training staff on DAF grant handling. Provide hard credit to the DAF account and soft credit to the donor. Explore CRM options for tracking DAF donors. Link DAF donors to the DAF account in the CRM.

Challenge 4: Thanking the Donor Fundraisers stressed the importance of thanking DAF donors.

This is important even though donors get tax receipts from the DAF sponsor. One fundraiser worried some nonprofits “take that literal language” about not having to receive the grant.

They then “are not doing anything” to thank the donor. Some organizations in the study lacked a policy for thanking all DAF donors.

Most organizations had specialized acknowledgment processes. This sometimes required manual CRM adjustments, leading to delays.

Fundraisers emailed or wrote to donors to inform them of the grant’s arrival and to thank them. Few systematically thanked DAF sponsors.

They deemed it unnecessary. Some thanked community foundations for cultivating relationships.

Others asked DAF sponsors to pass messages to unidentified donors. Some sponsors complied with donor agreement limits.

Adjust acknowledgments for DAF donors. Send timely, personal thank you letters to DAF donors. Remove statements about tax deductibility from acknowledgments. Only the original contribution to the DAF is tax-deductible.

Challenge 5: Understanding DAF Regulations. Fundraisers must comply with IRS restrictions on DAF grants.

This includes multi-year commitments. Donors cannot receive tangible personal benefits beyond incidental stewardship.

DAFs cannot split donations. For example, they cannot pay for a gala dinner portion while using the DAF for the charitable remainder.

Most sponsors have safeguards. However, improperly designated grants occur. Fundraisers must know these regulations.

Some interviewees educated donors on DAF rules before recommendations. When errant grants arrived, fundraisers had to correct problems.

This sometimes led to difficult conversations. One organization used its written policy, explaining, “You already got the charitable deduction. … [The] IRS is trying to say you can’t buy something now with it”.

Confusion about DAFs and pledges was common. Many thought DAFs could not fulfill pledges. An IRS update in 2017 allows multi-year commitments under certain conditions.

Some organizations adapted. They documented grants while avoiding the word “pledge”. One fundraiser changed “pledge” to “intention” for multi-year DAF gifts.

They used a gift agreement instead of a pledge form. Another organization used a non-binding gift intention template for all donors to accommodate DAFs.

Educate donors on DAF regulations to avoid difficult conversations. Post clear policies on acceptable DAF grant designations.

Have a protocol for correcting improper DAF grants. Discuss multi-year grants as “commitments” and “intentions,” not “pledges”.

Update paperwork accordingly. Fundraisers should seek professional education on DAF rules.

Challenge 6: Exchanging Information. Exchanging DAF-related information with donors is vital. Problems arise when this doesn’t happen.

Donors did not always reveal their intent to use a DAF. This made it hard for gift processors to match donors and grants. It also complicated verifying intended designations.

Study participants asked donors about their contribution plans. They collected information like fund names to minimize backend issues.

Some added footnotes to communications: “Please notify us of your grant so we can be on the lookout for it”.

Information needed for DAF grant recommendations is often inaccessible or outdated on nonprofit websites.

Fundraisers emphasized making DAF giving clear and easy. They personally exchanged organizational information (EIN, address) with donors.

Without correct information, donors struggled to complete grant recommendations. Some fundraisers offered to “walk [donors] through the process”. A few even opened their DAFs to better assist donors.

Ask donors if they will use a DAF. Record the DAF account name and sponsoring organization in their CRM profile.

Make accurate organizational information accessible on your website. Reinforce this in conversations. Consider familiarizing yourself with DAFs by opening your account or using demo accounts.

Be willing to assist DAF donors with the granting process if asked.

Opportunities in DAF Fundraising

Fundraisers’ comments also revealed four key opportunities with DAFs. These can lead to better relationships and more philanthropic support.

Opportunity 1: Signaling Intent and Capacity. Many fundraisers saw DAFs as a signal of donors’ philanthropic intent or financial capacity.

Fundraisers recognized that DAF donors had “already committed to give”. They viewed DAF donors as more “serious about philanthropy”.

Consequently, fundraisers spent less time gauging philanthropic interest. They focused more on “matching them with the right project”. These are “the people you most want to be talking to”.

Fundraisers also saw DAFs as a sign of wealth. They assumed high-income donors benefited from DAFs for tax reasons.

However, some noted that DAFs “have evolved from a real wealth indicator”. They are “much more accessible to a larger audience”.

Generally, fundraisers qualify DAF donors’ financial capacity and philanthropic interest more quickly.

Use DAF clues to qualify donor interest and ability to give. Develop approaches and strategies that designate DAF donors as a distinct segment.

Utilize CRM lists of DAF donors for cultivation and solicitation.

Opportunity 2: Engaging in Deeper Conversations DAFs can facilitate deep, strategic, and holistic conversations.

Interviewees perceived DAF donors as savvy and strategic. They were ready for higher-level giving conversations.

One fundraiser stated, “Having a DAF is one data point that would signify that there’s a little more sophistication there”.

Another noted that with a DAF, the “conversation starts here [indicating a high level]… it doesn’t start down here”.

Fundraisers attributed DAF donors’ savviness to financial advisors or professional experience. DAF donors were also seen as more direct and impact-focused.

For instance, a fundraiser found DAF donors “more ready to speak more directly about things, like their budget or… dollar numbers”.

According to several fundraisers, “DAF donors want to know, ‘what’s the measurable impact?'”. This is because “they want to be sure that their [donations are] being put to good use”.

Ask donors why they created their DAFs. Do not hesitate to address strategic and complex topics. Emphasize your organization’s impact and the value of DAF grants.

Opportunity 3: Gathering Strategic Information. Observing DAF usage patterns provides valuable insights.

This includes donors’ timing and capacity. Understanding grant timing helps fundraisers characterize giving strategies.

It also helps develop solicitations. Fundraisers noticed some DAF donors “granting out a tremendous amount… every single year”.

Others had “very little grant generation”. Some donors moved funds in and out of DAFs quickly. Donors sometimes bundled giving in one year for tax deductions.

Then, they distributed it across multiple charities over time. Other donors used a longer-term approach, “basically setting up their private endowment”.

Fundraisers sought insights on DAF inputs and outputs. One fundraiser asked donors, “Do you put money in [your DAF] yearly? Do you track it? Was it a large sum?”. Another admitted “how much is in the DAF?” was a question he “often think[s] about but never ask[s]”.

Heist et al. developed three DAF donor giving archetypes. These are Tubs, Tanks, and Towers.

Tub donors move money quickly; ask for annual donations.

Tank donors contribute larger amounts and grant over a few years; consider annual or major gifts.

Tower donors contribute large amounts and grant over a longer period; ask for annual or planned gifts. Seek information about DAF contributions and granting preferences to learn their strategy.

Opportunity 4: Experiencing Confidence in Solicitation Fundraisers reported greater confidence when soliciting DAF donors.

DAF funds are already earmarked for charitable purposes. Knowing the donor is “committed to giving makes it mentally easier to ask”. This leads to less anxiety.

The DAF Donor Relationship Management Cycle

The report introduces the “DAF Donor Relationship Management Cycle”. This framework illustrates the DAF fundraising process.

It highlights DAF-specific implications for grant processing and relationship development. It integrates the challenges and opportunities.

This cycle provides fundraisers and organizations a new way to review DAF systems and strategies.

Fundraisers’ Roles with DAF Donors

The report details specific roles fundraisers demonstrated within the DAF fundraising cycle.

These roles emphasize a multifaceted approach to maintaining donor relationships.

Fundraisers can reflect on these insights at various relationship management stages.

Investigator: Fundraisers often act as investigators to uncover donor identity for anonymous or partially anonymous DAF grants.

They analyze historical giving data and DAF account names. They may contact DAF sponsors for missing information. The goal is to properly credit donations and maintain donor relationships.

Strategist: Fundraisers develop tailored strategies for DAF donors. They use clues about philanthropic intent and capacity.

They consider a donor’s DAF archetype (Tub, Tank, or Tower) to determine the best solicitation approach, whether annual gifts, major gifts, or planned gifts.

Educator: Fundraisers educate donors about DAF regulations. They inform them about IRS rules regarding personal benefits and multi-year commitments.

This helps donors understand how to properly use their DAFs. This prevents issues with grant designations.

Facilitator: Fundraisers act as facilitators by ensuring smooth DAF grant processing. They ensure accurate data entry.

They help donors navigate the DAF granting process. They ensure organizations provide clear information like the EIN and address.

Collaborator: Fundraisers collaborate with DAF sponsors and internal teams. They work with gift entry personnel to ensure accurate donor information.

They also engage with DAF sponsors to resolve grant issues or to pass along acknowledgments to donors where appropriate.

DAFs are a significant force in philanthropy. They present both administrative hurdles and strategic advantages for fundraisers.

Adapting relationship fundraising is key. Organizations must streamline processes. They must also empower fundraisers with DAF-specific knowledge.

This will ensure continued philanthropic support. Fundraisers play a critical role in navigating this evolving landscape.

They build strong, lasting relationships with donors. This ultimately serves organizational missions and societal needs.