2 min read

The numbers don’t do too much to assuage critics’ fears that DAFs inhibit giving…

My colleague Martin Wooster wrote in this space back in September about the potential shortcomings of donor-advised funds, the newest hot trend in Big Philanthropy. These funds benefit investment houses like Fidelity and Schwab, which get to keep donors’ money parked on the books while collecting interest, and they look attractive to donors, who get to claim their deduction immediately regardless of when (or if) the DAF gets around to paying out. 

Whether or not these funds prove to be a useful development in the world of philanthropy, they are clearly an influential one, with nearly ten percent of all individual giving now going into DAFs. And now new data released by the Chronicle of Philanthropy sheds some more light on how these funds are being used. The Chronicle analyzed eighty-five of the largest sponsors of DAFs, mainly through tax filings from 2008-2014. 

A few main takeaways from the numbers: 

First, DAFs are growing fast. “Contributions to the 85 donor-advised funds studied by The Chronicle nearly tripled from 2008 to 2013, while [in comparison] total charitable giving in the United States grew by only 13 percent.” The cash value of these accounts have also soared in that same time, especially in funds sponsored by community foundations. 

Second, donor-advised funds are all quite different, reflecting the geographic, ideological, and wage-earning diversity of their donors. 

And third—and most relevant for those skeptical of DAFs’ capacity to radically reshape philanthropy for the better—from 2008 to 2013 the “rate at which grants are paid out declined at 72 of the 85 sponsors in The Chronicle analysis.” Payout mechanisms are weak and required rates are low at many of the top funds (though some, like the Donors Capital Fund and the Charities Aid Foundation America boast payout rates of sixty and forty percent, respectively). 

As the Chronicle analysis notes, DAF proponents can point to a bullish stock market as one reason for low payout rates—asset value soars while commensurate grant-making, they say, lags just a year or two behind. Whether or not that turns out to be the case remains to be seen, but for the moment the Chronicle’s numbers don’t do too much to assuage critics’ fears that DAFs inhibit giving. 

6 thoughts on “Donor-advised funds are the future, but new numbers don’t inspire confidence”

  1. Chip Watkins says:

    Required payout rates are not “zero.” Many DAF sponsors aim for an aggregate 5% payout across all the individual account, and enable themselves to to make distributions from lesser performers to meet that goal.

    That goal was also administratively imposed by the IRS as a condition of exemption for many DAFs.

  2. Gregory Warner says:

    One thing that is terribly overlooked by the nonprofit sector is this:

    If the amount of money being contributed to DAF’s keeps growing (300% in the past 6 years compared to just 13% growth in charitable giving), then maybe the nonprofit sector is to blame.

    Stay with me on this. First, it’s clear that people with money want to give it away. They prove my point because they are moving their dollars to donor advised funds at record rates. Those dollars are no longer theirs. Of course, that’s why they get a tax benefit right away.

    But, as you mentioned in your article, they also don’t make the payout recommendations at a pace that is to your (and the nonprofit sector’s) liking.

    So we must ask “Why”? Why would they “give their money away” (parking it in a DAF) but fail to make recommendations that would move the dollars to charities?

    The answer: Because the charities have not done their part. They have failed to give the DAF owners good reasons to make the recommendations. They have failed to build trust. They have failed to recognize that any exchange of money occurs as a result of a value proposition. And, in this case, the value proposition being presented to DAF owners is clearly too weak to instigate recommendations.

    I’ve written more about this here https://imarketsmart.com/dont-cry-foul-hear-much-money-sits-dafs/ and here https://imarketsmart.com/the-number-one-reason-why-you-arent-getting-your-share-of-dollars-from-donor-advised-funds/.

    I really think it’s time for nonprofits to take responsibility for the fact that so many DAF owners simply don’t see the charities as worthy of the dollars. Once that happens, I’m sure the money will be granted.

  3. George McCully says:

    This is a non-article—that the DAFs are “growing fast” and are “all quite different”have nothing to do with not “inspir[ing] confidence.” That the rates of giving of most are declining in recent years is immaterial without numbers showing relative significance of the decline, both in itself and in comparison with private foundations—neither of which is provided here, and in the data itself shows that the rate of disbursal is still multiples greater than that of private foundations, very little decline anyway, and in years of a record-breaking bull market and fund growth mean even less.

  4. MJG says:

    Required payout rates aren’t *low*, they are zero. That’s the point of the structure, for the most part.

Leave a Reply

Your email address will not be published. Required fields are marked *