According to the IRS, a donor advised fund (DAF) is a separately identified fund or account that is maintained and operated by a section 501(c)(3) organization, called the sponsoring organization.
Each DAF account is composed of contributions made by an individual donor. Once the donor makes the contribution, the sponsoring organization has legal control over the funds. However, the donor or her representative (advisor) retains advisory privileges with assets in the account. At any time afterward, the donor and their advisor can recommend grants from the account to qualified charities.
Donor advised funds were first established in the 1930s but have grown in popularity since the 1990s. They are now the fastest-growing philanthropic vehicle, accounting for more than 3% of all charitable giving in the United States.
Think of a DAF like a normal investment account, such as a 401(k). With the help of an advisor, the investor contributes money to an account based on their financial goals and risk profile. Over time, that investment grows and returns dividends to the investor (and respective management fees to the investment company and advisor). Depending on the type of investment account, the investor may qualify for a tax deduction (as in the case of the 401(k)).
Donor advised funds are similar in many ways. After consulting with an advisor, a donor invests money in a DAF and is immediately eligible for a tax deduction. The DAF becomes the owner of the funds and collects management fees. The donor, her advisor, and the fund manager work together to prioritize philanthropic goals and recommend grants to various nonprofits the donor cares about.
Many do! But for some philanthropists, administering a private foundation simply isn’t an appealing use of time and energy (not to mention money tied up by operating costs). Therefore, investing in a donor advised fund is a great strategy to avoid administrative red tape while making impactful charitable donations.
There are four different types of donor advised funds:
Before solicitation, you first need to identify donors who have DAF investments. There are many ways to do this:
After identifying DAFs and the donors who invest in them, treat the rest like any other prospect outreach. If you can effectively align your mission’s values with a prospective donor’s values, the donor will be much more likely to make an impact investment in your organization.
Remember that DAFs often have different and sometimes exclusive areas of focus. You can tailor your prospecting strategies based on a DAF’s giving profile. For cause-based funds, the donor is probably the influencer and should be the main point of outreach. If the fund is regional-based or non-exclusive, the philanthropic advisor can be influential.
Of course! iWave’s charitable and foundations data includes donor advised funds from Canada, the United States, and International sources. To learn more about DAFs from a Canadian perspective, read this article by Wealth Professional Canada.
About the author: Ryan McCarvill joined the iWave team in 2016. Ryan enjoys meeting and learning from nonprofit professionals, researching trends in the nonprofit community, and offering strategies for development teams to use iWave’s solutions to meet and exceed their fundraising goals.