A Fundraiser Speaks Out About DAFs
Nonprofit voices are crucial to the dialog about philanthropic reform. Thank you Victoria Williams – a real life fundraiser! – for sharing your perspective:
Data shows that donor-advised funds (DAFs) have exploded in popularity, and, as a fundraiser for New York City-based nonprofits, I've felt that first-hand over the past decade. At first, this news sounds positive because more money to DAFs means more money to charitable causes, but that’s not been my experience.
Most DAF donations I’ve processed are from donors who already knew my organization. From what I could tell, having a DAF did not signal that they were more generous or thoughtful in their giving than a donor who did not.
Tax years and human nature
What I do know though, is that these donors, like most major donors, are taking into consideration what tax year their gift will be made in. After all, if a specific tax year isn’t an incentive, there’s little reason to go through the extra steps of creating and funding a DAF instead of simply using a credit card to make an online gift the moment you feel compelled to give. The tax benefit drives a sense of urgency for most donors to make a gift now (instead of delaying it indefinitely).
If DAFs become even more widespread among everyday donors, I’m concerned the urgency to give to a nonprofit in a certain year to receive a tax benefit will essentially disappear. Without that urgency, I see donations going down from individual donors to operating nonprofits like the children and youth organizations I’ve fundraised for. Not because DAF donors don’t want to be generous or are bad actors, it’s simply human nature to let the funds linger if you get busy or are undecided about what donation to make
And from the DAF sponsors' perspective, having funds sit there a little longer benefits them. That money can be invested, and they get a fee for doing so — typically a percentage of the assets under management. It’s a perfect setup for everyone. . . except operating nonprofits and the people and causes they serve. Without a mandatory pay-out rate or sunset date for DAFs, charitable assets are getting stuck for an indeterminate amount of time before ever making a positive impact.
Being on the inside of nonprofits with a range of mission areas from supporting youth in foster care to small businesses, I know first-hand that securing reliable funding is a continual challenge that’s only getting worse with the reduction of federal funding. It’s very frustrating as a fundraiser to know there are hundreds of billions of dollars in DAFs waiting to be directed to charitable causes. Those funds are not helping communities until they’re disbursed.
So what can we do about it? Lots!
I agree with the four public policy areas that the Philanthropy Project is focusing on. But I want to add a fifth one: I see an issue with financial institutions hosting DAFs through associated nonprofits. Logically, it sets a clear incentive for them to grow and maintain funds held in their coffers. To further emphasize this point, I saw a job posting recently from a bank-associated DAF for essentially a major gifts officer focused on new high-capacity donors. They didn’t have their own grantmaking fund to raise money for, they simply wanted more funds to manage in their DAFs because, clearly, it’s a revenue stream for the bank.
Until DAFs provide meaningful charitable advising that connects clients with organizations and, very importantly, incentives for actually distributing funds, the uptick in DAFs is akin to taking funding away from operating nonprofits that are urgently in need of resources today.
Ideally, DAFs bring more funding into the nonprofit sector but that’s only meaningful if the money actually goes to operating nonprofits in a timely manner. Funds sitting in a DAF account connected to a big bank and creating revenue for these banks isn’t cutting it. This chokehold on funding is hurting authentic, operating nonprofits – and thereby the people we serve – and we need change.
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Victoria Shadle Williams is a career nonprofit fundraiser and has served as the chief fundraiser at two NYC-based nonprofits with budgets of approximately $4M. Her varied professional experience has included being a development associate at an arts nonprofit with a $3M budget and a development officer at a $100M+ education and social services nonprofit. In addition to her practical experience in the field, Victoria earned her Master’s in Nonprofit Management from Columbia University and has returned as an associate instructor since 2020. She was a founding board member of a grassroots nonprofit, NACHMO, and is currently the nonprofit liaison for Lancaster County Women for Good (a local giving circle) and an active Association of Fundraising Professionals member.
