Is the New Wave of Donor-Advised Fund Grants the Future Reality of Fundraising?

As the philanthropic landscape evolves, the emergence of donor-advised funds (DAFs) has sparked discussions about their longevity and impact on charity funding strategies. While many consider DAFs to be a temporary phenomenon, the growing interest in them signals a potential shift in how charitable donations are structured and delivered. 

But is this new wave just a trend, or could it represent a fundamental change in fundraising? As a fundraiser myself, I have been pondering this question for some time now and seeing the wave of significant gifts come in from DAFs, I venture to believe there is a new funding channel in the mix.

Understanding Donor-Advised Funds (DAFs)

I am not an expert in the matter. However, I am researching almost daily to figure out what this opportunity is and how to best tap into it as a new funding source and ongoing channel for my organization. From a fundamental perspective, we know that DAFs do offer a unique framework for charitable giving that allows donors to establish an account through a public charity. This account enables them to contribute funds, receive immediate tax deductions and recommend grants to other nonprofits over time. 

Unlike traditional charities, DAFs provide the flexibility for donors to manage their contributions, making them a popular option for philanthropic individuals and families. I recently attended the newly minted DAF Giving Summit and learned quite a bit about how DAFs operate and what is expected of fundraisers and the charitable organizations that give to mission-based organizations. One thing that rang quite clear was, the DAF funder is our target, not the specific donors. The ongoing discussion is how do you get in front of those organizations and highlight the value and importance of your mission? That’s still the million-dollar question. Literally. 

The Rise of Donor Advised Funds

The last decade has seen exponential growth in the number of DAFs and the funds they manage. According to the National Philanthropic Trust, DAFs held approximately $251.52 billion in assets as of 2023, a 9.9% increase from the previous year. This growth can be attributed to several factors:

• Tax efficiency. Donors appreciate the DAFs immediate tax deduction, which can incentivize larger contributions.
• Investment opportunities. Funds within DAFs can be invested, potentially increasing the amount available for future charitable distributions.
• Flexibility. Donors can be strategic with their philanthropy, allowing them to decide when and where to contribute via their DAFs without the pressures of annual giving deadlines.
• Personalization. Donors can engage their families in philanthropy, creating a legacy that reflects their values and interests.

While the appeal of DAFs is undeniable, questions linger about whether they are a passing trend or a new standard in fundraising. Some experts highlight concerns that DAFs could lead to a delay in charitable giving, as funds sit within accounts for extended periods rather than going directly to nonprofits. Critics argue this could diminish the immediate impact on communities in need. However, several indicators suggest DAFs could represent a significant evolution in fundraising practices:

• Engagement of younger donors. Millennials and Gen Z are showing a growing inclination toward impact-driven giving. DAFs align with their expectations for flexible, personalized philanthropic experiences.
• Data and technology. Advances in technology allow for more effective tracking of giving patterns and outcomes, which can enhance the appeal of DAFs to a broader audience.
• Institutional endorsements. More financial institutions and philanthropic organizations are establishing DAF platforms, lending credibility and encouraging their use.
• Philanthropic education. As more people seek to understand effective giving strategies, DAFs provide a structured method for engaging in philanthropy thoughtfully.

The Broader Impact on Nonprofits

While DAFs present new opportunities, they also pose challenges for traditional nonprofits. As the funding dynamic shifts, organizations must adapt by emphasizing transparency, demonstrating impact, and building relationships with DAF donors who often prefer fund allocation without prolonged commitments. Moreover, the advent of DAFs creates a double-edged sword for fundraising efforts. On one hand, they can introduce more capital into the nonprofit sector. On the other hand, they may lead to increased competition for those funds, particularly as donors retain greater control over their giving.

The growing popularity of DAFs signals a transformation in how individuals approach philanthropy, yet the future of fundraising remains uncertain. While some may view DAFs merely as a passing trend, their impact cannot be overlooked. Whether one views the rise in DAF funding as a trend or a transformative shift in the realm of fundraising, these funds are becoming increasingly relevant. 

Though challenges persist around the pace of charitable distributions, DAFs offer a compelling model for modern philanthropy that emphasizes flexibility, control and strategic giving. As societies increasingly confront complex issues requiring significant financial support, DAFs may indeed become a cornerstone of effective charitable funding for years to come.

The preceding post was provided by an individual unaffiliated with NonProfit PRO. The views expressed within do not directly reflect the thoughts or opinions of NonProfit PRO.