Relationship Building Using the Donor Advised Fund

donor-advised-fundsBy Avrum Lapin
and Benjamin Ginsberg

A recent article posted on titled “Wall St.’s Charitable Gold Rush,” posited that donor advised funds are tools only for the very wealthy and that they enable the well-heeled to siphon much needed funding away from nonprofit organizations. In fact, the author goes so far as to label DAF’s the “kudzu of philanthropy.” We could not disagree more.

Against a panoply of evidence that charitable giving has increased, the author contends that people are not, in fact, giving more to charity, but rather individuals are merely directing their giving to donor advised funds (DAFs), thereby causing a decrease in revenue directed to nonprofit organizations. Moreover, the author calls DAF fund distributions “laughably low” and argues that DAFs serve to horde funds allowing their fiscal sponsors, be they Jewish Federations, Community Foundations, or Vanguard, to collect more in management fees.

We do not assign such willful and nefarious intent to the many Jewish and community foundations we deal with on a regular basis. In fact, our experience with dozens of DAFs is quite the opposite, with DAFs providing an easy way to centralize charitable giving yet remaining flexible enough for donors to target specific charities.

The benefits of donor advised funds are well established: Most DAFs are simple vehicles with relatively low startup costs. Importantly, DAFs can take the overwhelming nature out of giving by allowing an entry point into the philanthropic marketplace. Rather than researching where to give, or trying to navigate the labyrinthine process of creating a family foundation, once a DAF is set up, the administrative and foundation-related tasks are streamlined and typically managed by Federation or Foundation staff.

Granted, DAFs and the management at some Foundations or Federations may seem constricting to those who like to go it alone. By default, Foundation DAFs are meant to make giving easier and more strategic, but DAFs still permit donors to specifically target and pursue their charitable goals.

According to a representative at Vanguard Charitable, donor advised funds are “easy to understand, low cost, efficient, and easy to operate.” Vanguard Charitable helps people realize their philanthropic goals at all different levels and DAFs are the fastest growing giving vehicle at Vanguard Charitable.

It is important to note that, fundraising is not as straightforward as it once was. Generational shifts in approaches to giving have created a new environment directed by donors. Donors want to allocate their philanthropic dollars to those nonprofit organizations that are meaningful to them, making fundraising more complex today than before. The Vanguard Representative charged, “The goal is meeting both donor and charity needs, building relationships, and helping people be more philanthropic.”

However, experience tells us that those organizations which clearly communicate their value proposition and maintain a proactive philanthropic presence with dedicated, involved leadership, are more strongly positioned to meet their objectives. This rings especially true with the emerging generation of major donors, who are increasingly entrepreneurs and “creators” of businesses and ideas. These donors seek to connect directly to the causes they care about, to the results that they are generating, and to the impact that those causes are making on the lives of people, communities, and the world. In this context, nonprofit organizations are required to express their unique value propositions and strengths for a variety of new donor communities.

Establishing and cultivating relationships with those Foundations that oversee DAFs is recommended for domestic and Israel-based nonprofit organizations looking to build support in the US. Jewish Federation and Foundation directors are strategic resources that can foster this network of connections. In the US, Jewish Community Foundations, often affiliated with local Jewish Federations, serve as managers of DAF charitable assets while allow donors to make their own decisions in directing their charitable giving.

Impacts and relationships go both ways as well. At the Jewish Community Foundation San Diego, young philanthropists gain an education about worthy charitable organizations. Moreover, the Foundation provides young donors with the ability to join a community of their giving peers. Through the Young Funders’ Salon, the Foundation has established a social life cornerstone through the personal community of philanthropy – benefitting both the San Diego Jewish Community and those nonprofit organizations in which it funds.

We encourage Israel-based nonprofits seeking to raise both funds and to expand their profile in the US, to get onto the radar of several Jewish Community Foundations. Community Foundation staff are often open to meeting with, learning about, and developing relationships one-on-one with Israeli nonprofits. Foundations strive to include new and meaningful organizations within their knowledge base of possible giving portfolios. Some of the inquiries Israeli nonprofit organizations can expect from Jewish Community Foundations include due diligence to review for fiscally sound practices, innovation in service design and delivery, strategies for growth, efficient functionalities, leadership, and long term support.

As for the skewed viewpoint of DAFs posited at the outset of this article, the DAF remains an integral and growing option for charitable giving. The power of personal relationships established with Jewish Community Foundations can directly connect Israeli nonprofits with the right donors. The US philanthropic marketplace can seem like a sprawling landscape, but DAFs shrink that vastness through relationships built on trust. Vanguard Charitable reasons that DAFs are an effective and efficient vehicle for “getting the money out to the charities on the street.”

We welcome your comments and insights. Let us know what you think.

Avrum Lapin is President and Benjamin Ginsberg is a Consultant at The Lapin Group, LLC, a full service fundraising and management consulting firm for nonprofits in Jenkintown, Pennsylvania, outside of Philadelphia. The Lapin Group, a member of the Giving Institute, inspires and leads US-based and international nonprofits seeking fund, organizational, leadership, and business development solutions, offering contemporary and leading edge approaches and strategies. Avrum is a frequent contributor to and speaker in the US and in Israel on opportunities and challenges in today’s nonprofit marketplace.

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