If You Don’t Have a Strategy for DAF Gifts, You Don’t Have a Fundraising Strategy

It doesn’t matter who your organization thinks or who you think is (or isn’t) in your donor base. Having a comprehensive, well-thought-out strategy for soliciting donations from donor-advised funds (DAFs) is almost as important for your organization today as breathing. 

It’s both well-documented and widely understood that DAFs represent one of fastest growing areas — if not the fastest-growing area — of philanthropy. However, the discussion surrounding DAFs is about more than rapid growth and the potential for future domination in charitable giving circles. That world is already here. The story today is about how incredibly central DAFs already are to giving in the present day, and how DAF donors are increasingly each charity’s existing donors simply hiding in plain sight. 

DAFs controlled nearly $229 billion in total assets in 2022 (the most recent year with completed tallies) across two million accounts, stewarding 22.5% of their assets by year-end into grants totaling $52 billion received by working charities. Assuming consistent payout rates, the latter figure could easily double to $100 million within the next five years, given the increasing flow of donor funds into DAFs ($85 billion in 2022).

For quick context, the total size of charitable giving broadly was $499 billion in 2022, with individuals accounting for $319 billion of the overall total. DAFs are approaching 20% of individual giving, a number that, in just a few short years, could sound like ancient history.

The Momentum of DAF Growth

There are a few reasons fueling the momentum in DAFs. The first is that large national DAFs equipped with user-friendly online interfaces have removed all of the friction for their donors interested in giving large, appreciated assets, such as stocks, crypto, mutual funds or even private company shares. These assets made up two-thirds of DAF donations at Fidelity Charitable last year (opens as a pdf). Inconveniently, each of these assets is more complicated for charities to accept than cash. But they’re all pre-tax for the donor, and they’re not typically used for paying day-to-day expenses. These traits make appreciated assets much easier for donors to part ways with in large quantities. 

Moreover, thanks to particularly buoyant markets over the past 15 years, these assets are also worth a lot of money. The S&P 500, frequently viewed as a proxy for the wider stock market, increased more than 500% between March 2009 and January 2022. To illustrate that further, a $1,000 stake in Alphabet purchased in 2011 reached more than $9,000 by 2021, a gain of more than 800%. These gains are why the average DAF donation is $4,400, while the average cash gift is only $100. 

But it’s not just about the value of the assets driving DAF growth. The aforementioned two million accounts cover three million users, since many accounts represent couples who own joint accounts. DAFs are truly popular. What’s happening here is that more regular donors are using DAFs as a payment method in the same way small-dollar donors use credit cards. 

Many smaller nonprofits may have difficulty accepting more complicated gifts due to a lack of technological infrastructure. By donating appreciated assets to a DAF seamlessly and realizing the tax benefits immediately, donors can simply work with their fund’s custodian to steward their donation fully on their own time. 

And the funds do indeed reach charities. Given the current payout rate of 22.5% each year, each dollar of a $15,000 DAF gift would — on average — fully reach working charities in a little more than four years. As more charities make more of a concerted effort to steward the money currently parked in DAFs and awaiting direction (hopefully not merely as a reaction to this article), I expect the payout rates to increase. 

Notably, the federal estate tax exemption, approximately $7 million for individuals and $14 million for couples, is set to drop by half at the end of next year. Getting ahead of the looming change in tax law could spur an additional uptick in immediate-term DAF giving. 

5 Ways for Fundraisers to Improve Their DAF Strategy

The market volatility of the past two years has created a challenging environment for fundraisers. DAFs represent a pool of assets for which donors have already parted irrevocably with their money and because of that, donors cutting back because of leaner financial times wouldn’t have any bearing on fundraising from DAF dollars. DAFs are a giant safe harbor in any storm — whether we get our “soft landing” or not. 

For all of the aforementioned reasons, I strongly believe that if you don’t have a strategy for DAFs, you might as well not have a fundraising strategy at all in 2024 and beyond. Here are a few tips for any fundraiser thinking about what their next steps should be. 

1. Assess Which Current Donors Have DAFs

DAF donors are increasingly the very same donors you already have in your donor database, who are migrating from donating directly to donating from a DAF. Nearly 80% of grants from Fidelity Charitable go to charities that donors have already given to in the past. 

Ask each of your major donors if they have a DAF. You can mention that many of your supporters already give via DAFs, and that you’d be happy to provide more information on how to make a bigger impact. 

Don’t bother reaching out to national DAFs. They’ll simply follow their clients’ suggestions. Reach out directly to those clients — the donors themselves. 

2. Promote That You Accept DAF Donations

Make sure you have a link for donating from a DAF displayed prominently on your site so that donors who might have a DAF can’t possibly miss it. It should be clearly labeled (e.g., “Give from my DAF”), and it should guide donors to a separate page to walk them through the process. 

3. Improve Your Attribution Process for DAF Donations

Ask any donors who give through a DAF to fill out a form when they’ve made a gift, so you know where the donation comes from. The custodian often won’t indicate who their client is when they donate from a DAF, so you won’t know who to thank or ask for recurring donations from in the future. 

4. Confirm Charity Database Information Is Up to Date

Check your profile in databases, like Candid’s GuideStar, to make sure all of your information is up to date so you don’t run into any administrative hiccups accepting grants from any DAF custodians.  

5. Simplify Your Process for Appreciated Asset Gifts

Make it as easy as possible to accept the appreciated asset gifts that often go into DAFs. Duplicate what DAFs have done uniquely well. You may be able to get certain donors to donate directly to you this way.

Any organization that’s taken these steps and developed a donor outreach strategy for soliciting DAF grants is poised to do well regardless of market environments. The assets that DAFs already control should be one of the first places fundraisers turn today, as they represent an enormously lucrative pool of potential grants that have already departed donor bank accounts. DAFs’ significance will only continue to increase in the coming years. 

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.