The World of Donor Advised Funds (DAFs)

Donor-Advised Funds (DAFs) are still the fastest-growing charitable giving tool and segment of philanthropy. As we enter the second golden age of philanthropy, donor-advised funds are increasing in popularity and use. For-profit philanthropic technology and service firms are merging and taking outside investments to support this growing market need. Many of these firms have built or are building greater automation to speed up philanthropy for all.

A simple tax-efficient philanthropic giving tool, donor-advised funds (DAFs), allow individuals, families, foundations, and corporations to make contributions to an irrevocable charitable fund only to later recommend grants out to their favorite charities at their leisure.

With now over $150B in assets and more than 1 million accounts across 1,000 non-profit sponsors, DAFs have become a tool for the mass-affluent looking to streamline and structure their philanthropy for greater impact. You can find more details about the data on DAFs by reviewing National Philanthropic Trust’s (The 2021 DAF Report | NPTrust) annual study on Donor-Advised Funds. Once only for the super-wealthy, today, anyone can set up a DAF for as little as $50.

Technology allows donors to establish, contribute, and ultimately grant all online. It has reduced the administrative burden on DAF sponsors and continued to lower the costs of overall administration. DAFs have grown rapidly by their ability to allow donors to gift appreciated assets such as stocks and bonds, but also more illiquid assets like private company stock.

Today, DAF sponsors can accept not only cash gifts but gifts of securities, all online. Fidelity and Schwab Charitable both went to a ‘no minimum’ account opening threshold for their donor-advised fund programs in 2020 and now allow donors to make grants as small as $50.

Over the last few years, there have been large investments in for-profit technology and administration firms serving the donor-advised fund and grantmaking market. Most of this investment has been directed towards furthering the democratization of DAFs for everyday donors and hence speeding up philanthropy. Some of this growth can be attributed to Corporate Social Responsibility (CSR) teams at major Fortune 500 companies who have offered DAFs as an employee benefit at a no minimum account opening level.

Additionally, more and more financial services firms are offering philanthropic planning services that include charitable tools like DAFs (and trusts, foundations, CGA).

A few examples of firms offering DAFs at a no or low minimums to large corporations include Benevity ($40mm series C funding in 2019), YourCause (acquired by Blackbaud), Pinkaloo (acquired by Ren), and BrightFunds (acquired wizehive) which has furthered the democratization of DAFs to every employee through small yet regular payroll deductions.

Corporate philanthropy services are on the rise and many firms have focused on providing an end-to-end solution for corporate grantmaking and employee engagement empowered by data analytics around impact. This trend will continue as more firms receive outside investment from Venture and Private Equity firms to further automation in the philanthropy marketplace.

As part of this democratization, other DAF sponsors have created ways to do more online. Firms like CharityVest, DAFFY, and Endaoment have created DAF sponsoring organizations that can take contributions of stocks, bonds, and even cryptocurrency all online with a click of a few buttons. The goal is to connect more donors with more charities faster.

Other start-ups like Amicus (who received seed funding from Wells Fargo) envision a more consumer-oriented banking DAF experience for both small and large banking clients that are white-labeled for the banking industry.

Technology is forever evolving, and administering a DAF platform is no small undertaking. Historically, technology reaches the nonprofit sector later in life, but with more investments in ESG-like companies, venture capitalists are finding new firms and organizations to deploy their dollars that are turning a profit and serving a social good.

Bringing more for-profit dollars and technology to DAF sponsors has reduced costs of administration, but also increased the speed at which dollars are reaching the end-operating charities.