More and more nonprofits are talking about donor-advised funds, or DAFs, and how they fit into a comprehensive fundraising program. That’s because DAFs are a huge opportunity for charities today. But some organizations are missing out on this increasingly popular donor support channel.
Here’s what you need to know…
A donor-advised fund (DAF for short) is a charitable investment account that can only be used to support charitable organizations. The money in a DAF is invested with —and managed by —a financial service company (think Fidelity, Vanguard, or Schwab) and grows tax-free growth. A donor then recommends to the financial service company which charity to donate the funds to.
DAFs provide attractive tax advantages for your supporters. For example, when a donor contributes cash or other assets to their DAF, they’re eligible for an immediate tax deduction.
Contributions to donor-advised funds have risen dramatically from $37 billion in 2018 to an astounding $160 billion at the close of 2020. Donors hold more than a million DAF accounts. In 2020, DAF grants to charities totaled $34.6 billion. That represents one of every $10 contributed.
If your nonprofit wants to accept DAF grants, you’ll need to be fully versed in how to manage this specialized giving. That’s because gifts from DAFs must be treated as “soft credit” gifts — made by the donor through another entity, the financial services company. That can make proper attribution difficult. If you’re not careful, the gift acknowledgment could accidentally go to the financial service company instead of the donor. Special coding is needed to associate the soft credit gift with the donor.
7 ways to inspire donors to give with a DAF and name your nonprofit as a beneficiary
1. Identify donors who have given DAFs and cultivate them by carefully tracking and coding DAFs correctly and entering their soft credits in your CRM system.
2. Quickly and appropriately, acknowledge and thank the donor who recommended the DAF gift.
3. Consider using donor engagement or preference surveys to see if you can get DAF donors to identify themselves to you. That way you can use special language and asks around their giving potential.
4. Treat DAF supporters as mid-level, or even major, donors. Use the kid glove treatment to ensure they feel valued and know that you know who they are. Their long-term value could be significant.
5. Add a DAF widget or giving opportunity on your website. Include DAFs as one of your “other ways to give.”
6. Use direct mail appeals, receipt inserts, newsletters, and other communication to:
- Invite donors to name your organization as a DAF beneficiary in the same wayyou would ask them to include you in their estate plan. Consider messaging such as: “If you have a giving account with Fidelity or Schwab, we’ve just made changing lives even easier…”
- Remind donors that they can use their DAF to make monthly/recurring gifts.
- Provide helpful content, articles, and calls-to-action, such as an invitation to speak with your on-staff stewardship or major donor rep about setting up a DAF.
- Add an option to your appeal or newsletter response form saying, “Yes! I want to put my DAF to work now.”
- You can even work with the donor to set up monthly giving from their DAF.
7. Use your next major donor portfolio-style appeal to ask for a “leadership gift” and suggest that a DAF might be a good way to accomplish that.
We have seen DAF giving increase across the industry and become an important channel for many charities. As we look ahead to the increasing likelihood of weakness in the stock market this year — where your donors often invest the money they give — these 7-tactics will make it easier and help encourage your donors to give with a DAF.
The potential is huge and certainly worth considering. If you’d like to hear more about how your organization can use donor-advised funds to its advantage, we’re happy to help.