Donor Advised Funds (DAFs) have become one of the fastest-growing vehicles for philanthropy in Canada (see Part One and Part Two of this series). We have previously spoken about strategic philanthropy through DAFs and emerging trends in Canadian DAFs. This final installment addresses some of the points of tension and opportunities between charities and DAFs such as a lack of transparency and delayed public benefit.
The issue of transparency is based on an absence of required reporting or disbursements per fund. With regards to a delayed public benefit, there’s a perception that charitable capital is not being distributed to community or being used for charitable purposes effectively or efficiently. In this article, we aim to demystify how charities can leverage existing donor stewardship strategies, to successfully engage DAF holders.
So, who is the donor?
Given that we both worked in the charitable sector for many years, we remember the challenge of identifying the donor behind a DAF donation. Typically, charities are more comfortable with the traditional giving model (e.g. a cash donation, cheque, credit card, electronic fund transfer or in-kind securities directly to the charity). This is because it is easier to acknowledge the donation, provide impact reports, send invitations to events, and ultimately progress a donor through the stages of “moves management”.
However, when the donation comes through a third-party, there may be challenges for the charity to identify the donor. Third parties can include foundations offering DAFs, private foundations, CanadaHelps, the United Way, PayPal Giving Fund Canada or workplace giving platforms such as Benevity and YourCause by Blackbaud.
Third-party facilitated donations allow for anonymity, which is a fundraiser’s nightmare because it limits donor stewardship. While there is very little data in Canada about the percentage of anonymous donors, according to The American Enterprise Institute, anonymous grants from DAFs represent only 4.3% of donors.
Why DAFs?
It’s also important to understand why a donor might choose to establish a DAF. While tax benefits are not usually the primary driver, it is a comfortable topic for professional advisors to broach the philanthropy conversation with clients. For example, if the potential donor is facing a large tax bill at the end of the year, the advisor might suggest establishing a DAF to receive an immediate tax receipt and deploy grants and/or capital at a later date.
Most DAF holders choose a DAF as a private foundation alternative. It removes the administrative burden, but allows for the preservation of legacy. It’s not uncommon for donors to use their DAF as a way to teach family members about philanthropic values and in some cases, finance.
What’s your stewardship strategy?
It will depend on the DAF donor.
It can be relatively simple in situations where the DAF donor is clearly identified and already a donor to your charity. You have an existing relationship, and a DAF is simply the giving vehicle being used to make the payment. You have direct access to the donor to acknowledge and steward them, provide impact reports, and invite them to events and site visits.
When a DAF donation is received from a new donor having good data in a charity’s Customer Relationship Management (CRM) system is important. The “new” donor may have been an annual donor for many years, but this year appears as a lapsed donor. The fundraiser now has the opportunity to contact the (perceived) lapsed donor and verify if a donation was sent through their DAF.
Larger charities may encounter challenges due to the complexity of internal communications. For example, if the annual fund team and the foundation team don’t communicate, they might not realize the same donor chose to give via a DAF this year. This can lead to gaps in donor stewardship. If it’s determined that the DAF donation is not from a lapsed donor, the acknowledgment and stewardship can be sent through the foundation offering the DAFs. The acknowledgement letter should include opportunities for the donor to connect directly with the charity.
Donors can name their DAF anything. For example, Women’s Fund charities will receive donations from names such as “The ABC Fund” or the letter of direction sent by the foundation’s DAF administrator may also indicate the donation is from an anonymous fund. Understandably, charities want to know who the donor is so they can acknowledge the gift, steward them and build the relationship. This is an opportunity for charities and DAF foundations to collaborate for the best interest of the donor.
What’s the opportunity? Communication and collaboration
A conversation about philanthropy and impact can start with a donor’s financial advisor, their local community foundation, a faith based or independent DAF foundation, or at the kitchen table with family. Regardless, the donor and their intentions are the priority. That does not change because a donor uses a third-party payment vehicle.
A shared commitment to the donor’s best interests is the driver for stronger communications and collaboration between the charity and foundation offering DAFs. Many foundation administrators are open to receiving acknowledgment letters and impact reports from the charity to pass on to the donor. While this may be a best practice, there is currently very little standardization.
Often, we hear from charity representatives that they don’t acknowledge DAF donations when they don’t know the donor. This is typically because they didn’t issue the charitable tax receipt. However, acknowledging and stewarding DAF donations is important (even when the donor is unknown) and here’s why!
A more collaborative, responsive landscape
Regardless of who has the relationship with the donor, helping them to achieve their desired impact is everyone’s goal.
Charities and professional advisors embracing opportunities to collaborate such as Canadian Association of Gift Planners (CAGP) and the SickKids Professional Advisors Network are examples of intentional collaboration to benefit donors. Given the growing number of DAFs, we believe it’s imperative for charities and advisors with DAF fundholders to understand both the donor and the ecosystem. Over time, industry standardization will help to normalize many of these practices but a genuine “thank you” never goes out of style.
Eric Saarvala MBA, G. Dipl. SR&S, CSR-P, is Head of Corporate Sustainability, Raymond James Ltd., and Executive Director of the Raymond James Canada Foundation. Eric brings over 25 years of consulting and management experience in social impact through sustainability, corporate social responsibility (CSR) and strategic philanthropy in the private, public, and non-profit sectors. Eric.Saarvala@raymondjames.ca
Arundel Gibson MBA, MFA-P is a Client Consultant at Cidel Asset Management. Arundel joined Cidel in 2023 and is responsible for serving Cidel’s private clients. She brings over twenty years of experience in leadership roles at corporate and not-for-profit entities. Prior to Cidel, she led Canadian philanthropic advisory services for a multinational, professional services firm’s family office operations. agibson@cidel.com
