Alternatives for Firms with Private-Label Donor Advised FundsSubmitted by American Endowment Foundation on June 6th, 2022
This is an updated version of a column that recently appeared in ThinkAdvisor.
By Ken Nopar, VP-Senior Philanthropic Advisor
Though a small number of large banks and wealth management firms still offer only their own privately-branded donor advised funds (DAF) to clients, many others are now also offering alternative DAFs that do not feature the names of their firms. Firms and advisors have realized that their private-label DAF offering may not be ideal for all clients and advisors.
Advisors understand that their clients have now become aware of different DAF options since DAFs have become so popular and widespread. There are many stories in the media about donor advised funds, and even some charities have been trying to appeal to their donors to open DAFs directly with them. Most DAF sponsors market directly to clients, though American Endowment Foundation(AEF) does not since it only works with donors whose financial advisors manage the DAF assets and open the accounts.
Since many clients do not want to use funds that feature the name of their bank or wealth management firm, they seek other options. Should advisors only offer their one private-label DAF option, some of their clients may look for and open DAF accounts elsewhere on their own that consequently eliminates the advisors’ ability to manage the assets.
When clients indicate that they do not want to use the firms’ primary donor advised fund option, some advisors and firms have turned to AEF since it is one of the few independent DAF sponsors that allows them to manage the assets in their clients’ DAF accounts. AEF often serves as the alternative DAF sponsor for these advisors since it complements and never competes with the firms and advisors.
Some of the other primary considerations why advisors and clients seek alternatives to the firms’ private-branded DAF offering include:
- Privacy and security are very important to clients today, and many do not want others to know which firm or institution manages their investments. Yet when a client recommends a grant through their wealth management firm’s private-label DAF, the name of the firm is featured in the grant letter that is sent to the charity. As a result, the non-profit knows which firm manages the donor’s wealth and can surmise that even if a grant is small, the donor is capable of donating much more and can be targeted for larger or more frequent grants.
- Investment options at the firm’s private-label DAF may be significantly limited, with smaller DAF accounts having even more restrictions.
- Some advisors are not able to charge fees to manage the assets at any amount in their own firms’ private-label DAF, while other firms allow advisor management only at much higher minimums than AEF.
- Many advisors wish to demonstrate their independence to clients by offering outside funds and investments that their own DAF offering will not allow.
- Some firms’ private-label DAFs are more expensive than outside DAFs.
- When another firm provides the back-office service for a firm’s private-label DAF and the service is poor, clients may attribute the poor service to their advisor’s firm since the firm name is part of the name of the DAF, thus potentially jeopardizing the entire relationship
- Some firms’ DAFs are unable to accept donations of illiquid assets that other DAF sponsors can receive
- Some donors wish to hold certain donated stock or other assets within their DAF account, yet some DAF sponsors do not allow this and require immediate diversification or liquidation.
- Some clients and advisors prefer a DAF account that is portable should they or their advisor change firms, while privately-branded DAFs typically are not portable.
For these and other reasons, clients often want an additional DAF sponsor option if only one private-label DAF is offered, especially if their advisor can still manage the assets in the alternative fund account. It is important for advisors and their clients to evaluate all of the features and flexibility of any DAF they are considering when opening an account.
At American Endowment Foundation, we look forward to discussing you and your clients’ needs and determine if a donor advised fund is your best choice. Contact us or call 1-888-660-4508.
A version of this article originally appeared in ThinkAdvisor.