Selecting and Evaluating DAF Sponsors

By Ken Nopar, VP-Senior Philanthropic Advisor

_{This article has appeared previously in ThinkAdvisor.}

The number of donor advised fund (DAF) accounts has continued to increase rapidly over the past decade.  Contributions to DAFs ($48 billion last year) now comprise nearly 13% of all individual giving, grant making from DAFs has increased to $35 billion annually, and there are 1,000,000 DAF accounts. It should be noted that about ½ of the DAF accounts are through very small employee giving accounts through corporations.

There are now 1000 DAF sponsors, some of which are very new or quite small. It is therefore very important for donors and their advisors to understand the criteria by which these DAF sponsors should be evaluated. Selecting one that is not a good fit for clients, provides poor service, or is not financially stable, can lead to disappointment, frustration, and damaged client relationships. Since some sponsors target clients directly, it is important that advisors help their clients choose the most appropriate one initially or evaluate the ones that clients may have chosen on their own.

Questions that should be addressed upfront include:  

1. Which of the donors’ grant recommendations will the DAF sponsor not approve? Are there any restrictions on grants to charities outside of the mission or geographic region of the DAF sponsor? What are the Granting Guidelines? Timeframe for sending out grants?
2. Can the donor’s financial advisor manage the assets in the DAF account? Is there a minimum amount at which this is available?  What is the Investment Policy Statement? Is there a maximum percentage allowed in any one stock or fund? Can the DAF sponsor work with the advisors’ preferred custodian(s)?
3. If the advisor cannot manage his clients’ DAF assets, which investment funds are offered? What is the past performance?
4. What are the fees? Minimums for establishing funds and size of grants?
5. What types of assets can the DAF sponsor accept as donations? Only cash and publicly-traded securities, or illiquid assets such as privately-held C or S corporation stock, LP or LLC interests, cryptocurrencies, real estate, etc.? Will the DAF sponsor hold some of these assets or does it require their immediate sale?
6. Who will the donors and their advisors work with at the DAF sponsor?
7. Can the DAF account continue in perpetuity or is it limited to the life of the donor? If the latter, what happens to the assets in the DAF account?
8. Can the donor determine how much to grant to various charities annually, is the amount limited if it is an endowed DAF account, or does the DAF sponsor require the donor to grant a specified percentage of the grants back to the DAF sponsor every year? Is there an annual granting requirement?
9. What resources are available to help donors and their advisors? Does the DAF sponsor provide content, services, or resources when donors or advisors need advice with charitable giving?
10. Does the DAF sponsor offer DAFs to donors only through their advisors or does it target donors directly and bypass their advisors?
11. Is the advisor’s firm name featured in the name of the DAF sponsor? Is that an issue for clients with privacy concerns since many donors do not want charities to know which firm manages their investments?
12. Can the DAF be transferred to another DAF sponsor?

These additional questions are also very important, especially with newly established and smaller DAF sponsors:

• How many people are on the staff? How many are dedicated solely to the operation of the DAF? What is the service model should the donor need assistance?
• When was the DAF established?
• Who is on the DAF leadership team and what is their background?
• How many are on the Board of Directors?
• How many DAF accounts are there, what is the current amount of total assets, and how many grants are sent out each year? What has been the level of growth over the past five years?
• What technology is used to open and administer the DAFs? What security protections are in place to safeguard the data for donors and their advisors?
• Are the current audited financial statements and Form 990 available and on the website?
• What happens if the DAF sponsor goes out of business?

There are more DAF sponsors these days than ever before, and it is important that advisors closely evaluate them to determine which is the best short and long term fit for their clients. Clients may also be tempted to open DAF accounts on their own since they have become so widespread, so it is critical that advisors get involved and help select the most appropriate one before clients make a decision on their own that they may later regret.  Clients will greatly appreciate the input of their advisors.

At American Endowment Foundation, we look forward to helping donors and advisors determine the best strategies for their charitable giving. Please contact us or call at 1-888-966-8170 with any questions.