Digging Into Donor Advised Funds

While these tools have been around for awhile, there are still relatively unknown to smaller nonprofits

Donor-advised funds (DAFs) are changing the way people give to charities in the United States. In 2023, there were over 1,000 DAF sponsors and nearly 1.8 million DAF accounts, holding more than $251 billion in charitable assets. For leaders of small nonprofit organizations, understanding how DAFs work-and how to connect with DAF donors-can unlock new opportunities for funding and growth. Yet, many leaders of these small organizations may be unfamiliar with what these powerful giving tools are. Today, we are going to dive deep into the world of DAF.

A DAF is like a charitable savings account. Donors contribute money or assets to a fund managed by a public charity, such as a community foundation or a financial institution’s charitable branch. They get an immediate tax deduction, and then they can recommend grants to nonprofits over time. DAFs offer donors flexibility, privacy, and the ability to plan their giving for maximum impact and tax benefit.

The new report from the DAF Research Collaborative highlights that DAFs affect every stage of the fundraising cycle, from finding donors to building relationships and stewarding gifts. Even though DAFs can make it harder to know exactly who is giving-because some donors choose to give anonymously-the report stresses that developing personal relationships is still the key to success. Fundraisers need to adapt their approach, using both traditional and new strategies to connect with DAF donors.

One challenge for small nonprofits is identifying DAF donors in the first place. Many DAF gifts are made anonymously, and national DAF sponsors like Fidelity or Schwab rarely recommend specific charities to their account holders. However, there are ways to make your organization more visible to DAF donors. Keeping your nonprofit’s Guidestar profile up-to-date is essential, since DAF sponsors use this resource to verify organizations before making grants. Promoting DAF giving on your website and donation page can also encourage donors to recommend your nonprofit when making grants from their funds.

Community foundations play a special role in the DAF landscape. They are more likely than national sponsors to suggest local nonprofits to their DAF donors and to build relationships with organizations in their area. For small nonprofits, getting to know the staff at your local community foundation can lead to introductions to DAF donors and even direct grant recommendations. Inviting foundation staff to your events, sharing updates, and learning about their funding priorities can help your nonprofit stand out.

Building relationships with DAF donors requires a personal touch. When you receive a grant from a DAF, always thank the individual donor who recommended the gift, not the sponsoring organization. Even if the gift is anonymous, you can still express your gratitude and invite the donor to connect with your organization. Use thank-you notes as opportunities to share the impact of their gift and to invite further engagement.

It’s also important to educate your board members, staff, and volunteers about DAFs. Many people may not know how DAFs work or how they differ from other types of charitable giving. Training your team to ask major donors if they have a DAF, or to mention DAFs as a giving option, can help start important conversations9. You can also partner with local financial advisors, who often help clients set up DAFs and may be willing to recommend your organization if they understand your mission and impact.

Finally, be patient and persistent. DAF donors often take time to decide where to give, and their giving patterns may not match traditional fundraising calendars. By building strong relationships, staying visible, and making it easy for donors to support your work through their DAFs, your small nonprofit can tap into this growing source of charitable support.

In summary, DAFs are a powerful tool for modern philanthropy. For small nonprofit leaders, the best approach is to combine classic relationship-building with targeted outreach to DAF donors and sponsors. By doing so, you can ensure your organization is ready to benefit from the generosity of today’s-and tomorrow’s-DAF donors.