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Individuals who hold donor-advised funds accounts are pre-disposed toward giving, and money they have contributed to their accounts is often in addition to regular giving. In a new report from DAF Research Collaborative, Reinventing the Cycle: Adapting Relationship Fundraising for Donors Who Use DAFs, 46 fundraisers outlined challenges and opportunities in maximizing contributions from DAF holders.
The potential rewards for fundraising professionals to tap deeper into DAF holders are significant. In 2023, DAFs managed $251.52 billion in assets. That static number does not tell the full story. That year, individuals added $59.43 billion to their DAFs while making $54.77 billion in grants.
DAF advisors often play a significant role in determining where grants will be allocated. Fundraisers interviewed for the report recommended fundraisers approach DAF advisors “as if they were writing the checks themselves,” the report’s authors wrote. This is especially true in situations where DAF holders might be anonymous, whether by design or happenstance. In these instances, building individual relationships with the actual funders can be difficult.
“Interactions with DAF donors should not be transactional one-off occurrences but instead customized as part of a broader strategy, just like those for any individual supporter with significant giving potential,” according to the report authors. “By focusing on building relationships that aligned donors’ philanthropic interests with the organization’s mission, fundraisers found that DAF grants naturally followed.”
The fundraisers interviewed highlighted six challenges and four opportunities faced when soliciting DAF grants. The challenges include:
One: Verifying the Organization. DAF sponsors — the organizations for whom DAF advisors work — might require more than a nonprofit being registered as a public charity with the IRS. Nonprofits, especially new nonprofits, should actively reach out to DAF sponsors for pre-certification. The nonprofits can help their own cause by including information such as Employer Identification Number, 501(c)(3) status, and financial information on their websites, as well as making sure information about them on third-party verification sites is current.
Two: Investigating DAF Donations. The good news is only 4% of grants from DAFs are completely anonymous. The bad news is 79% are partially anonymous – and that anonymity may include the funder’s personally identifiable information. This lack of transparency makes acknowledging the funder (as opposed to the DAF advisor) cumbersome.
Sometimes that veil of anonymity is easy to pierce, such as when a DAF’s name includes the last, and sometimes the first, name of the funder. Other tactics used to determine the funder’s identity include matching giving patterns from the DAF with those of known donors. Funders may want to be anonymous, but as the fundraising professionals noted, sometimes funder anonymity was unintentional – a consequence of the way a DAF is set up.
Three: Entering DAF Grants. Nonprofit back-office staff often record they types of gift information traditionally found on paper checks… even if there is an accompanying note from the DAF advisor indicating who the funder is. As one fundraiser told the report authors, “We need to re-teach people how to open mail.”
The fundraisers recommend a two-track system of gift recognition. The first credits the DAF sponsor, and the second acknowledges, when possible, the individual donor, or at very least the DAF advisor. All of this information needs to be entered into a nonprofit’s donor relationship management system (DRM) – and acted upon.
Four: Thanking the Donor. A thank you from the nonprofit should go beyond sending a tax receipt. A personalized letter goes a long way toward relationship building with all parties that influence a donation. As noted in challenge three, this may require tweaking the DRM system.
Five: Understanding DAF Regulations. When acknowledging gifts, the nonprofit will make sure the gifts are compliant with IRS rules governing DAF donations, such as not being able to use DAF donations for tangible personal benefits beyond those that are part of basic stewardship efforts. Fundraisers can avoid headaches by making sure DAF advisors understand the rules governing what DAF donations can and cannot be used for. Paying for a gala dinner, for example, is a no-no, because the individual funder gets both the dinner and the deduction for having contributed to the DAF.
Six: Exchanging Information. Occasionally individual funders do not let nonprofit fundraisers know they will be giving through a DAF. As a result, the nonprofits do not always recognize gifts received. Nonprofit fundraisers make the donation and information linking process more transparent by having clear instructions on how to facilitate DAF gifts on their websites, making sure that the DAF name in addition to the funder name is collected and assisting DAF sponsors through the DAF donation process.
Are all these potential headaches worth the effort? Yes, the interviewed fundraisers indicate, both for the size of the potential donation pool mentioned earlier as well as the opportunity to grow that pool. The fundraisers highlighted four opportunities DAFs offer for boosting a nonprofit’s fortunes. These opportunities include:
* Signaling Intent and Capacity. Fundraisers view individuals who create DAFs as being especially committed to giving, as well as being wealthier than the average potential funder, although some noted these assumptions are changing as DAFs have become available to a larger funder universe. The main point, however, is that presence of a DAF eliminates the need for fundraisers to convince someone to give, and allows fundraisers to focus on directing where gifts should be bestowed. When an individual is identified as a DAF donor within an organization’s records, that individual may be a lucrative prospect for additional contributions.
* Engaging in Deeper Conversations. Funders who use DAFs are perceived as savvy strategic thinkers who are receptive to deeper conversations about giving strategies and benefits. They are seen as open to more sophisticated dialog regarding the measurable impact of their donations, and may want reassurances their contributions are being used effectively.
* Gathering Strategic Information. Soliciting contribution information from individual donors into their DAFs may yield insights into how each donor approaches funding. Some may be stockpiling funds within their DAFs with comparatively few disbursements, while others cycle funds in and out of their accounts. The report authors break DAF giving strategies into three buckets: Tubs, who move money in and out of their funds quickly (strategy: ask for an annual donation); Tanks, who move larges sums in and parcel it out over a few years (ask for an annual or major gift); and Towers, who put large sums in and spread their contributions out over longer periods (ask for an annual gift, but highlight planned gift options).
* Experiencing Confidence in Solicitation. As mentioned above, a DAF funder is one pre-disposed toward giving. As one fundraiser interviewed noted, she was emboldened in “asking for larger grants because [she knew] that the money’s available.” A DAF funder is also more likely to give outside the traditional annual cycles of giving, if properly approached.
The full report is available here: https://www.dafresearchcollaborative.org/daf-fundraising-study\
