Donor Advised Funds Part Three: The Sponsor’s View and Why It’s Important
By: Brent Shively, Lead Solution Engineer, Salesforce.org
So far in this series, we’ve covered the fundamentals about what exactly a donor advised fund is and what to do if you’re the recipient of a donor advised fund gift. As a quick reminder, a Donor Advised Fund (DAF) is a charitable giving vehicle established at a public charity that pools funds from multiple donors. Now, let’s take a look at the organizations that are central to all of this: DAF Sponsors. These are the organizations responsible for administering DAFs and collaborating with their donors to connect them with nonprofits that align with their interest areas. If you’re a nonprofit who has received DAF funding previously, these are the entities who may have collected some of your organizational documentation and issued checks.
Who they are
According to the National Center for Family Philanthropy, there are three primary types of DAF sponsors.
- Community Foundations — Focused on a geographic area and local issues
- Single-Issue Nonprofits — Targeted on one specific issue, irrespective of geography
- National Nonprofits & Financial Institutions — Commercial and noncommercial entities without a particular emphasis
Each of these types of sponsors has their missions, priorities, and ways of collaborating with donors and the organizations supported by DAFs. The DAF sponsor’s mission plays heavily into how they engage with donors and nonprofits, as well as the impact they are working to facilitate with the funds. When donors are determining where they may want to set up a DAF, they are typically evaluating the sponsor based on the level of service provided, the types of assets they can put into the DAF, the fees involved, and how easy it is to work with the sponsor.
It is important to note that donors will not necessarily keep all of their DAFs with a single sponsor either. Sometimes donors will have multiple DAFs at a single sponsor, and other times, they will spread out DAFs across multiple sponsors. This can create some challenging situations for the nonprofits receiving funding because they will not always know when the same individual or household is supporting them but from different funds.
What they do
Sponsors are unique in the world of nonprofits. They have similar activities to a traditional nonprofit where they fundraise from donors in order to support the work they do. Additionally, they have similarities to a traditional foundation where they are making grants to nonprofits, either in the form of a DAF “grant” or potentially from their own pool of dedicated funds or an endowment. While they have similar activities to both nonprofits and foundations, they ultimately end up operating as a hybrid of both.
The process begins with a donor approaching the sponsoring organization interested in launching a donor advised fund. Once the legal procedures associated with that have been completed, the donor will make an initial contribution into the DAF; this contribution can take many different shapes, depending on the donor and their assets. It ranges between sponsors, but in many cases, a DAF contribution could be cash, real estate, stock, crypto-currency, art, or any type of tangible or intangible asset. Often times, there is a requirement to provide a minimum initial contribution into a DAF; however, some sponsors, such as Fidelity Charitable, have waived that requirement.
Now that there are assets in the DAF, the donor can choose to make distributions, in the form of a grant, to organizations that align with the donor’s interest area(s). Once the donor has made a grant recommendation, the sponsoring organizations validates that the donor has enough funds in their DAF, and that the organization meets the required criteria for receiving a DAF grant. With due diligence completed, the organization receives the funding and eventually reports back to the sponsoring organization (and donor) on the work they completed with the funding they received. These are the high level steps sponsoring organizations engage with two of their key constituents: donors and grantees.
Depending on the type of sponsor, these organizations will undertake work outside of the scope of DAF administration. This can range quite dramatically between sponsoring organizations, but ultimately, all of the other programmatic work they do aligns with their primary mission and geographic areas. Some examples of programmatic work include:
- Running their own programs aligned with their mission/geography focus (i.e. Educate Texas at Communities Foundation of Texas)
- Impact Investing (i.e. Impact Investing at National Philanthropic Trust)
- Offering their own competitive grants and/or scholarships from their donors (i.e. Grants & Scholarships at the Oregon Community Foundation)
- Advocating for systemic change in their realm of influence (local/state/federal governments)
- Providing consulting services to corporate entities on their corporate social responsibility work (i.e. Consulting & Management Services at Silicon Valley Community Foundation)
- Hosting events and convening thought leaders together
How technology supports their work
As mentioned earlier, there are quite a few similarities between DAF sponsoring organizations and both nonprofits and foundations, but at the end of the day, all of these organizations grow their impact through managing and cultivating relationships. It is vital for sponsor organizations to have a clear view of the full network of their donors, which can include family, friends, wealth advisors, their family office, colleagues, and more. In order to fully understand their donors’ interests and be the matchmaker to possible organizations to whom they will grant, each DAF sponsor needs to have an effective technology strategy.
Let’s dig in a bit deeper here because it’s really important! Tracking and understanding your relationships with constituents and each touchpoint is critical for success in any organization. However, for DAF sponsoring organizations, these relationships are driven by (and will grow from) effective transactional management: tracking the lifecycle of an asset from donor to a fund to a growing investment and ultimately into a DAF grant. This end-to- end process is sped up or slowed down by the technology used to support it. Within a sponsor, there are many people required to keep this process smooth, and technology enables sponsors to increase the pace they can move through this process, which is vital! The more efficient a sponsor is, the more DAF grants are able to be issued to organizations, resulting in greater impact.
The success and ability for sponsoring organizations to make an impact is a direct result of their ability to nurture, grow, and engage ALL of their constituents. This isn’t easy to do with so many different types of stakeholders. But technology can make this easier! Using a connected platform that has built-in tools for personalizing messaging to the right person, on the right channel, at the right time will result in more engaged donors/grantees/advocates who are connecting in their own preferred manner. Today, it is no longer an option to treat every constituent the same. Our day to day, commercial experiences have set dramatically different expectations, and whenever nonprofit organizations are able to engage in the same way, those constituents notice and value it.
Wrap Up
Regardless of your relationship to a sponsoring organization (donor, grantee, sponsoring organization employee, interested party!), it is clear from this series that donor advised funds are a critical resource in the current fundraising landscape. There is nuance to DAFs that inform how you engage with DAF providers, and it is valuable to understand the perspective and purpose of the sponsoring organization themselves, especially because they are often grantmakers too! We hope this series has provided some insight into what a DAF is, what to do when you receive one, and gaining deeper insight into DAF sponsors.
If you’re interested in learning more about all the different forms of grantmaking and continued updates on Salesforce’s Grants Management solution, follow me on social media!
