Donor-Advised Funds are exploding in popularity. Why?
Last week we touched on the rise of commercial impact investing, but what about activity on the pure impact end of the spectrum (AKA pure philanthropy)? The biggest trend by far in the space is in Donor-Advised Funds (DAFs). Although they have been in practice since 1931, DAFs have exploded in popularity over the past five years, predominantly as a result of wealth advisors opening funds to meet millennial desire for charitable giving.
DAFs are public charities that allow a donor to receive an immediate tax deduction upon the charitable contribution, without being forced to immediately determine the beneficiary. DAFs are a novel structure to entice more people to donate capital, given the lower cost associated with donor-advised funds versus traditional individual foundations. That said, they also offer several limitations, which in our view have hindered their ability, thus far, to make a significant dent in the amount of idle philanthropic capital being put to work. These limitations are shown in red below.
Put simply, while we are excited by the extensive growth in DAFs, and, the proven desire by millennials to put their capital to work, here at SharedImpact we think there is a way to improve the traditional donor-advised fund structure to make an even bigger impact. More on our ideas in the coming weeks.
