• February 1, 2015

The Economic Downturn and Donor-Advised Funds: What You Need to Know

Tuesday, August 18, 2009, at 12 noon, U.S. Eastern time

Before the recession, donor-advised funds were growing fast in popularity. But as the financial markets have tumbled, the values of many of those funds have declined sharply -- and donors have had less money to pour into these charitable gift funds.

What are organizations that offer donor-advised funds doing to counter the financial challenges? How are charities being affected? What can fund raisers do to attract money from the funds?

To better understand how the recession has affected charitable gift funds, The Chronicle has conducted its annual study of America's largest donor-advised funds.

Related Materials

The Guests

Benjamin R. Pierce is executive director of the Vanguard Charitable Endowment Program, in Newton , Mass., which he has led for the past 11 years. Previously Mr. Pierce served as the chief operating officer for the College of Physicians of Philadelphia, and worked in a series of financial administration jobs at Philadelphia National Bank, Air Products and Chemicals, in Allentown, Pa., and FMC Corporation, in Philadelphia.

Sarah C. Libbey is president of Fidelity Charitable Gift Fund, in Boston. In her 18 years with Fidelity, Ms. Libbey has served as the funds senior vice president of marketing and program development, chairwoman and director of the board for Fidelity Personal Trust Company, senior vice president of portfolio advisory services, senior vice president of product management and development for Fidelitys retail mutual funds, and in many other posts.

John E. Kobara is chief operating officer of the California Community Foundation, where he is responsible for development, marketing, grant making, and donor relations. Previously, Mr. Kobara was chief executive of CK-12 Foundation, in Palo Alto, Calif. He also served as president of Big Brothers Big Sisters of Greater Los Angeles, senior vice president of Sylvan Learning Systems, in Baltimore, president of OnlineLearning.net, and vice chancellor of the University of California at Los Angeles.

Kimberly Wright-Violich is president of Schwab Charitable, in San Francisco. Previously Ms. Wright-Violich held a series of leadership positions at nonprofit organizations in Northern California, including on the Board of Directors of Northern California Public Broadcasting, the Non-Profit and Public Management Program of the Haas School of Business, at the University of California Berkeley, and others. In 2006 she helped lead a group of international executives in establishing an orphanage in Kericho, Kenya, for children whose parents have died of AIDS.

A transcript of the chat follows.

Noelle Barton (Moderator):
    Hello, and welcome to today's online discussion. Today's chat will examine how the recession has affected one of the most popular giving vehicles in philanthropy in recent years: donor-advised funds.

Noelle Barton (Moderator):
    On the heels of the annual Chronicle survey of donor-advised funds, our guests will address how organizations that manage donor-advised funds are weathering the current economic climate, and what fund raisers may be doing to attract donations from the funds. Our annual survey's special report, along with an interactive database, and additional tables, can be found here: http://philanthropy.com/premium/articles/v21/i20/20001601.htm

Noelle Barton (Moderator):
    Joining us today to address these challenges are John E. Kobara, chief operating officer of the California Community Foundation, in Los Angeles; Sarah C. Libbey, president of Fidelity Charitable Gift Fund, in Boston; Benjamin R. Pierce, executive director of the Vanguard Charitable Endowment Program, in Boston; and Kim Wright-Violich, president of Schwab Charitable Fund, in San Francisco. All four will be available for the next hour to take your questions.

Noelle Barton (Moderator):
    Before we get started, a couple of reminders. You are invited during the discussion to ask questions or post comments on what you are reading. To do that, simply click on the ‚Äúask a question‚Äù link on this page and type your question or comment. As with all our live chats, we will be offering a transcript of this event after it is complete at http://philanthropy.com/live.

Let's get started.

Question from Jill Loomis, Scholars at Risk, NYU:
    What is the protocol for cultivating a charitable gift fund under two different circumstances: First, to introduce our nonprofit. Next, when we've received a gift from one or more donor advised fund and would like to develop the relationship. Thank you.

Benjamin Pierce:
    Great question, Ms. Loomis. My feedback is two-fold: 1) virtually all of our roughly 30,000 grants annually are "advised" by our donors and our experience is that most of our donors know in advance what they wish to support. That being said, VCEP is happy to accept materials from charities and then make it available to donors who inquire about opportunities in different specific sectors, such as childrens literacy in the inner-city. 2)the really good opportunity for you is in the second part of your question - if you receive a check from VCEP or other national DAFs and the account advisor name/donor is made known to you, your charity has every right (and should!) cultivate that person for additional grants as well as potentially a succession grant (when the donor dies your org might have been named to receive some or all of what is left in the DAF account). Know that in our case the median size DAF accout is $51,000 so there is much that you can cultivate!!

Finally and a little bit separately - as you may know DAFs may not fulfill grant recs that fulfill pledges to charities. Therefore another way you may help yourselves obtain more grants from DAF accounts is to provide wording to your donors along the lines of "I'm not making a pledge but please know that I will request that my DAF consider a recomenndation for $___ towards the general operations of ___ charity".

I hope this is helpful.

Benjamin Pierce:
    Thanks to the Chronicle for this unique opportunity to communicate with individuals and organizations about giving in America. I'm honored to participate. Hopefully I will add some value. Cheers! Ben

Sarah C. Libbey:
    Noelle, Thank you for hosting this discussion today. I'm looking forward to it.

Question from Ruth Anne, Belize:
    Are donor advised funds an appropriate mechanism for nonprofits outside the united states to work with a 501-c-3 in the united states? Are there rules and regulations that govern the specifics of giving internationally and where would I find those? Thank you

Kimberly Wright-Violich:
    Donor-advised funds are designed for American taxpayers/donors and are best utilized for giving to domestic 501c3 non-profits. However, American donors using these funds can give to non-US-based charities either through a US charity willing to act as the fiscal agent for the international charity OR a donor-advised fund which is willing to take on "expenditure oversight responsibility". Expenditure oversight responsibility is specifically defined by the IRS and includes monitoring the expenditure of grants. Some donor-advised funds conduct expenditure oversight responsibility and some rely on domestic charities to act as fiscal agents for international giving.

Question from Jayne Schabel, a 34 year old hospice,serving a four-county region:
    Our organization sends out quarterly letters to the staff in charge of donor-advised funds at both the local community foundations and other charitable institutions that administer donor-advised funds. In these letters we highlight new programs as well as ongoing programs by sharing a personal story of someone who has been helped or underscore statistics that reveal a problem and how we are providing a solution. In your experience, what else can we do to continue to stay visible and attract more donations from donor-advised funds? What do you like to see from organizations to help you advise a prospective donor? Thanks for your thoughts.

John E. Kobara:
    We have found that the key to attracting more donors and more donor advised fund supporters, is a clear articulation of the "return on investment" of any gifts. In other words, in addition to heart warming stories, there needs to be a set of metrics that show how effective and impactful a gift will be. There are few proven ways to get to donor advised fundholders, except through the donors. I am not making a joke. I mean that finding donors is more important than finding donor advised fundholders. I hope this helps.

Question from Patrick Maguire, Independent Charities of America:
    How can we "democratize" the DAF concept to get people of average means to adopt it? Should we? I come from the employee workplace charitable fund drive perspective, and I've concluded that if we replaced "donor choice" with "fund your personal DAF with your payroll allotment and then make lump sum grants" we could save millions annually in transmittal costs.

Sarah C. Libbey:
    "Democratizing giving with the DAF" is a concept we support. By lowering the minimum to open an account ($5,000) and to make a grant ($50) the Fidelity Charitable Gift Fund has been taking steps to reach more givers.

Your idea about engaging employers with DAF programs is of interest to us; to aggregate the grants from all employees going to one non-profit to streamline efforts would certainly provide benefits. Today, with direct donor granting we have worked with the recipients of the high volume of grants from the Fidelity Charitable Gift Fund to streamline the process on their end.

Kimberly Wright-Violich:
    Schwab Charitable is happy to be included, particularly with Sarah, Ben and John. We thank the Chronicle of Philanthropy for providing this opportunity, and hope the dialogue will result in continued support for the important work of the charitable sector.

John E. Kobara:
    We continue to see a growth in the number of new donor advised funds being opened. There are a couple of interesting trends; 1) Donors are bringing increasingly complex gifts to the table. Meaning, percent of partnerships, percent of real estate deals, trade marks, royalty streams, etc. 2) Anonymity is a sought-after service. As you know, a donor-advised fund is virtually anonymous versus a private foundation. And this is being sought to minimize solicitations and recognition.

Comment from Ashley, donor-advised fund holder & nonprofit worker:
    This is more of a statement: when a donor gives through a donor-advised fund, it is just like he/she wrote a check. Write a proper thank you and put that person on your mailing list (if it's not anonymous, of course). (In other words, Fidelity doesn't care!)

Question from Sam Connor, Save the Children:
    In today's market we see trends for ever more efficient management of giving. 1) Do you see a trend of some smaller foundations closing and transfering assets to donor advised funds as a less costly giving vehicle? 2) How can we help our supporters understand the many advantages of donor advised funds? 3)How can we help promote donor advised funds as a genre of charitable giving?

Benjamin Pierce:
    Thanks Mr. Connor for this question. Yes, over the last 10 months in particular we have seen an increase in both the number of inquiries and actual conversions of PFs to DAFs. In our case it is not a huge number (12 conversions) but the trend is real. This has also been reported publicly in the media (Kiplinger's Personal Finance; Wall Street Journal).

Importantly what we have also learned is that often the conversation may more be about DAFs AND PFs, rather than DAFs OR PFs. In other words, there are ways for DAFS to work with PFS, rather than simply as a replacement. Examples are DAFs may make anonymous grants, DAFs can receive some or all of the required PF 5% annual payout, DAFs can easily be set up to break off a part of a PF to address mutiple concerns like disaffected family or board members or to support orgs that may not fit the PFs stated mission...

These features augment the lower costs (VCEP charges ALL-IN about .75-.80% per year for any account up to $1 million); the personalized service and active grantee due diligence; strong on-line functioanlity; investment choices over the asset allocation range; and the sharp reduction in administraive hassles like the 990PF.

How can you help your friends learn more about DAF advantages? We offer a piece on a DAF/PF compare/contrast. It's easy to read and understand. Most of our websites have some such pieces available.

How can you spread the word? Mailers, stories, website all work. A DAF is potentially where a donor can easiliy, simply, and effectively address all his/her basic charitable needs. In all, you may do your donor a great service by teaching them how to efficiently address their multiple charitable needs AND at the same time, by providing this service, strengthen your long-term donor relationship and open the door to increased gifts from the DAF in the future.

Question from Jeff Stier, American Council on Science and Health:
    Thank you for taking my question.

Groups like the Center for Science in the Public Interest and their "Integrity in Science project" are pushing for more and more "transparency" for non-profits.


They've even criticized my organization for not listing our full donor list.)

Yet many groups claim to be completely transparent about their funders, yet they only list the donor advised fund as the funder, when in fact, the gift was often directed by a specific company or individual.

Listing "New York Community Trust" for instance, does little to add to transparency. In fact, isn't simply listing the fund, worse, since it suggests transparency, but offers no useful information?

Thank you, Jeff Stier Associate Director American Council on Science and Health

Sarah C. Libbey:
    Transparency is the goal to strive for. We encourage our donors to research non-profit organizations and transparency is an important factor. As a DAF, when we send grants to organizations we include the name of the donor unless privacy has been requested.

As you may be aware the IRS is also very interested in transparency and has recently broadened its reporting requirements for charitable organizations.

Question from Ralph Small nonprofit:
    We are working to teach Dyslexiic children to improve their reading and writing skills free. Obviously we need financial help. where do we start?

John E. Kobara:
    Thank you for taking on such an important issue. Kids that suffer dyslexia truly struggle in achieving their academic goals. I'm hoping you have an engaged board of directors. Start there and network with their contacts to engage new friends, supporters and donors. There must be parents organizations that convene to share best practices and seek support. Those lists could yield potential supporters. In the end, it is a networking game to communicate your messages through people who have a passion for your mission. Best wishes and good luck.

Question from Ruth Anne, Belize:
    How does one approach a donor-advised fund? It seems as if most are working on a specific area and often through a particular organization. Are they open to letters of inquiry if the current efforts seem a good match to our organization?

Benjamin Pierce:
    Ruth Anne - thanks for the good question. There are a wide range of DAF providers in the U.S.: national DAFs such as the Vanguard Endowment Program and Fidelity and Schwab's charities; over 600 community foundations; dozens of religious-sponsoring orgs; universities; and other umbrella charities. In total there are about 700 orgs offering DAFs today in the U.S.. Your approach to each of these maybe a little different.

My sense is that the best approach is not so much thru the DAF provider but rather if you should receive a grant check from ANY of them, and the underlieing donor name is made available, you should cultivate the HECK out of that donor (in a nice fashion obviously!). You might also communicate with your donors that IF they have a DAF account somewhere, to please consider making a grant recommendation on behalf of your organization. That rec can support almost any project as long as the donor, or anyone else, is not getting any private benefit.

The bottom line is that most DAF providers are sending moneys out based on the recommmendations they receive from donors. Those donors know what they want to support (at least that is the case in our Program). Therefore, trying to cultivate us will not help a lot. Sorry I don't have more encouragement but want to be straight-ahead.

I'll be interested in what others have to say here. Ben

Noelle Barton (Moderator):
    As we approach the midway point in today's discussion, I'd like to remind our audience that this live chat is a text-based chat, and there is no audio. Participants are encouraged to ask questions at any time. To submit your query, simply click on the "ask a question" link on the top of this page and type in your question.

Question from Richard, small nonprofit (school):
    capital or major donors are memorialized on plaques but records are otherwise nonexistent because most recent donation was 10-15 years ago and the school has reorganized. Assuming we can find them, the best approach is..?

John E. Kobara:
    You call to thank them for their past support. And how much their past gift has made a difference in the trajectory of your organization. If they show signs of interest, than you can embark on developing a new relationship with them. The challenge is a lot of time has passed and you have to apologize for the hiatus.

Question from Annie Palubicki, The Rotary Foundation:
    We have a large constituency in Canada and have been considering opening a DAF in Canada. Do you have any experience with that and/or resources that might help as we research this option?

Benjamin Pierce:
    We have done significant research and have some experience in fulfilling grants to Canadian charities. That being said, we cannot speak to the legalities of opening a DAF in Canada. We can advise that we can make grants from our Program to community foundation-like organizations in Canada on a selective basis. These organizations may then in-turn support Canadian charities.

Comment from Rose Jagust, Jewish Federation of Metropolitan Chicago:
    In response to the question regarding DAFs vs. PFs, we here at the Jewish Federation are seeing very similar trends. We have received questions about converting PFs to DAFs and have had one recently do so. We also have a number of donors who have both PFs and DAFs together. As was noted earlier, having both a DAF and PF gives donors flexibility because DAFs are not as complicated as PFs--nor do they require board approval for each grant recommendation. The donors who contact us regarding converstion of a PF to DAF are also interested in the lower costs of a DAF--we do not charge an administrative fee, although there are investment fees associated with our investment vehicles.

Question from :
    With due respect and understanding for the desire for anonymity, that very desire seems to create a real challenge for organizations seeking new donors--especially the type of philanthopic-minded individuals DAF-professionals work with. Any suggestions?

John E. Kobara:
    Yes, it creates challenges. Donors want to give to the issues that align with their goals. Helping donors understand the value of a particular organization by raising the visability of that organization. At CCF, we select small groups of top performing grantees to highlight in our publications. We urge our donors to consider funding these nonprofits. We give our donors an idea of how specific dollar amounts will advance the goals of those organizations. These publications have triggered conversations with these donors to help them refine their goals. As you know, community foundations are the "Switzerland" of philanthropy. And our primary goal must be to advance the philanthropy of the donor.

Question from Stephanie Heishman, Amercican Board for Certification of Teacher Excellence:
    I recently met with someone at the Greater KC Community Foundation which has many DAF. In our conversation I mentioned that our work is state-based and one challenge is the limitation some donors/foundations place on giving locally. My contact at the Greater KCCF mentioned that our group could set up an "ABCTE Fund" with their foundation and that could alleviate that limitation--donors would be more comfortable knowing that their money is staying within the state. My questions are two fold: 1) Once this is set up, what do you think the best approach would be to getting in front of more donor-advised funders? and 2)are most Community Foundations set up to do this for non profits not located within the state but doing business in the state? (ABCTE is headquartered in Washington, DC but recruits, prepares, certifies and supports new teachers through alt certification in 9 states)

Benjamin Pierce:
    Ms. Heishman: I can only speak to how The Vanguard Charitable Endowment Program's granting policies work. We will support grant recommendations to any 501(c)(3) in the country for any public purpose for any amount over $500 as long as no private benefit accrues to the recipient. We have no state limitations. Sorry if this does not directly answer your question. I look forward to comments from the community foundation folks.

Question from Mary Ann Oppenheimer, small nonprofit:
    I would like to follow up on the question from the woman at the hospice and John's interesting answer. John, are you suggesting that much of the advice fundraisers have been given -- to "cultivate" relationships with DAF managers/attorneys, etc. is really off-target? My instincts tell me you are correct, but I want to double check -- and see if the others agree. Are you saying that it is the rare donor advised fundholder/manager who really influences the donor's decisions?

John E. Kobara:
    Yes, we are in accord. Most donors and wealthy individuals have many ideas about their philanthropy. It usually starts with their personal passions, their alma mater, their favorite hospital, a large arts organization that they patronize, etc. We look for moments to advise them about other opportunities. Infrequently, donors come to us to redefine their missions and acquire lists of potential grantees. More frequently, donors are asking for more research, more due diligence on organizations and causes. Again, these are opportunities where we can advance the conversation and help shape their philanthropy.

Question from Jessica Sherman, Global Greengrants Fund:
    How do Community Foundations and programs like those at Vanguard and Fidelity differ? What are the advantages/disadvantages of each?

Sarah C. Libbey:
    Community Foundations (and their DAF programs) have existed for years with a focus on the needs of the local community and its constituents, providing guidance and expertise on local concerns to their donors. This can result in the Foundation staff connecting the donor to community/non-profit leaders.

When Fidelity launched the first 'national' DAF in 1991 it was to appeal to donors who are more self-directed and wish to support causes at all levels: local, national and international. The national DAFs enable donors to aggregate all contribution and granting activity in one account, streamling and organizing all their charitable giving.

Question from Joseph Olchefske, Global Impact:
    What are your organizations doing to increase donor giving to international causes?

John E. Kobara:
    We have no efforts underway to increase international giving. We have made a committment to assist all donors with international grantmaking (not something all foundations are doing). In other words, we do not limit our donors exploration of international philanthropy.

Question from Marla Berg, United Way NYC:
    What is the average grant size for your DAF? I realize it may vary quite a bit from one donor to the other. A related question - do donors tend to keep their giving relatively stable from year to year?

Kimberly Wright-Violich:
    Our average grant size is approximately $5,000. Interestingly, donors will reduce their contributions to their donor-advised fund accounts during economic downturns, but not significantly reduce their granting. For example, contributions to Schwab Charitable decreased in 2003 and 2009, and granting out to charities increased each of those years.

Comment from Lindsay, Nonprofit Board Member:
    How much have year-to-date contributions to national DAF's fallen in 2009, and have some regions of the country fallen more than others?

Question from Stephanie Heishman, Amercican Board for Certification of Teacher Excellence:
    Our Washington, DC-based organization does a lot of state-based work and we have recently met with a few state's community foundations. My questions are:

1) What is the best way to get in front of the DAFs that are managed by Community Foundations?

2) Are you familiar with 501(c)(3) non profits setting up a fund within a Community Foundation so that donors who limit their giving to certain regions are able to give directly to the non profit but know that their money will stay locally?

Thank you for your time today.

Benjamin Pierce:
    Interesting question. And unfortunately, not a simple answer. The best way for an organization to get in front of community foundation DAFs around the country is to get in front of those community foundations. What I mean is if the organization is a grantee of the community foundation or is well understood by the foundation staff, the chances to get in front of the DAFs improves. I would recommend that you prioritize the regions of the country and then investigate where community foundations exist. This will give you a targeted list of community foundations to begin building these relationships. As I have stated in previous answers, there are no simple ways of getting in front of DAFs. These donors have come to community foundations for the expressed purpose of avoiding solicitations. There in lies the challenge. Hope this helps.

Question from Christopher JK Richardson, FCA, Charitable Gift Planning Consultant & Philanthropy Advisor, Vancouver BC:
    I am particularly interested in those 'learnings' that cross the Border as commercial DAFs are relatively new to Canada ... until about 2003/3 most were offered by Community Foundations ...

Kimberly Wright-Violich:
    The primary difference between local community foundation donor-advised funds and national donor-advised funds has been their geographical focus. National donor-advised funds ("commercial" donor-advised funds) serve a national audience and therefore tend to scale more quickly and are more dependent on the newest technologies which enable them to provide services at lower costs. Sometimes donors prefer national funds who want to remain anonymous. Community foundation donor-advised funds are more intimately tied to their specific communities and therefore are experts on giving in their local area.

Noelle Barton (Moderator):
    We have a few minutes left in our one-hour chat, but we will post any responses that the panelists respond to after 1 p.m. Lots of great questions today from everyone.

Question from Katherine Wojtan of Mary's Pence:
    I'm new to the non profit world and therefore new to this topic. Are most donor advised funds part of community foundations, and therefore part of organizations focused on a given community or state? Our donors are from across the U.S., and our grantees are across the Americas. I know that it's most important to nurture donors, but is there a way for me to get connected with donor advised funds interested in offering options for donors interested in Catholic organizations, granting to women, in the US, Latin America and Haiti? How would I find these?

Sarah C. Libbey:
    Most donor advised funds are part of a community foundation or sponsored by a charitable organization that has a specific focus.

In order to identify DAFs associated with a specific focus I encourage you to use Guidestar to research this further.

Question from Katherine Wojtan of Mary's Pence:
    I'm new to the non profit world and therefore new to this topic. Are most donor advised funds part of community foundations, and therefore part of organizations focused on a given community or state? Our donors are from across the U.S., and our grantees are across the Americas. I know that it's most important to nurture donors, but is there a way for me to get connected with donor advised funds interested in offering options for donors interested in Catholic organizations, granting to women, in the US, Latin America and Haiti? How would I find these?

John E. Kobara:
    Yes, most donor advised funds are part of community foundations. And community foundations are generally focused on a particular geographic area. In addition, community foundations serve the interests of donors who establish donor advised funds. And as it says in the label, the donor advises the fund. What this means is that the donor makes recommendations to grant money to specific organizations. We at the community foundation verify the nonprofit status of the organization and the compliance of the grant request with IRS guidelines. We approve 99% of the recommendations. And 70% of the grants we make are donor advised. So, in the vast majority of grants the donor has decided where the money goes and is not looking for additional options or information. As I have stated in previous answers, your focus on donor relations is the key. Finding people and potential supporters who are passionate about your organization and cause should be foremost in your mind. Whether they have donor advised funds is a secondary consideration. That being said, raising your organization's visability amongst community foundations where you have services could be another strategy. Good Luck.

Question from Christopher JK Richardson, FCA, Charitable Gift Planning Consultant & Philanthropy Advisor, Vancouver BC:
    Thank you to the Chronicle and thank you to our moderator, John, Sarah,Benjamin and Kim. I have been asked to update a paper that I gave at the 2007 & 2008 CAGP (Canadian Association of Gift Planners ) conference on DAF's. The original paper utilized information from each of your institutions and organizations and I trust that I can contact you over the Fall/Winter/Spring as I prepare for my paper that will be presented at our 17th annual conference in Edmonton -- May 12th to 14th, 2010 ( a shameless plug ) ... also join us for the Olympics & Paralympics in Vancouver February 12-28 and March 12-21....

Benjamin Pierce:
    Mr. Richardson - Much of our current financial information is already public on our website at www.vanguardcharitable.org, including our most recent 990, audited financial statements, and annual report. We are happy to provide other updated information if you would like to contact us at 888-383-4483.

Noelle Barton (Moderator):
    Lindsay, to answer your question, given that there are a few months left in 2009, it is a bit tricky to determine how the year will ultimately shape up with respect to donor-advised funds.

We had 10 donor-advised fund share full 2009 fiscal year data with us in our survey, and the results for 2009 were rather gloomy (this set included Schwab, Fidelity, and Vanguard, incidentally). Among these organizations, combined giving to their DAFs dropped 37 percent in 2009, and gifts from these DAFs to charity fell by 10 percent.

Question from Jenny G., One Brick:
    I have heard that potential new tax legislation may make giving through a DAF not as appealing to donors. Do you know anything about this?

Kimberly Wright-Violich:
    Yes. As part of the Pension Protection Act, Congress asked the US Treasury to conduct a study of donor-advised funds. The assumption was that the study may result in additional regulation. At this time, that seems unlikely. However, the most likely potential regulation would be a requirement regarding the granting levels in each individual donor-advised fund account. Today, donor-advised funds are required to distribute 5% of the assets at the organizational level. One potential regulation could be a requirement for each donor-advised account to distribute 5% of the account balance annually. The reason this seems like an unlikely change is because the current distribution rates from most donor-advised funds far exceed 5%. For example, Schwab Charitable grants, on average, 25% of our assets annually and has granted 41% of all assets received since inception. Should Congress go forward with this change, it could have the unintended effect of chilling grantmaking by acting as a guide for grantmaking.

Question from Holly, Arts Org:
    My question is from the other side of the spectrum. We receive a fair number of gifts from Donor Advised Funds. The donors are, for the most-part, long time funders of our organization. We are struggling with how to explain to the donors that we are not legally able to provide goods and services as a benefit for their contribution. Any advice for these conversations?

Sarah C. Libbey:
    Good question. We hear from our donors as well on this issue. DAFs may not make grants that would provide the donor with more than an incidental benefit, which typically include goods or services or tickets to a fundraising event.

We have created a section on our web site devoted to informing non-profit organizations about various policies, such as this. I refer you here for more information.(http://www.charitablegift.org/learn-about-charity/nonprofits/work-with-donors.shtml)

Question from :
    Following up further re DAF advisors, it sounds like it's still a good idea to reach out to DAFs simply as another audience, but not necessarily to make them a primary "target" since they're not doing as much influencing of donors as we've been led to believe?

John E. Kobara:
    That's true. Finding donors that are passionate about your mission is the first step. Looking for donors amongst DAFs it would not be a productive strategy. Hope this makes sense.

Question from Christopher JK Richardson, FCA, Charitable Gift Planning Consultant & Philanthropy Advisor, Vancouver BC:
    Has the 'clarification' resulting from the PPA of 2006 eased the tension between commercial and charitable DAFs ... as they are just 'choices' or has the apparent distrust and tension continued -- which I would guess confuses and has a negative impact upon DAF donors and potential donors trying to decide whether a DAF will assist their philanthropy. Has the legislative tide stopped or do you anticipate further provisions in the near future and if so -- to address what aspect of DAFs. I admit that I have not followed Jerry McCoy's annual NCPG legislative updates in the past several years to find the answer.

Before you go -- thank you - this text format is new to me and it seems to work fine ....

Benjamin Pierce:
    From my travels and conversations with a variety of other DAF providers, it's my sense that the original tension between national DAFs and community foundations has eased substantially. It was in all of our interests to technically define DAFs, and the PPA accomplished that. We are all awaiting the issuance of the Congressionally-mandated Treasury Department report on DAFs and supporting organziations, which will further clarify payout requirements.

Question from Stephanie Heishman, Amercican Board for Certification of Teacher Excellence:
    Considering the economic climate, how does a relatively new, private funding-seeking organization reach out and get in front of donor-advised funders?

Our federal grant just ended and we are in strong financial health, but are seeking private funding to ensure our growth into new states and to make sure we can keep enrollment fees affordable for our teacher candidates.

Thank you.

Kimberly Wright-Violich:
    Unfortuately, one of the reasons donors select donor-advised funds is to protect their privacy. However, only about 4% of our grants are distributed anonymously. Therefore, most charities know who is supporting them via donor-advised fund grants, and have the ability to reach out to those donors. Whether or not you have no donors who are currently contributing from a donor-advised fund, your best bet is to cultivate donors in the traditional fashion. Another tip is to make sure your GuideStar information is current and presents the American Board for Certificaiton of Teacher Excellence in the best possible light, since most donors who use donor-advised funds rely on GuideStar as a source of information.

Question from Sheila Krumholz, Center for Responsive Politics:
    Thank you for providing this forum to learn about DAFs. I'm curious about the comment, "trying to cultivate us will not help a lot." I'm wondering if this is different at Community Foundations -- particularly in light of the item called "Make sure your local community foundation is aware of you" in The Chronicle article (linked above). In it the director of donor relations at the New York Community Trust said, "Never overlook an opportunity to get to know the program officers for their respective areas." Is this a "can't hurt but don't invest a lot of time" situation?

John E. Kobara:
    No we agree. Get to know your community foundations (including the program officers), to raise the visability of the organization amongst DAFs. There is no direct way to reach the DAFs. May not be your primary strategy to get new gifts, maybe a longer term strategy.

Question from Barbara Reid, Childhood Leukemia Foundation:
    What is the minimum amount to contribute to a DAF for a specific organization?

Sarah C. Libbey:
    Community Foundation DAFs and national DAFs have differing minimums. For opening an account this can range from $5,000 - 25,000 (or more); Fidelity Charitable Gift Fund's is $5,000. Grant minimums to specific non-profit organizations may range from $50 to $500 (or more); Fidelity Charitable Gift Fund's is $50.

Question from Patrick Maguire, Independent Charities of America:
    For Ms. Libby: Could you expand on this part of your answer please?

"Today, with direct donor granting we have worked with the recipients of the high volume of grants from the Fidelity Charitable Gift Fund to streamline the process on their end."

Sarah C. Libbey:
    We have identified several of our highest volume recipient organizations and have worked with their staffs to establish a streamlined process that works better for them. In some instances this is a matter of verifying the ONE address (versus 12 that our donors have recorded) in their organization to which they want contributions checks mailed. In another instance we have worked with the organization to establish procedures to reduce calls to them in our due diligence process of making grants.

Question from Sara Leger, children's health nonprofit:
    We are relatively new to donor-advised funds, and were wondering what other charities were doing in terms of mailing to them, keeping track of the funds in a database, etc. Any tips on how to modernize or manage the process would be GREAT!

Kimberly Wright-Violich:
    Sara, donors who use donor-advised funds to grant to charities should be treated the same as all other donors. The one exception is acknowledgement letters to donors who use donor-advised funds should not include tax receipt information. This is because those donors already received their tax deduction when they irrevocably contributed to their donor-advised fund account. Feel free to send thank yous and traditional cultivation/solicitation information to donors using donor-advised funds unless the grant was received anonymously. You should also be sure that donor recognition lists include the name of the donor and not the name of the organization providing the donor-advised fund. In your database, you may want to isolate donors using a donor-advised fund into a "non-tax-receipt" category and develop a thank-you letter which excludes the tax receipt information for that population. In all other regards, those donors can be treated the same. Hope that helps.

Question from Noelle Barton (Moderator):
     I'm wondering if our panelists can discuss why some donors would be interested in establishing a donor-advised fund rather than starting their own private foundation, or why private foundations are converting to donor-advised funds, a trend that we have seen recently. Can you talk about any advantages one has over the other?

Kimberly Wright-Violich:
    The decision for most donors is driven by their needs and circumstances and not necessarily a function of the amount of money available to fund the charitable vehicle. Potential donors need to assess their personal tolerance for complexity, sensitivity to costs, time available and desire for privacy. The number of new donor-advised fund accounts has been growing much more rapidly than new private foundations because, in general, donor-advised funds are less expensive, provide more favorable tax treatment, are easier to use and significantly more private.

Private foundations provide unique opportunities to involve and pay family members or others as trustees/staff. Some donors are drawn to what they perceive as cache associated with having a "private foundation." Though most donor-advised funds will honor donor recommendations if consistent with tax law and regulations, ultimately the donor-advised fund provider has control. In contrast, in a private foundation, the board of directors has autonomy. This control comes at the expense of complexity, increased cost, cumbersome regulatory compliance and a lack of privacy since all private foundation tax returns are, by law, part of the public record and accessible online. Tax returns include donor names, assets, expenses, investments, grant details and trustees.

Specifically, donor-advised funds have higher deductibility limits, no excise tax and favorable tax treatment. For example, real estate contributions to a donor-advised fund result in a charitable deduction equal to the current fair market value versus a cost basis deduction if instead contributed to a private foundation. Donor-advised funds take on all regulatory and compliance, charity due diligence, recordkeeping and cashiering functions, which significantly simplifies the donor's charitable giving.

Private foundations are collapsing into donor-advised funds at increased rates for many of the reasons stated above.

Schwab Charitable has developed a Private Foundation Conversion Service as well as materials that can help donors in making the choice between a private foundation and a donor-advised fund.

Benjamin Pierce::
    This is a hot topic these days. DAFs allow for many benefits including, lower costs, greater simplicity, less administrative burden, anonymity with grants, no excise tax on investments as well as the ability to support charities across the philanthropic spectrum. Also there is no 5% annual required payout. PFs offer greater control, the ability to grant to individuals under certain circumstances and a broader set of investment choices.

Noelle Barton (Moderator):
    It looks like our time is up. I would like to thank everyone who joined us today, as well as our panelists, John Kobara, Sarah Libbey, Benjamin Pierce, and Kim Wright-Violich, for an informative and interesting discussion.

Sarah C. Libbey:
    On behalf of the Fidelity Charitable Gift Fund, I have been pleased to participate in this discussion and we thank the Chronicle of Philanthropy for hosting this event. We hope this information has shed light on the role of donor advised funds in the charitable sector.

Noelle Barton (Moderator):
    Please join us at noon Eastern next Tuesday for a discussion on how today's philanthropy is changing our world. We hope to have you with us again for that conversation. You can find that discussion here next week: http://philanthropy.com/live/

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