For Advisors, an Untapped Opportunity in Donor-Advised Funds

What You Need to Know

The donor-advised fund is increasingly the giving tool of choice for both families and corporations.
Despite this, many wealth management clients say they aren’t getting the charitable giving advice they need.
Athletes and entrepreneurs are looking for ways to make a charitable impact too.

While the donor-advised fund is not a new vehicle for charitable giving, the DAF landscape is not a static one, and there is strong evidence to suggest that many financial advisors are failing to meet their wealth management clients’ expectations around philanthropy planning.

One recent survey of 400 wealthy investors published by CEG Insights shows that 87% would like to make a meaningful impact via charitable giving. And yet, a paltry 6% reported receiving quality charitable planning advice from their primary wealth advisor.

There are a number of reasons why advisors are reluctant to engage in this planning work, according to Julia Healey, CEO of United Charitable, a nonprofit that works closely with wealth advisors and their clients on donor-advised funds.

These range from misunderstandings about clients’ expectations to fear about the complexity of the tax treatment of gifts and grants, but all of these can be overcome with the right education and support.

One clear trend for advisors to contend with is the rapid rise of DAF use by corporations. United Charitable has seen a spike in the number of companies that are creating DAFs as part of their social marketing efforts, Healey told ThinkAdvisor, and this represents a big, untapped opportunity for advisors.

Healey’s team is also helping more wealthy families convert their foundation-based charity efforts to a DAF-based approach. In addition, a move toward “hands-on” giving is playing out, especially among a younger generation of philanthropists who “don’t just want to write a check.”

Today, many donors want to feel personally connected to the charities they give to, Healey said. In fact, she believes the deteriorating connection with philanthropic activities and outcomes is partially responsible for the pullback in charitable giving in recent years.

“DAFs are a great tool in this environment and one we think more advisors should study up on,” Healey said.

Why Corporations Are Embracing DAFs

Many of the reasons why more corporations are using donor-advised funds today look a lot like the reasons why more private individuals and families are using them, according to Healey.

“One of the big appeals we always hear about is that DAFs give people or corporations the ability to be charitable now, without having to immediately pick the charity they give to,” Healey said. “It gives people a store of wealth for future giving.”

Donors, whether they be private individuals or corporations, like the ability to “plan for the unexpected.”

“So, you can imagine that, when events like the California wildfires happen or we have the Black Lives Matter movement come forward after the murder of George Floyd — you already have that charitable wealth set aside and ready to go,” Healey said. “That’s one thing our clients all really like about the vehicle.”

Healey said this trend is a good one for financial advisors who are already engaging with corporations via 401(k) plan consulting or by providing wealth management services to executives and highly compensated employees.

“By engaging in charitable giving and connecting the corporate clients with a DAF program, that’s just another powerful touchpoint for the advisor to deepen that relationship,” Healey said.

The upside of the DAF approach is that there is less inherent complexity, she explained, and there are opportunities for advisors to collaborate with the likes of her firm or a number of other major providers of DAF-related services.