How To Find The Right Donor-Advised Fund (And Why ...

Donor-advised funds have long been a popular vehicle for charitable giving, and many in the field expect the popularity of DAFs to continue to grow as the Baby Boom generation reaches retirement. ?But as the concept has grown in popularity, so have the number of options and providers. It is therefore important that both donors and their advisors understand the types of funds available and choose the ones that will best facilitate their wealth management and charitable goals. So how do you find the best donor-advised fund for your purpose and how do you find the right provider?

The first step is understanding your options. ?There are four major types of DAF providers, each of which is explored below.

The Donor-Advised Fund Marketplace?

1. ?National DAF Organizations -?Today there are approximately 30 national organizations that sponsor DAFs. Some are the charitable arm of for-profit financial services institutions such as the Fidelity Charitable Gift Fund, the Schwab Charitable, and the Vanguard Charitable Endowment Program. Others are independent sponsoring organizations (i.e., they are not affiliated with a particular financial institution or charity) such as the National Philanthropic Trust and the American Endowment Foundation. Unlike most DAF options, national organizations are issue and geography agnostic, which is fine if a donor is set on where his/her funds will go, but can be a huge deterrent to those donors who could benefit from targeted philanthropic advice.

National funds most often appeal to donors because of their technological capabilities. Their websites allow donors to simply login and access grant activities and other national databases with relevant information about prospective grantee organizations (i.e. Guidestar and Charity Navigator).

National funds also provide fee calculators on their websites so that donors know exactly how much services will cost. The relative low cost of national funds is another reason donors choose them. Because of their large capacities, national funds charge up to 40% less than other DAF options, according to Wright-Violich, representative of Schwab Charitable.

National funds are also attractive to donors because they have the expertise to deal with complex gifts and they have the most sophisticated investment options. Donors with large accounts ($10 million+) have access to alternative investments, allowing them to customize their investment choices so that their DAFs have similar investment flexibility to private foundations.

2. ?Community Foundations ? There are also more than 700 community foundations that sponsor donor-advised funds, as well as hundreds of faith-based institutions. In fact, it was such institutions that originally pioneered the DAF as an alternative to the relative inefficiency of checkbook giving or the more complicated process of establishing a private foundation. ?Over the years these organizations have become very technically savvy, with many offering similar online access and investment options as the national DAFs.

What really sets community foundations apart, however, is the local expertise and community commitment. ?These foundations become very involved in their local nonprofit sector, thereby giving their donors access to extremely beneficial information on how use their funds to make an impact in their local community. ?Many community foundations even have a grant process where local nonprofits can submit grant requests that are compliled into a ?catalogue? of opportunities for donors. ?For donors interested in impacting their local community, this is by far the best option, even if the cost is a bit higher than national DAFs. ?This does not, however, mean all donations must go to the local community. ?Donors still have the flexibility to donate anywhere in the world.

3. ?Public Foundations ? Public foundations typically give nationally and sometimes internationally, often focusing on a particular issue or geographic region. Their staff members usually have regional and/or issue specific expertise that they use to assist DAF holders in finding causes that interest them. For example, the Peace Development Fund houses DAFs for donors interested in creating systemic social change throughout the Americas.

4. ?Other Charities ? Other public charities, like hospitals and universities, set up donor-advised funds within their organizations to advance their own charitable missions.

Finding The Right Donor-Advised Fund Provider

When selecting a DAF provider, with a little due diligence donors can ensure that the organization they select is one that reflects their interests and values. After all, there are almost as many different types of DAFs as there are donors.

The main reason donor-advised funds were designed was to remove the barriers to giving, by outsourcing the administration, record keeping, and due diligence on the charities. ?If you know what parts of the charitable process you want to control, what parts you want to outsource, and what you want the outcome to be, you will have the information you need to make the right choice.

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