The 1 million donor-advised fund accounts (DAFs) in the country come in many shapes and sizes. Some donors have contributed millions to their accounts with DAF sponsors, yet far more have donated tens or hundreds of thousands. The minimum amounts required to open have been reduced to zero at some commercial DAF sponsors and community foundations, so some donors establish them purely for the convenience of making their smaller donations through the DAF sponsors. DAFs are established by donors on their own, others are offered through donors’ companies and financial advisors continue to open DAF accounts for their clients.
Many advisors encourage clients, especially their more significant ones, to use DAF sponsors that enable the advisors to manage the assets in their clients’ DAF accounts. As a result, these advisors open accounts for their clients with these sponsors or help others who opened accounts on their own elsewhere to transfer these accounts to the advisors’ preferred sponsors. For advisors who’ve discussed these transfers with clients who haven’t yet made them, this year presents a unique opportunity because some clients have been disappointed with the returns on the investments in their DAF accounts that their advisors don’t manage.
Surprisingly, some donors are unaware of the performance of the investments in their DAF accounts when their advisors aren’t involved, and many are surprised to learn that they don’t have as much as they once did because of market performance. Because DAF donors have fortunately continued to be generous in their grantmaking during challenging times, the amounts in their accounts have dropped further. Many DAF donors don’t know that some DAF sponsors allow their financial advisors to select and manage the investments in their DAF accounts, so when their advisors share they can be involved, they’re interested in learning more because they trust their advisors.
Nearly all clients establish DAF accounts because they have a deep interest in supporting causes they care about. Most DAF donors want to give now and many want to continue to give in the future. Because they have a long-term approach, they want to make sure these DAF assets are invested in a way so they can grow significantly and enable them to give away as much as possible over time.
In a year like this when most investments have dropped in value, they have less to give away and want to learn of alternatives. Transferring accounts to other DAF sponsors is usually quite simple, though a small number of DAF sponsors don’t allow DAF accounts to leave. It’s always ideal when advisors open DAF accounts at the most appropriate DAF sponsor initially, but when clients open accounts on their own, the advisors can help them transfer the accounts.
Clients trust their advisors to select appropriate investments for them in all of their accounts, so DAF accounts are no different. In fact, clients’ charitable investments are sometimes among their most important. Because some DAF sponsors don’t allow advisors to select and manage the assets in their clients’ DAF accounts, clients are often allowed to pick from a limited number of options. Other DAF sponsors only allow advisors to manage assets above a certain level such as $1 million or $250,000, but even at those levels, the options may be somewhat limited.
Other DAF sponsors allow advisors to customize portfolios at any amounts. If a client’s DAF account is quite small and that amount won’t grow in the foreseeable future, it may not be prudent for advisors to be involved or to recommend a change in DAF sponsors. However, if the amount in the DAF account is significant or donors are planning to make additional contributions to their accounts and intend to maintain their DAF accounts for a number of years, now may be an ideal time to have the conversation. And if clients don’t want to make changes now because they’re going to make grants soon, discussing the situation at this time can be helpful so changes can be made in the near future.
Because the charitable giving season is now upon us, many advisors are having charitable planning conversations to plan for the rest of the year and beyond. In spite of the markets and inflation, donors continue to strive to give to to their favorite causes and to organizations that help people who are less fortunate.
Ken Nopar is the vice president and senior philanthropic advisor for the American Endowment Foundation (AEF) donor-advised fund.