“Not all donor advised funds (DAF) are created equal.” Iain Bernhoft, writing for Philanthropy Daily earlier this year, offers donors this word of caution regarding donor advised fund sponsors. What’s he referring to?

Many have written about the dramatic rise of the donor advised fund world led by commercial players like Fidelity. Indeed, in 2016 Fidelity Charitable edged out United Way as the No. 1 nonprofit by donations received.

Six out of 10 of the top nonprofits on the Philanthropy 400 list of 2017 were DAF organizations. This development likely factored into The Chronicle of Philanthropy‘s decision to exclude DAF groups from its new “America’s Favorite Charities” list of the top 100 charities in 2018. (The Chronicle provided a separate list of the top DAF sponsors.)

The Risk of Ignored Donor Wishes

With all this growth, Bernhoft warns that donors need to be aware of a potential drawback of giving through DAFs. There’s a risk that their donations may not end up going to the charities they want to support. That’s because a DAF sponsor does not ultimately have to follow the grant recommendation of the donor.

As cultural winds shift, a donor could have grant requests to certain groups denied. Additionally, they might find their funds locked up inside an organization that will not follow their desires. To mitigate this risk, Bernhoft advocates choosing boutique DAF providers that share the donor’s underlying philanthropic intent.

These boutique funds often rally around a single issue, like faith, education or regulatory reform. Mindful donors will enjoy better results from opening a fund with an organization that shares their values.

Bernhoft states, “What’s certain, however, is that donors would be well-advised to carefully consider who they will be advising with regards to their charitable contributions, lest their advice fall on deaf ears.”

So if you plan to set up a donor advised fund at year-end, make sure you read the fine print before you sign.

Photos by Maximilian Weisbecker (top) and Brendan Church (in text) on Unsplash

Bill High

Bill is CEO & Founder of Vyne Legacy. He works with families to equip them with tools to build multigenerational legacies, and he teaches givers and financial advisers on transformational biblical generosity. He is the co-author with David Green of Giving It All Away and Getting It All Back Again: The Way of Living Generously.

Published September 27, 2019

Topics: Giving Strategies

Charitable GivingDonor Advised FundsDonorsNonprofitsValues