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The Donor Advised Fund Explosion

The Donor Advised Fund Explosion

by Bill High

You may not have as much interest as I do in tracking the growth of donor advised funds over the years, but it is truly extraordinary. Humor me. You can see the explosive growth in just a few statistics.

  • In 2007, there were 162,000 donor advised fund accounts holding assets of $32 billion.
  • By 2019, there were over 873,000 donor advised fund accounts with assets of $142 billion.
  • Over 13 years, the number of accounts grew by over 700,000 and the asset base grew by $110 billion.

While the asset base has grown significantly, donors aren’t simply holding on to the dollars. The National Philanthropic Trust tells in their annual report on the industry that the payout rate is approximately 20%, which is around four times the rate granted annually from the private foundation world.

There are approximately 90,000 private foundations in the country—nearly 10 times fewer than the donor advised fund world. Yet, the private foundation world has $1 trillion in assets.

Meanwhile, as the number of donor advised fund accounts has grown, the average account size (dollar amount) grew smaller. What does that mean? Donor advised funds are not just the domain of wealthy donors.

People from a growing range of income levels use donor advised funds in their giving. Some employers offer the funds as part of an employee giving program, often providing a matching gift.

In truth, donor advised funds represent the democratization of giving. They are an easy way for donors to manage their giving and to maximize it at the same time.

 

Getting Dollars to Nonprofits

A recent article in the Fall 2020 Stanford Social Innovation Review, “Are Donor Advised Funds Good for Nonprofits?” points out these positives for nonprofits:

  1. Contributions that go to DAFs, instead of private foundations, may lead to an acceleration of grants. That’s based on the average payout rate for DAFs, which is so much higher than the required (and average) payout rate for private foundations.
  2. Most grants from DAFs are unrestricted, which is highly desirable to nonprofits. Most private foundation grants are restricted, that is, tied to specific programs or projects.
  3. DAFs may provide a “smoothing function” for operating charities. During economic downturns, donors appear to be more willing to increase payouts—after all, they have already set money aside in the DAF exclusively for charitable purposes.

As DAFs have risen in popularity, they have become a target of criticism, but instead I think we should be celebrating their contribution to the overall growth of the charitable world.

 

 

Photo by iStockphoto.org

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Published April 9, 2021

Topics: Giving Trends

Charitable GivingDonor Advised FundsDonorsGiving TrendsNonprofits

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