How Are Nonprofits Approaching DAFs? Check Out the Numbers

Donor-advised funds (DAFs) are an important trend in philanthropy right now, and they should be part of your strategic plan going forward. These financial vehicles allow donors to contribute cash and non-cash assets to managed funds from which they can recommend grants to nonprofit organizations over time. It’s a highly flexible approach that appeals to many donors, as evidenced by its explosive growth.

If your organization hasn’t yet made moves in this direction, learning to tap into the continued growth of DAFs can bring significant benefits in the coming years. But how do you start adapting to these changing donor habits and preferences?

Especially for smaller organizations, the newness and opacity of DAFs can make them a daunting prospect—but it all starts with learning more. Let’s review key findings from the 2023 FreeWill DAF Report and other industry statistics to lay out some recommendations for pursuing these gifts.

Context: The growth of DAFs

Before looking at how nonprofit organizations are securing DAF grants, let’s examine some broader context from the National Philanthropic Trust’s 2022 Report:

• Grant payouts to nonprofits from DAFs have grown steadily and significantly in recent years, up from $27.8 billion in 2019 to $35.7 billion in 2020 to $45.7 billion in 2021.
  
  
• Donor contributions to DAFs have seen even more pronounced growth ($49.6 billion in 2020 to $73.7 billion in 2021), likely as a result of both the increased accessibility of DAFs and changing federal tax incentives post-2017.
  
  
• The total assets held in DAFs have also seen significant growth, from $167.8 billion in 2020 to $234 billion in 2021.

With nearly 1.3 million active DAF accounts in the US alone, these philanthropic asset pools can make a great impact on nonprofits and their missions.

Which nonprofits receive gifts from DAFs?

Let’s look at the FreeWill 2023 DAF Report. 56% more dollars were received via DAF grants in 2022 over the previous year by surveyed nonprofits. The average grant size also increased by 24% — clearly, nonprofits are already benefiting from savvy DAF strategies. 

But who are these organizations? Are DAF gifts accessible to smaller organizations? Take a look at this data:

It would appear that larger organizations often have the development resources and connections necessary to secure more DAF grants, which isn’t surprising. 

However, it’s important to note that smaller organizations have seen higher rates of growth in these metrics. Nonprofits with less than $1 million in annual donation revenue saw their average secured DAF dollars increase by 43% from 2021 to 2022. Compare this to a growth rate of 23% for larger organizations.

How do DAFs fit into nonprofits’ giving programs?

Nonprofits generally pursue DAF grants alongside other types of non-cash gifts like stock, qualified charitable distributions (QCDs), annuities, and cryptocurrency donations. 

74% of nonprofits surveyed in the FreeWill report noted that DAFs are among their top 3 most-gifted non-cash assets, with 33% of nonprofits ranking them first. They’re followed in popularity by gifts of public stock and mutual funds, QCDs, and privately held stock. 

The philanthropic landscape is rapidly diversifying as donors seek new ways to make a difference and actively manage their charitable activities in tax-savvy ways. And research shows that nonprofits pursuing non-cash donations grow six times faster than those that don’t. Non-cash giving should be a priority for all nonprofits! 

As you get started with DAF fundraising, adapt your typical major giving or non-cash giving workflows to these new gifts—moves management, intentional cultivation, and ongoing stewardship—to keep the process organized and offer a stellar donor experience.

Are nonprofits actively promoting DAFs?

Yes, but not enough of them.

72% of nonprofits report that DAFs will be increasingly important in the coming years, but 54% of them don’t currently promote or pursue DAF gifts. Of the organizations surveyed that didn’t receive DAF gifts in 2022, 4 out of 5 of them never actively asked for them.

On the flipside, those nonprofits that do promote DAFs to their donors received 2.2 times more DAF dollars, a 70% increase from 2021 to 2022. 

The continued acceleration of DAF popularity will only exacerbate this difference between the results of passive and proactive nonprofits. Simply put, to receive DAF gifts, you must promote and ask for them.

42% of nonprofits initially ranked DAFs as a high priority or their highest priority in 2023, and 36% ranked it as a medium priority. A majority of respondents also reported that they think DAFs will become more important during periods of economic downturn. Looking ahead, it will be interesting to see what kinds of changes organizations made to their DAF strategies amid the turbulence of 2023.

How do you secure DAF gifts?

If your nonprofit is eager to step into the world of DAFs for the first time, what can you expect? What steps can you take to get started?

First, note that DAFs bring unique challenges just like other forms of fundraising, but understanding them will help you better prepare. Here are the most common DAF challenges cited by nonprofits in the FreeWill study:

1. Unfamiliarity with how to ask for DAF gifts
2. Not knowing which donors to ask or how to identify them
3. Hurdles arising from anonymously reported DAF gifts
4. Logistical issues processing DAF gifts

The logistical challenges of collecting and managing these gifts can be addressed over time, especially if you use online tools that simplify the DAF process for donors and encourage them to self-report their new donations. 

But if your top priority is to secure DAF gifts for the first time, researching and preparing should be your first steps. Learn more about DAFs, how they work, and the actions that your donors will need to take to recommend grants to your nonprofit. Be prepared to take these ongoing steps to get your DAF program off the ground:

• Actively promote DAFs. Include them on your Ways to Give page, invest in tools that streamline the steps for donors, and mention DAFs in both broad and targeted outreach. Incorporating DAFs can be the perfect opportunity to refresh your digital marketing strategy if it hasn’t seen much attention recently.
  
  
• Ask your donors and prospects about DAFs. Identifying DAF donors is a known challenge, but it never hurts to ask if supporters in your network already hold them. You can use this information to springboard your program and make inferences about which segments to target in future outreach.
  
  
• Connect with community foundations. Providers like Fidelity and Schwab have made DAFs more accessible to donors, which has largely fueled their growth in recent years, but community foundations are the traditional sponsoring organizations for these funds. Community foundation DAFs continue to be preferred by many wealthy donors. The average DAF account across all types of sponsoring organizations is $182,842, but for community foundations specifically, that number leaps to $718,326 (NP Trust). Building relationships with these foundations and their donors will boost your chances of connecting with the highest-impact DAF donors.
  
  
• Keep your Guidestar profile updated. When a donor recommends a grant to be disbursed from their DAF, the sponsoring organization will double-check that the chosen nonprofit operates responsibly, usually by referencing its Guidestar profile. This is especially true for national service providers that manage the majority of DAF funds but don’t have extensive direct relationships across the nonprofit sector.
  
  

Donor-advised funds are an exciting fundraising frontier for many nonprofits, and for good reason. They offer significant opportunities for organizations that can actively adapt their strategies to these new giving vehicles.

Armed with the context, data, and initial steps for building your DAF program, you can lay out a compelling case to your nonprofit leaders and board members that this is an area worth your time and attention. Best of luck!