I am always interested in news about how donor advised funds (DAF) are operating. On the whole, their use hasn’t gone as intended and they have reduced, rather than increased or incentivized charitable giving. A few weeks ago Vu Le linked to an article that examined how the differences in the way DAFs are promoted is an indicator of whether they are distributing or sequestering funds. (emphasis original)
National sponsors that spend more time talking about donor benefits on their websites have more assets, take in a much higher proportion of noncash contributions, and pay out grants at much lower rates than sponsors that spend more time talking about charitable giving.
But our analysis predicts that a hypothetical national sponsor with a strong emphasis on charitable grantmaking on their website would pay out at 53 percent, while a hypothetical national sponsor with a strong emphasis on donor benefits would pay out at just 2 percent. And those lower payout rates have ripple effects when it comes to the buildup of assets: Our model predicts that the highly charity-focused sponsor would have assets of just $34 million, whereas the highly donor-focused sponsor would have assets of $2.7 billion.
Something to note is that the analysis focuses on national sponsors of DAFs rather than regional and local sponsors. The author of the piece, Helen Flannery, notes that since national sponsors tend not to have the specific focus, whether it be geographic region or cause, they often need to work harder to make a case for people to arrange their giving through them. Flannery seems to suggest that the those that tout financial benefits to the donor are able to make a more compelling case than a more charitably focused sponsor without a specific focus.
Flannery calls for a more specific evaluation and regulation of DAFs on an individual basis rather than looking at the aggregate giving of sponsors since the really generous ones tend to make the parsimonious ones look better due to averaging.
The analysis we present in our paper quantifies this phenomenon. It measures the degree to which sponsors have financialized what was originally intended to be a nonprofit instrument, and it measures just how intense the competition has become among the very largest DAF sponsors in this country.