#148 Sybil Speaks: The Ins and Outs of Donor-Advised Funds and Pooled Funds

Hello everyone. I'm going to talk to you this month about donor-advised funds, and I'm also going to dig more deeply into pooled funds. I will talk about these two instruments for you as a funder. They're on the rise. A lot of you want to pool your funds. Leverage your funds with other people, and you also don't necessarily want to go through all of the administrative and legal burdens of creating your private family foundation. 

Don't get me wrong, I work for plenty of clients with private family foundations, and a family foundation has many benefits. But this month, we will discuss the costs and benefits of pooling funds in a different instrument, not a private family foundation; with donor advice funds being the top one that people are talking about today, I'm also talking about other options if you want to leverage your dollars and have even more impact with your dollars.

So, let's talk about it. I'm also interviewing some cool people this month. Who has thought about this issue quite a lot? And so, I'm excited about those interviews, too. But for Sybil Speaks, in this episode, let's talk about it from my perspective.

So, the first thing that's caught my attention is this article by Drew Lindsey. He wrote this for the Chronicle of Philanthropy. It's called A Short History of the Fast and Furious Rise of Daffs, and he released it in September. And he says that just in this past year, the amount of money that went to DAFF was 22%. And it's the first time the number netted more dollars than private Family foundations, at which you're at 15%.

And the definition of a DAF, in case you don't already know, is the National Philanthropic Trust, a leader in this world. They define it as a giving account established at a public charity. It allows donors to make charitable contributions, receive an immediate tax deduction, and then recommend grants from the fund Over time, donors can contribute to the fund as frequently as they like and then recommend grants to their favorite charitable organization whenever it makes sense.

So that's the big one. As a donor, you can immediately put money into the Daff right away. Get the tax benefit. And then take your time in terms of giving it away. And this is different from if you make an immediate donation to a nonprofit that's immediate, and private family foundations have requirements. You have to give away a certain percentage over time, but right away, you have a 5% that you have to give away, so there are more requirements there for the private family foundation than with the DAF. 

So, I put DAFS into three categories: daffs and pooled funds. So there are three categories I think of as a DAF, which is now one instrument to pool funds. 

The first category is banks or investment firms. These examples include Fidelity, Charitable Vanguard, Bank of America, and Morgan Stanley. The pros of this banker investment firm are that it's easy and efficient. They have fairly low overhead. The cons are that they're not necessarily cause-driven, so they don't necessarily have strong environmental, social, and governance screens in how they invest your funds because, of course, they're investing your funds as well as when you decide where you want to give a grant, right?

So, it's going into their investment screens. Unless you purposely reach out about this and it's important to you, they're not generally set up to lean into pooled funds. They usually want to serve you, as the donor, and create the DAF for you, it's a lot of extra burdens for them to add additional folks, and so they tend to, while some of them are doing it now, they're reevaluating, and this is not the tool you want to use if you want to pool funds with other donors, it is easy and efficient if you have money. Quickly, or you're trying. You don't want to. It's like immediately giving all your donations away, but you want the tax benefit. This is an option for you.

The second option is community-oriented DAFs, so examples include community foundations. Wherever you live in the United States, there's likely to be a community foundation. In Oregon, where I live, there's the Oregon Community Foundation. It's fairly large, and my husband and I have a donor advice fund there, and there are other examples, like the National Christian Foundation, the Charities Aid Foundation, and the National Philanthropic Trust. 

The pros of these are that they're easy and efficient. They usually have fairly low overhead. They tend to be community-oriented. They serve you as a donor and give your money to the nonprofits you care about. They usually stay out of controversial issues. They tend to be comfortable pulling funds from multiple donors into one DAFF to enable collaborative giving practices.

And since you're putting money into this, the investments usually go into whatever community you care about it. As well as when you give. The grants are distributed; for example, the Oregon Community Foundation has a board. They care so much about Oregon. That's one of the reasons that my husband and I created a small staff there. We love Oregon.

The con of this kind of community-oriented Daff is that they tend to stay out of the more controversial issues. If you are a campaigner and you see a really important, hard issue you want to solve and want all of your money to go straight towards that, you need to rely on outside experts to inform how the grants are directed and proactively try to fundraise. This is not the place for community-oriented DAFs. They don't feel as comfortable in that area, usually. They want to be more of an umbrella organization supporting many people to pool funds and put their donor advice funds together. 

The third option, and I include this option because they aren't structured as a donor-advised fund necessarily, is that I'm calling them re-granting cause-driven pooled funds and including them as a category. They're usually set up as public charities, but not necessarily. You wouldn't necessarily put it on a formal DAF, but I want to include them because these organizations serve as a repository of philanthropic funding. They will then re-grant out, just like the others, to put out into the field to other non-profits. But whereas a regular nonprofit's primary focus is on meeting its budget and mission, this re-granting cause-driven nonprofit will usually have staff that are experts on the issue that you care about. They are pooling your funds, so the money goes towards those experts, but they're also reaching out to nonprofits in that field. And the thing you care about, and they're also actively fundraising from other folks.

So, if you are really and they're not nervous about their issues, that might **** other people off. They're like driven on this in. This area is That's a pro for you. If you feel we need to move the needle on something, this is where you want to put your money rather than in a place that might be less comfortable. 

Examples include PEW Charitable Trusts, Resources, and Legacy Funds Shark Conservation Fund. I'm using some organizations that they might, they might say to me, simple. No, we aren't going to just **** everyone off. We work together with lots of people, you are, and I'd say to them, You're right. You do; however, you are working. These organizations are working more for a cause. They're trying to move the needle. They're very open about a particular area. They want to push, but they're also careful. They'll work with lots of different donors, and they'll be very strategic. And they're usually very behind the scenes. They're not going to be right out there, they're going to have them, and they're going to support them. Other nonprofits that they're granting to are the ones that are trying to move the needle on it, and then another. Really. As I said, another big difference is that they will be fundraising.

So, let's discuss the pros and cons of this kind of organization. If you don't already have it, this is a pro. If you don't have in-house expertise on the issue you desire to support, pooling funds with a cause-driven organization means you can piggyback on their work and not duplicate efforts. If you want to leverage funds and work with an organization, that's not bashful about it, also fundraising and seeking out support for the issue you care about Given organizations, the way to go. They often get results in a way that passive funding at a bank investment firm or community-oriented DAF, you know, won't necessarily be able to offer you. 

But the con is that signing up with a cause-driven pooled fund ties you to this organization's mission. It means you'll have less autonomy, helping direct where the nonprofit dollars go. And so you'll be hitting yourself for them. So, you'd want to be sure you agree with where they're going and where you want to go. 

Let's take a step back for a minute and discuss some big-picture criticisms and why people use donor-assisted funds. 

I'm going to focus now on donor-advised funds, even though I did talk a little bit about that third category, which is more of a regrant organization, and that's because Daffs are sort of the thing everyone's focusing on now—an immediate tax deduction—and then, over time, they don't have to put it out there all right away. And that third category, with that regranting organization, sort of serves in the same way, like you can give your grant to that organization immediately. And then they're using it over time to give funds away. So, that's why I include all three categories here. Even though the third one isn't officially structured as a DAF,

Enough of trying to explain that part. Let's get into the criticisms and the benefits. OK, the criticism of a DAFF is that charities are losing out because a donor can get a tax deduction immediately but store their funds in a DAF without giving it all away at once. 

As Helen Flannery states in her article for inequality.org, the highest-earning staff now takes 11 billion more than the highest-earning working charity. DAF sponsors comprise six of the top ten and nine of the 20 most successful public charities. Users in the country: this is a concern because people are worried, understandably. That's a lot. The funds are not going back into the community, and that was the intent of the tax deduction to begin with. However, there are benefits that DAFs can offer. And first, if you come into a large amount of wealth and expect to give it to someone, purity but desire. The time to deliberate about a grant-making strategy. So, you don't want to just give it all out in the field because you can do more harm than good. If that happens, and I've talked a lot about that, that might be a real reason you want to use a DAF.

Second. If, in addition to your grant-making, you want your investments to align with the cause you believe in and you put your money in a DAF that's related to a community, then your investments in line with your grant could potentially make.

Third, if you don't want to spend the time and money on administrative and legal work it requires to set up a separate private family fund. Then, a DAF could be an alternative for you. 

Fourth, if you're interested in pooling funds with other donors more formally, then a DAF, or that third category I talked about, is where you put money into a cause-driven organization that then re-grants funds. That would be why you might want to pull funds in this manner. 

So let me just give you a sampling of some of the organizations that are DAFs that offer DAFs, offer pooled funds, are regranting, or are regranting type organizations. 

Bank of America Bridge-Span Charities: Aid Foundation, Fidelity Charitable, Morgan Stanley, and the National Christian Foundation National Philanthropic Trust, Pew Charitable Trusts, Oregon Community Foundation, or community foundations in general Resources Legacy Fund Panorama, the Global Shark Conservation Fund, is just an example of one of those nonprofit public charities that will re-grant out in Vanguard. 

I wrote all that fast because in my show notes and my resource for this theme on donor-advised funds and pooled funds, I have a free resource that you can grab, and I have links to all of these organizations that can help spark your thinking about why and whether you might want to use a DAF or a pooled fund. And to move forward with some of your work,

So, it's been delightful to talk to you today. And like I said, I have some wonderful people I'm interviewing this month to discuss the pros and cons of pooling donor-advised funds. Funds, I hope you continue to tune in this month and have a wonderful rest of your day.