For Fundraisers | Active Voice Editorial Consulting

Peer-to-Peer Giving is a “Front Door” to Long-Term Donor Relationships

It is an old saying, to be sure, but what fundraisers don’t know can indeed hurt them. While they understand that a well-balanced revenue portfolio is a prerequisite for the financial health of their organization, many overlook three proven fundraising methods — monthly giving, peer-to-peer giving and face-to-face giving — because of misunderstandings about what they are best used for and how to manage them successfully. All three are effective ways of asking, but is your organization ready to benefit from them?

Over the next few blog posts, I’ll be looking at each of these three methods in detail. Last time, I looked at monthly giving. This week, I look at peer-to-peer giving.

What peer-to-peer giving is

This fundraising program is the engagement of supporters through participation in activities for which they raise funds from friends and families. Examples include fun-run sponsorships, donations in lieu of a birthday gift, hoop-shooting contests, walk-a-thons, swim-a-thons—any group fundraising activity in which participants are engaged to raise funds through their network for your organization. Both nonprofits and individual donors can organize campaigns. According to the Peer-to-Peer Professional Forum, in 2015, the top 30 programs in the United States raised $1.57 billion, nearly 10 percent more than the amount raised 10 years earlier.

However, it is a volatile field. The Peer-to-Peer Forum reports that last year, total revenue of top U.S. programs was down more than 2.5 percent, while in Canada, 20 of the top 30 programs reported revenue declines in 2015, a trend that is prompting many Canadian charities to rethink their approaches and experiment with innovative new programs. Fundraising revenue at these programs totaled $254.1 million in 2015, according to the Peer-to-Peer Fundraising Canada Top Thirty Benchmarking Survey. That figure is down 8.6 percent from 2014, a substantial drop that was somewhat offset by growing totals at a number of newer and smaller programs.

Nevertheless, rather than pulling back in the face of these declines, a number of Canada’s biggest charities have reported that they are stepping up their investments in peer-to-peer fundraising. “2015 was a wake-up call for many nonprofits,” says David Hessekiel, president of Peer-to-Peer Fundraising Canada. “Many organizations are seriously examining their peer-to-peer initiatives, investing in new concepts and overhauling existing programs.”

What peer-to-peer giving is not

Fundraisers are often surprised to learn that peer-to-peer campaigns are not special events in the traditional sense. Although both involve getting people together to raise funds in support of a common cause, peer-to-peer fundraising doubles as a means of generating leads for loyal sustained-giving and legacy donors, explains Katrina VanHuss, CEO of Turnkey in Richmond, Va. “We use volunteer fundraisers to reach people we don’t know yet, who aren’t on our lists. It is a revenue-positive lead generation device.”

Because of their similarity to special events, VanHuss says, sometimes staff tries to manage them the same way. Special events are most often staff-driven, with volunteers doing tasks. In contrast, the highest-producing peer-to-peer campaigns have true volunteer leadership committees who run the events for the most part. When a staff person tries to take control in peer-to-peer scenarios, which thrive on autonomy and delegation, participation and fundraising suffer. “The ideal cheap viagra men staff person for peer-to-peer is a relationship manager, not an event manager,” VanHuss points out. “Not someone who sets up the tents but someone who empowers others to set up the tents themselves.”

What peer-to-peer giving does best

VanHuss says that the real strength of peer-to-peer is that it opens the door for fundraisers to build relationships with new donors, which can lead to long-term support for the cause. The trick, she says, is to develop the right type of relationship with the fundraiser. A market relationship sets a financial condition for engagement, such as a registration fee or high-minimum fundraising. A social relationship invites participation with no terms, except for an attachment to the mission. “People in market relationships will shop around for a better deal in a year or two,” she explains. “But people in a social relationship will come back year after year. Market relationship peer-to-peer events manifest as retail-worthy offerings, such as high-profile bicycle rides. Social relationship events manifest typically as walks.”

While peer-to-peer fundraising looks like a lot of work to a staff person, its efficiency at getting a “yes” to a donation ask is powerful. “The typical direct-response campaign gets a 1 to 2 percent response rate,” VanHuss explains. “Typically, it takes a peer-to-peer fundraiser four requests to get a donation — a 25 percent response rate.

“In a lot of ways, for acquisition peer-to-peer is better than a bought list,” she adds. “It is the front door.”

How to succeed with your peer-to-peer giving program

“A successful peer-to-peer event has to provide a great experience for the participant,” says J.D. Beiting, a fundraising consultant with Benefactor Group (www. benefactorgroup.com) in Columbus, Ohio. “It should offer support, recognition and incentives. The more fertile the environment a nonprofit can provide, the more money will be raised.” This requires good communications, sufficient financial support and the commitment of the organization’s executives, fundraisers and staff.

Although almost any type of nonprofit can run a successful peer-to-peer program, preparation is required. Beiting advises nonprofits to start by assessing both their assets and their constituencies in order to get a sense of the type of program they want to establish:

Proprietary, in which an organization creates and manages an event
Third-party, in which an organization leverages an existing event and recruits people to participate on its behalf
Do-it-yourself, in which supporters create their own activities and encourage people to donate in support of them

Once the type of program has been decided, a nonprofit should set a reasonable goal, keeping in mind that it takes time to build momentum and reach a critical mass of support. With that information in hand, the organization can then develop a budget that suits the level of effort and expectations. There are several companies that offer software to help nonprofits run and manage successful peer-to-peer campaigns without placing undue burdens on staff. “Technology is decentralizing peer-to-peer fundraising,” Beiting says. “It behooves an organization to take advantage of it.”

Next week: Face-to-face giving

This post was adapted from “Power Tools: How Monthly Peer-to-Peer, and Face-to-Face Programs Can Be Powerful Tools in Your Fundraising Tool Kit,” by Paul Lagasse, Advancing Philanthropy, Winter 2017 (reprinted with permission). You can read the whole article here.

Monthly Giving Programs Identify Your Most Loyal Donors

Over the next few blog posts, I’ll be looking at each of these three methods in detail. I’ll start with monthly giving.

What monthly giving is

As the name implies, it is the act of donating a fixed amount of money to a nonprofit, either automatically through direct debit or electronic funds transfer, by credit card or by check. Not only does monthly giving increase retention rates and the average gift size, but it also helps reduce revenue volatility and improve long-term planning. Research has found that the annual value of a monthly donor can be significantly greater than that of single-gift donors, and many monthly donors will give for 20 years or more.

What monthly giving is not

Despite the recurring nature of the gifts, a monthly program is not time-consuming to maintain, says Rosemary Oliver, fundraising director at Amnesty International Canada in Toronto. “It doesn’t take a lot of additional resources,” she explains. “Just a little time up front to strategize.” If your nonprofit is able to process credit card gifts, you already have everything you need to handle monthly gifts. The process is automatic, requiring only occasional attention, such as when a donor’s credit card expires.

To find what works best for your organization, Oliver recommends testing the waters with a few hundred monthly, small-gift donors to build confidence. “Your organization may need to learn to walk before it runs,” she says. “That’s fine. It’s about finding your own level of efficiency.”

Oliver points to her organization’s success with monthly giving as an indicator of what can be done when starting from a humble beginning. Twenty years ago, Amnesty International Canada had a modest monthly giving program with 7,000 donors that generated less than $1 million. Today, more than 35,000 monthly donors give $8.8 million a year in monthly gifts ranging from $1 to $1,000, which accounts for 65 percent of its annual revenue. Furthermore, up to three-quarters of Amnesty International Canada’s legacy gifts come from monthly donors. “As you can see, it is worth taking the time to steward those $10-a-month donors,” Oliver says. “They really add up in the long run.”

What monthly giving does best

As Oliver’s experience suggests, a monthly giving program is an effective tool for identifying your most loyal donors for further stewardship. “People who give monthly really care about your mission deeply,” says Gail Perry, CFRE, founder of Fired-Up Fundraising in Raleigh, N.C. “They’re often prime major-gift prospects.” She recommends strengthening donor loyalty by recognizing them with thank-you calls and letters and singling them out in newsletters and on your website. Establishing a monthly giving club is an effective way to motivate board giving as well, Perry notes. Even so, it takes time to build a cadre of loyal monthly donors. “Organizations often lose heart because of the initial results,” she explains. “But if you keep promoting, it will gradually build. You need to make a long-term commitment.”

How to succeed with your monthly giving program

According to Harvey McKinnon, president of Harvey McKinnon Associates in Vancouver, British Columbia, the single largest obstacle to a successful monthly giving program is buy-in. Because it is a long-term strategy, a monthly giving program does not always compare favorably with fundraising methods that provide more immediate revenue, such as direct mail and online giving. A successful monthly giving program requires leadership and staff to take the long view, nurturing and growing the program slowly but steadily.

“Assess how much you’re willing to risk in terms of money and organizational commitment,” McKinnon advises. “Look at how many donors you have and what the likelihood is of converting them to monthly donors.”

Successful conversion requires a balanced suite of revenue channels that identify prospective monthly donors and feed them into the monthly giving program. (The two exceptions to this are direct recruitment of non-donors to monthly. The primary methods for this are face-to-face and direct response television [DRTV], both of which are very expensive to start.) McKinnon recalls a client that generated more than 50 percent of its revenue through monthly giving but stopped investing in single-gift donors and instead put money into high-attrition streams, such as DRTV. “If they had continued to build the single-gift channel as well, they’d have a higher net income and a larger pool of donors to convert to monthly giving,” McKinnon says. “Any organization can convert a percentage of its donors to monthly, but it does take leadership.”

Next week: Peer-to-peer giving

Gains in Giving to Higher Education Offset by Decline in Individual Gifts in 2016, Survey Finds

Charitable gifts to America’s colleges and universities remained largely stagnant in 2016, in part due to the effects of a weak stock market on individual giving, according to the latest Voluntary Support of Education survey released earlier this week by the Council on Aid to Education (CAE). Although gifts from individual donors, corporations, foundations, and others reached $41 billion — $10 billion more than in 2012 — a rise in the inflation rate eliminated most of that gain.

Gifts from individual donors and alumni declined in 2016. Gifts from alumni dropped 8.5 percent, while gifts from non-alumni individuals dipped 6 percent. This decline was enough to nearly offset significant increases in giving by corporations ($6.6 billion, up 13.3 percent from 2015) and foundations ($12.5 billion, up 6 percent).

The effect of stock market performance on giving to education is so pronounced because gifts from individual donors and alumni are by far the largest source of charitable donations — representing 42.5 percent (nearly $19 billion) in 2016. These percentages vary from year to year, but the proportions have remained relatively constant since the 2008 recession.

Sue Cunningham, president and CEO of the Council for Advancement and Support of Education (CASE), which sponsors the annual Voluntary Support of Education survey, hailed the increase in giving by foundations and corporations as “a sign of the growing understanding between these entities and campuses across the country regarding how they can work together to advance similar goals.” Cunningham also counseled that while individual giving declined in 2016, it is still up nearly 7 percent over just two years earlier.

“Similarly, some closely held companies and donor-advised funds are used by individuals to fund their personal philanthropic intentions,” Cunningham explained, noting that had those gifts been tallied in the individual-giving category, individual giving in 2016 would have increased by 10.9 percent.

Over 600 colleges and universities participated in the 2016 Voluntary Support of Education survey , the authoritative source for data and trends on private giving to colleges and universities in the United States. CAE made the official survey results available for purchase on February 7.

As Goes Face-to-Face Giving, So Goes Fundraising?

In the U.K., face-to-face fundraising, often nicknamed “F2F” or “chugging” (short for “charity mugging”), is at the forefront of a national debate over fundraising ethics that has led to dramatic changes in the country’s charity regulations. However, according to veteran fundraiser Ian MacQuillin, there is more at stake in this debate than the question of whether canvassers should be allowed to approach pedestrians in public spaces. MacQuillin argues that the fate of face-to-face fundraising is a bellwether for the future of fundraising itself.

“Philosophically speaking, if F2F falls, then all fundraising falls,” MacQuillin wrote in his March 2014 opinion piece for the website U.K. Fundraising (“What I really think about ‘chuggers’“). “F2F stands on the literal and metaphorical front line.”

MacQuillin, a lecturer in fundraising and marketing at the University of Plymouth’s Hartsook Centre for Sustainable Philanthropy and the director of Rogare, the university’s fundraising think tank, bases his argument on the premise that street fundraising differs from other forms of fundraising only in degree. Like all fundraising, face-to-face costs money to undertake, has a break-even point, suffers attrition, enters prospects’ personal space and challenges them to do something, and can elicit negative feelings in prospects. “If you object to any of these for F2F,” he writes, “you must necessarily hold these views for all fundraising.”

Since writing his article, MacQuillin has seen anti-F2F sentiment growing slowly but steadily not only in the U.K. but also in New Zealand and even in the United States, where nonprofits and fundraising agencies are attempting to develop standards for the self-regulation of F2F to forestall drastic U.K.-style government intervention. Nonprofits have to convince the giving public, the media, elected officials and some fundraisers as well that strict regulation of one form of fundraising represents the first step down a very slippery slope leading to protections against other forms of fundraising as the definition of what people find intrusive or invasive broadens.

At the heart of the issue is not whether donors have a right not to be confronted with appeals to conscience, MacQuillin argues, but whether beneficiaries have the right to the help they need. Rogare recently addressed the tension between what donors want and what fundraisers do in its new white paper, Rights Stuff: Fundraising’s Ethics Gap and a New Theory of Fundraising Ethics, released in September 2016. The white paper proposes a new definition of fundraising ethics that includes the beneficiary in the giving equation: “Fundraising is ethical when it balances the duty of fundraisers to solicit support on behalf of their beneficiaries with the right of donors not to be subjected to undue pressure to donate.”

“Donors are means to an end, not the end itself,” MacQuillin explains. “Fundraising is a resource transfer from the donor to the beneficiary. Feeling good about the transfer is a byproduct, but it’s not necessarily the point.”

Tracking Success in Nonprofits: Start Small

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How do you define success? Let us count the ways. Not only can success mean something different to different people, but there are also numerous ways to measure it.

Achieving outcomes is one way to measure accomplishments, of course, but at its most fundamental, success for a nonprofit means having sufficient staffing, resources, experience and credibility to make a lasting difference in the lives of people and the community. And to do that, you usually have to start small.

When he joined the XYZ University Foundation as CFO seven years ago, Charles Vincent (not his real name) found an organization in financial disarray. XYZ took great pride in ensuring that the university and its students were well supported. However, as Vincent soon discovered, the foundation was not bringing in sufficient funds to sustain that level of commitment to the university.

“When I arrived here, we were cannibalizing our endowment and expending unrestricted resources that we didn’t even have,” he recalls. “We were also borrowing from our restricted funds to pay for current commitments — robbing Peter to pay Paul, if you will. I had to put the brakes on the whole thing. I was probably the most unpopular person on campus when I broke that news.”

Vincent, who had been a public accountant for a major financial services firm prior to joining the foundation, saw his job as not just establishing financial stability and growing the endowment but also encouraging people to think about how to support the university, now and in the future.

He began by reducing spending from 5 percent of the endowment to a more sustainable 3 percent. He also changed the valuation period from a single, year-end point in time to a rolling, 12-quarter average. Combined with a reduction in unrestricted support to stem the losses, the ultimate impact was a cut of nearly 50 percent in the amount of funding the university was receiving from the foundation, a painful scenario that had everyone shaking their heads and asking how this could happen.

To help people understand and support these changes, Vincent also encouraged the university foundation to become more transparent. “People viewed the foundation as a deep pocket,” he says. “They saw money going in, but no one knew what it was being used for. Once people were able to see the true picture, they started to get it.”

Vincent also began working closely with the foundation’s fundraisers, encouraging them to focus less on the number of donors they had and more on the individual revenue streams. He helped allay donor concerns by accompanying fundraisers on visits to explain why alumni could now feel safe making gifts to their alma mater again and encouraging development officers to partner with deans to explain how the foundation could help their colleges.

These innovations, each of which grew from Vincent’s initial interventions to stabilize the foundation’s teetering finances, have resulted in a steady increase in revenue that will help ensure the institution’s long-term sustainability.

By starting small, Vincent achieved something big.

This post was adapted from “It’s All Relative: How Your Organization and Its Myriad Stakeholders Define and Measure Success,” by Paul Lagasse, Advancing Philanthropy, Fall 2016 (reprinted with permission). You can read the whole article here.

Donor-Advised Funds: Making the Case to Donors

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In previous articles, I’ve discussed the concerns that fundraisers and donors have about the as-yet still largely unknown impact of donor-advised funds (often referred to as DAFs) on the philanthropic economy, particularly their ethical and policy implications, and explored some of the advantages that DAFs offer, particularly to younger donors. In this article, I’ll discuss how fundraisers can approach discussions about DAFs with their donors.

Proponents of donor-advised funds, especially commercial funds, often describe them as “philanthropic savings accounts,” allowing donors to manage their charitable giving in much the same way, and with the same ease, as they manage their household finances. Fundraisers, advocates say, should treat donor-advised funds as simply another means of directing charitable gifts to nonprofits, no different from monthly and annual giving, online donations, bequests, family foundations, or major gifts.

“For a seasoned fundraiser who understands the landscape, donor-advised funds are probably the best news in the nonprofit sector in the last 20 years,” says Ted Hart, CEO of Charities Aid Foundation of America in Alexandria, Virginia, which specializes in grant support for international charities. “For the average fundraiser, on the other hand, they are still a mystery.”

Fundraisers have expressed concern that, like money in a bank account, assets in a DAF are essentially out of circulation until disbursed. Hart counters that it’s the fundraiser’s job, not the law’s, to get that money into circulation. Hart explains that asking donors to make a gift from an advised fund — assuming the foundation makes that information available to recipients and that the donor has not chosen to remain anonymous — is no different from asking them to make a bequest or a monthly gift. “The money is already in a charitable bank account, and the donor can advise that money to you at any time,” he tells fundraisers. “So make the case. What discussion are you having with your donors to make the case that they should advise their fund to you?”

Eugene Steuerle, Ph.D., an Institute Fellow and Richard B. Fisher Chair at The Urban Institute and former Deputy Assistant Secretary of the Treasury for Tax Analysis, agrees. Steuerle describes DAFs as “time-delayed philanthropy.” “There’s no economic argument against saving the money as opposed to spending it,” he says. “The main alternative to donor-advised funds is not other charities; it is people consuming money, or else giving money to their children to consume.” Donor-advised funds, he says, is a way for donors to set money order soma from canada aside to spend on others instead of on themselves.

Furthermore, Steuerle says, DAFs let donors try things with their charitable gifts that they might not try otherwise, like allowing fund assets to accumulate to the point where they can make larger, more impactful gifts. “It’s a way to get donors to think about giving from their wealth, not from their income,” he says. While high-net-worth donors give from their wills and estates after their deaths, Steuerle says, DAFs allow others to play that game a little earlier.

Jason Franklin, PhD, the first W.K. Kellogg Community Philanthropy Chair at the Johnson Center for Philanthropy, agrees. “With the rise of donor-advised funds, you have to treat your mid-level donors more like your major gift donors,” he says.

Indeed, DAFs symbolize a change in the way fundraisers think about relationships with tomorrow’s philanthropists, according to Danielle Oristian York, a director at 21/64 in New York City. Until now, she says, fundraisers had the benefit of efficiency thanks to tools such as relationship management software that allowed them to manage donors in the aggregate, while donors were left to deal with the complexities of setting up and managing foundations. However, tools like DAFs have flipped that power relationship on its head; now it’s the donors who have the convenience.

Nevertheless, none of this means that the role of fundraisers will diminish. “I think there’s a false fear that somehow fundraisers are losing relevance,” he says. “Donors have always been in control of their giving. The difference is that more donors now have a vehicle for their giving beyond just writing checks.” Good prospect research and stewardship, he says, will meet donors at least halfway.

“We tell people that [setting up a donor-advised fund] isn’t a shelter,” explains Malcolm D. Burrows, the head of Philanthropic Advisory Services at Scotia Wealth Management in Toronto. “It’s about giving more thoughtfully and having more time to engage.” He encourages fundraisers to see DAFs as a way for donors to find more ways to get involved with the causes and charities they support, not to set up intermediaries between them. “Don’t assume that it’s about damming funds,” he says. “It’s about opening up the flow.”

This post was adapted from “Deciphering DAFs: How the Simplicity of Donor Advised Funds May Be Creating Complex Issues for Fundraising Professionals,” by Paul Lagasse, Advancing Philanthropy, Summer 2015 (reprinted with permission). You can read the whole article here.

Tracking Success in Nonprofits: It’s in the Eye of the Beholder

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Success in the nonprofit sector is often hard to quantify. Carolyn Egeberg, vice president of strategy and communication at Minnesota Philanthropy Partners, a regional community foundation in St. Paul, identifies several reasons for this. First, and perhaps most readily apparent, is that outputs are measured differently than they are in business. “It’s easier to measure success in the for-profit sector. You make something and sell it,” she explains. “In the nonprofit sector, the value is highly individualized.”

While the benefits provided by nonprofits are no less tangible than those provided by for-profit businesses, they tend to be shared among a more diffusely defined group and can require more time to manifest.

Another difference is that while for-profit businesses typically share a single measure of success—profit—nonprofit measures vary. For example, one nonprofit that Egeberg worked for provided a Web-based communications platform to medical patients. Success measures there were highly data-driven and tracked in real time using online dashboards. Egeberg’s next nonprofit was a science museum. Although its mission was STEM (science, technology, engineering and mathematics) education, the leadership focused on numbers, such as visitors per day, ticket sales and event attendance, because they were much easier to measure.

A third key difference between nonprofit and for-profit measures of success concerns the expectations of people who invest in them. “Donors talk about impact, but I’m not convinced that they want us to spend the money it takes to do that,” Egeberg says. Why? Many donors simply do not realize that an organization’s ability to achieve outcomes and goals (its effectiveness) depends on having the resources it needs to accomplish them (i.e., its capacity).

Convincing donors that effectiveness cannot exceed capacity can be difficult. “Success is in the eyes of the stakeholder,” explains Wesley E. Lindahl, Ph.D., the Nils Axelson Professor of Nonprofit Management and dean of the School of Business and Nonprofit Management at North Park University in Chicago. “Organizations with a complex set of stakeholders will have a difficult time knowing what success is and whether they have reached it. An organization with only a few simple stakeholder groups will still face issues, but perhaps there may be more overlap/ agreement on success.”

At a college or university, for example, Lindahl offers what the following stakeholders may feel success means to them:

Alumni: They are nostalgic, and so success is remaining in the “same place” as when they attended the school. They also like a high buy propecia new york public reputation to use when job hunting.
Faculty: Success is getting a high ranking for publication use from research publications and attracting many students to their major, and they seek to hire well-known researchers in their field.
Board: Success is growing the endowment and working well with the president.
Major donors: Success is having their money used and recognized properly.
Governor/legislative body: Success is having a high graduation rate, with all students’ finding employment after graduating.
Students: Success is a great teaching faculty, several opportunities for scholarships and getting a job after graduation.
Development office: Success is raising greater amounts of money, year after year.
Administration: Success is admitting a full/diverse class of students and having a steady stream of tuition income.

“Stakeholders define the terms of success, so it’s important to define and establish your stakeholders and what they consider priorities,” Lindahl says. In some cases, their definitions of success can conflict or even contradict each other.

He suggests trying to achieve consensus around three or four broad goals as a way to find common ground. “If you just use outcomes, some organizations’ mission will be very difficult to fulfill,” he says. “You can’t simply say that success is just to focus on achieving the mission, because sometimes the mission is so lofty that you can’t achieve it.”

In their article, “Measuring the Efficiency and Effectiveness of a Nonprofit’s Performance” (Strategic Finance, Vol. 93 No.4, 2011, pp. 27–34) Marc J. Epstein and F. Warren McFarlan offer a methodology for identifying those goals and finding a broad consensus among stakeholders. They argue that nonprofits can overcome donor reluctance to invest in impact by providing donors with five types of data.

Inputs: the resources that enable the nonprofit to perform programs and tasks
Activities: the programs and tasks themselves
Outputs: the tangible and intangible results of the
programs and tasks
Outcomes: the specific changes in the individual recipients of programs and services
Impacts: the benefits to communities and society resulting from the outcomes

Performance measures then can be developed for each type of data. “Breaking the organization into these pieces and analyzing it in parts,” write Epstein and McFarlan, “give insight into how the organization is performing against mission.”

The result is information that allows each donor to trace the particular route from the gift to its impact.

Donor-Advised Funds Appeal to Younger Philanthropists

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In a previous post, I discussed some of the concerns that fundraisers and donors have about the as-yet still largely unknown impact on the philanthropic economy of donor-advised funds (often referred to as DAFs). In this post, I’ll discuss some of the advantages that DAFs offer.

Donor advised funds are charitable accounts established by donors and managed by public foundations, such as a community foundation or a foundation set up by a commercial brokerage. When a donor contributes money, stock, or other liquid assets into a DAF, the foundation takes ownership of the deposits and invests them. The assets in a DAF can be used only for charitable purposes, and a donor recommends or advises on their disbursement to nonprofit organizations of their choosing. In turn, the foundation provides value-added services such as due diligence on recipient charities and investment advice, and allows the donor to claim a full charitable tax deduction upon deposit of assets into the fund. Unlike private foundations, public foundations in the United States are not legally required to distribute a minimum portion of their assets every year.

Donors may choose to set up advised funds for any number of reasons. Malcolm D. Burrows, the head of Philanthropic Advisory Services at Scotia Private Client Group in Toronto, has identified four:

Convenience. Public foundations handle day-to-day administrative and management burdens, freeing up donors to focus on other things.
Tax benefit. By turning over control of deposited assets to the foundation, donors can take the charitable tax deduction right away and make disbursement decisions later.
Support for causes, not charities. Donors who support causes such as land conservation or inner-city education can use advised funds to take a long-term view with their giving.
Flexibility. If a donor’s charitable interests change, the fund can be used to support more, fewer, or entirely different organizations right away.

Another selling point of DAFs is their low initial contribution, explains Jo-Anne Ryan, vice president of Philanthropic Advisory Services at TD Waterhouse Canada Inc. and executive director of its Private Giving Foundation. This is particularly appealing to young, early-career professionals who are looking for ways to engage in philanthropic activities with their own growing wealth.

Ryan points out that the wealth of two-thirds of her foundation’s meds no prescription cheap clients is self-made, whereas just a decade ago the majority of the wealth had been inherited. Furthermore, savvy young donors are more familiar with how finances work and are comfortable using investment vehicles like DAFs. “They want to be more hands-on, and they want to engage more in their giving,” explains Ryan of a typical advised-fund user. “The more options they have, the wider the net is, and ultimately that’s going to represent more money going to charity.”

Like their parents, Generation X and Millennial donors are values-driven, but they are also deeply interested in strategies that are hands-on, innovative, and the result of due diligence. “If donor-advised funds make it easier to be a donor now, and without the administrative requirements of a foundation, then I can see how they would appeal to that kind of mindset,” says Moody.

Jeffrey M. Gorris, a partner at the Wilmington, Delaware, law firm of Friedlander & Gorris, P.A. — and a Millennial — uses a DAF to manage his philanthropic activities. He says that DAFs offer several advantages for early-career professionals like him. Because of their lower financial thresholds and ease of use, DAFs appeal to young donors who want to support their favorite charities but for who traditional foundations are not a feasible option. The low threshold allowed Gorris to establish the fund and start giving in meaningful amounts earlier than if he had had to wait to set up a foundation. Another advantage of the fund is that it helps even out his giving over time. “In certain years, the tax deduction may be worth more to me as my income fluctuates,” he explains. “If I’m going to contribute to a charity, I’d rather not have the gift fluctuate up and down too.”

Gorris says that his donor advised fund suits his giving preferences, which may differ from those of others, and he considers that another advantage. “I think it makes me more willing to give to a charity that I like,” he says.

In Eastern Europe, Rebuilding Philanthropy One Relationship at a Time

In countries with active and thriving cultures of philanthropy, conscientious fundraisers would take issue with the suggestion that they take donors for granted. After all, donors are the lifeblood of any organization, and it is a fundraiser’s responsibility to seek, cultivate, and steward people who care about the causes he or she represents. However, at a more basic level, fundraisers in such societies do take donors for granted because they have the luxury of assuming that there are donors out there to be found in the first place.

Fundraisers in the former Communist bloc countries of Eastern Europe don’t have that luxury, however. They operate in societies that for two generations actively discouraged both giving and trusting, both of which are prerequisites for any successful donor relationship.

“For them, success means building a philanthropic culture,” says Tony Myers, CFRE, Ph.D., MA, LL.B, principal and senior counsel at Myers & Associates in Edmonton, Alberta. “They are doing things that help build awareness and dialogue in countries that are still rebuilding civil society.”

Fundraisers and donors perceive different starting points for their relationships.

In addition to helping young nongovernmental organizations develop sustainable giving programs, Myers also helps them learn effective techniques for developing relationships with individual donors. Critical to that, Myers says, is understanding the differences between how donors and fundraisers perceive their relationships. “The fundraiser begins a relationship when the donor is first identified, and often the relationship declines after the first gift,” Myers explains. “For the new donor, the relationship with the charity is more likely to begin at the point of the first gift. Success is the ability to close that gap.” (See figure.)

To help nonprofits better understand donor motivations and fine-tune their outreach accordingly, Ioana Traista of the PACT Foundation is in the process of interviewing donors in Romania, the Czech Republic, and Serbia about what influences them to give and to continue giving, and how the act of giving affects them. Using the most significant change (MSC) technique, a methodology widely used by development aid agencies, Traista will qualitatively analyze donors’ stories for patterns related to how they perceive the effects of their giving and how they want to be kept informed.

Although her research won’t be completed until late this year, patterns of donor behavior are already emerging. “They want to be treated as partners, not only as supporters of a certain program or community,” Traista explains. “Also, donors do not want to receive only stories of success. They are aware that the problems are complex, and do not expect the organization they are supporting to find the solutions alone. They want to be part of the solution-finding process.”

Traista says that this dovetails with her observations about donors to the PACT Foundation, which supports community development and social economy programs in rural and small-urban communities in southern Romania. PACT’s donors are more likely to be ambassadors when they understand the organization and are encouraged to provide advice and get involved with programs.

Traista’s findings help illustrate why definitions of success in emerging philanthropic cultures depends so heavily on relationship building. It may be a slow process, but it is a vitally necessary one. “In building a philanthropic society, you first have to build trust,” Myers explains. “You can only do that one person at a time.”

Tough Questions about Donor Advised Funds

© Hugo Félix - Fotolia — © Hugo Félix – Fotolia

Many fundraisers and donors are concerned about the as-yet still largely unknown impact of donor-advised funds (often referred to as DAFs) on the philanthropic economy, particularly their ethical and policy implications. “I think the discussion about donor advised funds, like the discussion of overhead, is long overdue,” says Karla A. Williams, M.A., ACFRE, principal of The Williams Group in Charlotte, North Carolina. While there may not be an economic argument against saving money instead of spending it, Williams believes there are other, more compelling arguments against doing so. “Given the historically low patterns of charitable distribution in this country, we need to look at the charitable distribution of donor advised funds,” Williams says. “If the money is not being distributed, is it, or is it not, a charitable act?” The available evidence suggests that DAFs may not, in fact, be boosting charitable giving as much as advocates have hoped.

While public foundations report that the average annual disbursement of advised funds is significantly higher than the federally mandated 5-percent floor required of private foundations, this number is an aggregate of the entire corpus of donor advised funds. According to the 2012 study An Analysis of Charitable Giving and Donor Advised Funds from the Congressional Research Service, more than 70 percent of DAFs paid out less than 5 percent annually, and more than half made no payments at all. In practical terms, the explosive growth of DAFs mean that while a lot of money is still being designated for charities, a lot less of it is being distributed to them.

“In a world of urgent needs, we are encouraging the saving of money, not the spending of it for charitable purposes,” Williams says. The rapid rise of charitable savings accounts, she argues, is forcing the profession to confront a novel, but vital, ethical question: Do the benefits of saving money outweigh the benefits of spending it?

One way to ensure that donor advised funds are distributed is to set a time limit on them. Ray D. Madoff, a professor at Boston College Law School, suggests requiring funds to pay out completely in seven years. When he was chair of the House Ways and Means Committee, Michigan Representative Dave Camp proposed a five-year cap on DAFs. In his article “Avoiding Misuse of Donor Advised Funds” (Cleveland State Law Review, 2010), Michael J. Hussey of Widener University argued for reforming DAFs along the lines of IRAs, requiring penalties if regular distributions are not made after a certain period, and termination of the account four years after the death of the donor.

Alan Cantor, principal at Alan Cantor Consulting LLC in Concord, New Hampshire, is an advocate of the required payout approach. “Donor advised funds serve a purpose, but ultimately the money has to go out the door to fulfill that purpose,” Cantor says. “I don’t think the money should be kept in perpetuity. I believe in investing in people and mission now.”

Cantor also argues that savings vehicles like DAFs, endowments, and private foundations are being oversold to donors at the expense of the nonprofits they are designed to support. He argues that, ultimately, the issue is one of public policy, not of economics. “Investing money now lessens the need to invest even more later,” he says.

In addition, Cantor is calling for greater transparency and accountability in public foundations with ties to commercial financial firms to ensure that the interests of the fund advisers aren’t at odds with the philanthropic interests of the donors or the ethical standards of the fundraising profession. Do the management fees that fund advisers receive, for example, violate the AFP Code of Ethical Principles and Standards? Without proper oversight, says Cantor, fundraisers can’t be certain that they do not.

Are such solutions feasible?

“All the proposed solutions either don’t address the problem, or address it badly,” says Eugene Steuerle, Ph.D., an Institute Fellow and Richard B. Fisher Chair at the Urban Institute. According to Steuerle, there are three key questions that must be answered before an effective solution can be determined:

Do the objections make sense?
Do the proposals align with the objections?
Can the proposals be implemented reasonably and fairly?

And, where does this leave fundraising professionals?