DAFs: Hiding in Plain Sight

There’s been a lot written about donor-advised funds (DAFs) lately, and for good reason. They have become one of the fastest-growing ways for Canadians to support the causes they care about.

As a result, they are an important source of charitable capital, requiring fundraisers to understand how DAFs work, how to process grants, and, most importantly, how to build meaningful relationships with the people who ultimately make granting decisions.

When an individual gives to a donor-advised fund, they have already decided to dedicate those resources to philanthropy. The tax receipt has already been issued, and the broader charitable commitment has already been made. 

However, most of the time, the ultimate recipient has yet to be determined. 

Too often, however, donor-advised fund holders are viewed primarily through the grants they make. A donor who directs a $5,000 grant is treated as a $5,000 donor, while a donor who directs $25,000 is treated as a $25,000 donor. 

But it becomes a problem when historical grant patterns serve as the primary lens through which the relationship is evaluated. Grant amounts tell us what a donor has chosen to distribute, not how they make charitable decisions or what resources may remain available for future giving.

So, why would charities treat these donors the same way?

The Moneyball Mistake

Michael Lewis’s Moneyball chronicled how Billy Beane and the Oakland Athletics challenged baseball’s conventional assumptions about talent. By asking different questions and examining different data, the Athletics uncovered opportunities that others had missed.

In baseball, scouts often focused on visible statistics and familiar indicators. Beane’s insight was that some of those measures were poor predictors of future performance.

Instead, he looked for metrics that better explained a player’s ability to contribute to winning games. 

The fundraising equivalent may be our tendency to focus on past grant amounts. 

By concentrating exclusively on distributions, charities risk evaluating only the visible portion of a DAF donor’s capacity. 

The more important question is not how much a donor has granted, but how they intend to deploy the charitable capital that remains available to them.

The Habit of Giving

Part of the reason this issue goes unnoticed is that donor-advised funds lend themselves to routine behaviour. Once a granting pattern is established, there is little incentive to revisit it. A donor creates a recurring grant and reviews it occasionally. Or they may not review it at all, effectively putting it on autopilot.

There isn’t a problem; it’s a feature of a DAF. Consistent support provides stability for charities fortunate enough to receive a grant.

One question emerges: do recurring grants reflect deliberate intention or simply habit? In the absence of a compelling reason to revisit a decision, grants are renewed, favourite charities continue receiving support, and substantial charitable balances may remain undistributed because nobody has presented a sufficiently persuasive reason to do otherwise.

This observation helps explain why the American #HalfMyDAF initiative has attracted attention. Since launching in 2020, the program has encouraged donors to distribute at least half of the assets held within their funds and has helped direct tens of millions of additional dollars to charitable organizations.

What makes the initiative noteworthy is not simply the amount distributed but the behavioural lesson it provides. If a relatively simple challenge can motivate meaningful increases in granting activity, then many philanthropic decisions may not be constrained by generosity. The charitable capital already exists. What may be missing is a sufficiently compelling reason to deploy it.

The Questions We Should Be Asking

Fundraisers routinely thank donors for their support, provide updates on recent activities, and communicate future funding needs. These discussions are important, but they do little to reveal philanthropic intentions.

A more informative question may not be, “What did this donor give last year?” but rather, “How does this donor think about deploying the charitable capital they have already committed to philanthropy?”

For example:

• What prompted you to establish a donor-advised fund? 
• How do you decide which organizations receive support from your donor-advised fund? 
• Do you view your DAF as a long-term philanthropic endowment or a vehicle for more immediate charitable impact? 
• Are there particular outcomes, opportunities, or challenges that would motivate you to recommend larger grants? 
• Have you ever considered using the DAF to make a transformational gift? 
• Are there issues or causes you would like to address more aggressively if the right opportunity emerged? 
• How can we help you better understand the outcomes your philanthropy is making possible?

These questions are not intended to uncover the size of a donor’s fund. Rather, they help charities understand how donors think about their philanthropy and demonstrate that your organization understands their goals and priorities.

Looking Beyond the Grant

As donor-advised funds continue to grow, charities may need to rethink what it means to understand a donor. Knowing the amount of last year’s grant is useful, but is it really the most important piece of information? Wouldn’t knowing how much charitable capital remains available, and how the donor hopes to deploy it, be far more valuable?

The lesson of the #HalfMyDAF movement may be that DAF holders, when presented with a compelling opportunity, are often willing to revisit decisions that may have been operating on autopilot for years.

If charities continue to define DAF donors exclusively by the size of their most recent grant, they risk overlooking charitable capital hiding in plain sight. Effective stewardship provides an opportunity to understand the philanthropic intentions that will shape not only the next gift, but potentially a donor’s entire granting strategy. 

The grant you see today may represent only a fraction of the impact a donor is prepared to make.