With the recent introduction of the House version of the so-called Accelerating Charitable Efforts (ACE) Act, accurate and reliable information on donor-advised funds, or DAFs, is more crucial than ever. The basis for H.R. 6595 and S. 1981 is an unfounded assertion that DAF donors are “stockpiling” funds in these charitable giving accounts and resources are not reaching the ultimate charitable recipients fast enough.
That’s why Philanthropy Roundtable interviewed one of the authors of a recent research report, “Understanding the Donor-Advised Fund Giving Process: Insights From Current DAF Users.” The authors analyze qualitative data from 48 in-depth interviews with DAF users, resulting in a vibrant picture of why and how donors use DAFs. Based on these data, the report sketches a “giving process” with four phases and multiple decision points and examines common strategies of DAF donors. Overall, this report illustrates the “abundant diversity in individual adaptation for giving through donor-advised funds.”
To get a better sense of the report’s implications, we spoke with corresponding author Dr. H. Daniel Heist, an assistant professor of Public Administration and Nonprofit Management in the Romney Institute of Public Service and Ethics at Brigham Young University. Heist’s research focuses on charitable giving and philanthropy, especially donor-advised funds, as well as volunteering. His nine years of professional fundraising experience inform his research and teaching.
This is the third and final blog post based on this interview.
Your research found that “most of our participants chose not to give anonymously most of the time.” What did you discover about the reasons for the rare anonymous gifts?
Donors gave anonymously from their DAFs for a variety of reasons. Some donors gave anonymously when they were making a grant to an organization they hadn’t supported before, and they were not likely to support again. We call these “episodic donations.” This happens, for example, when a friend asks a donor to support a cause or when there is an unusual circumstance like a pandemic, a natural disaster or a humanitarian crisis. Once the donor supports that cause one time, he or she doesn’t want to be solicited to continue supporting that cause or organization.
Another major reason donors give anonymously through a DAF is because they don’t want to draw attention to themselves. This could be because they don’t like the limelight of making a major donation or they value anonymity for moral reasons. It could also be based on potential social implications. We interviewed a donor who supported her children’s school with significant grants from her DAF, but she didn’t want anyone to know because she was afraid that might impact her children’s experience at the school.
While the report does not address ongoing policy debates regarding DAFs, do you see any lessons for policymakers?
Most of our work is geared toward nonprofit professionals, helping them to understand the behavior of DAF donors. But I think there are some takeaways for policymakers. While I agree that there are some reasons for more regulation, like greater public accountability for such a large amount of money, it is hard to regulate a service that facilitates such a wide range of voluntary activity. As well intentioned as policymakers may be, we don’t know enough about how people use DAFs to make well-informed, evidence-based policies. We are just beginning to understand how many different kinds of philanthropy DAFs facilitate.
The other major considerations for policymakers are the potential unintended consequences of regulation. One could reasonably assume, given the current research we’ve conducted, that most donors would not be affected by new policies. However, rules can influence the behavior of people they are not intended to regulate. Once you put a rule in place, people anchor their behavior around that rule, and they gravitate toward the limit set by the rule. Imagine a donor moves a lump sum of money from a wealth event into a DAF. Without any rules, just by virtue of her own philanthropic activity, she may spend the money down within five years, a common timeline among Tank donors, or those who contribute large lump sums and grant the money away in the relatively near future. If you implement a 15-year policy, the donor might say to herself, “Hey, I have 15 years to use the money, maybe I will wait and let it grow more.” Alternatively, the donor’s advisors or the staff at the DAF sponsor might say, “You don’t have to use the money for 15 years. There is no rush, why don’t you wait before you make any big decisions?” The ceiling then becomes the floor, and we may inadvertently slow down the DAF giving process.
According to the introduction, your report is meant to be an “initial exploration” of how individuals use DAFs. What do you see as the next step in this exploration?
One of the areas we are currently exploring is the timing strategies of DAF donors. The forthcoming paper on “Tubs, Tanks, and Towers” explores this topic of timing more deeply. We researched the various types of strategies donors take when using a DAF. The findings from this paper are meant to help fundraisers and nonprofit managers gain a better sense of how to work with DAF donors more effectively. It could also help leaders at DAF sponsors know how to better serve their clients. The next step in this area is to use account-level data we recently collected from 22 DAF organizations to build empirical models for each of these strategies.