Cash rich but time poor? Anna Scott writes, a donor advised fund could be the answer to giving with ease. With their flexibility and streamlined admin, they are fast becoming a popular way to give. What are they, who are they for and how do they work?
A donor-advised fund (DAF) is a bit like a charitable savings account. It allows donors to make charitable contributions, receive a tax benefit and recommend grants from the fund over time. Essentially, a donor can contribute to the fund as often as they like and then recommend grants to their favourite charity when they wish.
The first DAFs were created in the US in the 1930s, but their legal structure wasn’t established by Congress until 1969. In the 1990s, DAFs began to grow in visibility and popularity. According to the National Philanthropic Trust, they have become philanthropy's ‘fastest-growing vehicle in recent years’, and today account for more than 3% of all charitable giving in the United States.
This side of the Atlantic DAFs are still relatively new, but with the imminent launch of its new product NPT UK , it joins a handful of groups who are setting the precedent for a growing trend: UBS has its Donor Advised Foundation; Prism the Gift Fund offers bespoke ‘Prism pots’ that accept cash, shares or property; and Hoare’s Bank recently established its own Master Charitable Trust, aimed at making giving easier for its customers.
So what sets DAFs apart from foundations, and why are they so popular? “DAFs are popular because they make philanthropic giving easy – they offer all the benefits to a donor of setting up their own trust but without the cost or administrative burden,” says managing director of corporate responsibility & community affairs at UBS Nick Wright.
Their flexibility, along with their accessibility attracts a wider range of donor including individuals, families, companies and, perhaps surprisingly, foundations.
Anna Josse, Prism the Gift Fund founder advises: “Unless you’re giving £1m plus annually, don’t create your own charitable foundation because it’s costly and onerous. People don’t understand the rules and regulations. Our DAF gives a very personal, swift and flexible service with successor ship contracts and naming opportunities in place - everything that a foundation offers without the hassle.”
As a charity, Prism the Gift Fund has faced few obstacles in establishing itself as a provider of DAFs. For banks, it can be somewhat more problematic.
“A problem we had, which would cause other banks more of a problem, was that the Charity Commission started from the point of being a bit suspicious, so we had to satisfy them that we would never make any money out of the product,” says CEO of Hoare’s bank Alexander S Hoare.
But once they are established, they can bring benefits to banks that go beyond making giving easier for their customers. The Master Charitable Trust has brought new customers to Hoare’s bank, and strengthened its relationship with them.
“A central tenet of mine is that helping customers to pursue their philanthropic impulses is a route to really building long-term relationships with them. The bank and customers typically sit across the table from one another, asking ‘What can I get for what?’ Whereas, on the philanthropic journey, you’re sitting alongside customers, saying ‘That’s great, you want to help children learn, perhaps look into this charity which has a pioneering way of helping children learn.’ It’s not antagonistic, it’s completely allied.”
But are DAFs primarily for people as necessarily wealthy as members of private banks like Hoare’s? Not quite, but there is a relatively high point of entry, and DAFs seem to work well for long-term, ‘strategic’ donors, says Josse.
“When someone gives you £50,000, we’ll utilise it, and then another £50,000, we’ll utilise it. But others might give us between one to four million pounds over a five year period, which will involve more planning. These are more strategic clients in their philanthropy … they’re in there from the beginning and their plans involve succession.”
But that’s not to say DAFs aren’t useful for those without the time for such a ‘hands on’ approach. “It helps to have a middle man that is engaged, with their ear to the ground,” says Morgan Kainth, relationship manager at Prism. “We provide the administrative comfort and [funders] can enjoy doing the searching themselves … Really what we’re offering is the opportunity for people to make as much or as little of their giving as they want to.”
It isn’t always easy for donors to keep on top of the available ‘gift aid’ tax breaks when they give independently, but giving through a DAF helps ensure they can make the most of them.
“For small charities it’s too complicated, there’s too much paperwork and they can’t do it,” says Josse. “For a higher rate taxpayer donor, they are time poor and often haven’t kept a record of their giving. With a DAF, they get quarterly statements from us to show what their giving looks like, and an end of year tax statement to hand to their accountant that will show the total giving they’ve done in that year, so the total gift aid they can be reclaiming.”
So will DAFs continue to grow, and crucially, will they promote and increase UK giving in the long-run? At this early stage it’s hard to say – though Wright of UBS believes they will help grow the giving pot because of their ease of use and flexibility.