Some Nonprofits Say Donor-Advised Funds Hurt Relationships With Supporters

Forty-four percent of nonprofits say that donor-advised funds hamper their ability to build relationships with donors, according to a new survey.

Nonprofits also cited benefits of donor-advised funds, with 22 percent saying they impose lower administrative burdens, according to the survey, conducted by the Center for Effective Philanthropy.

“There is usually no cumbersome grant application or reporting requirement,” said one nonprofit that was surveyed.

Said another: “We receive one large check, rather than many separate smaller checks.”

However, complaints were much more common than praise for donor-advised funds. Forty-six percent of nonprofits citied drawbacks, while only 23 percent cited benefits.

One nonprofit said gifts from donor-advised funds felt like they were “based on chance.” Others urged donor-advised-fund sponsors to provide more transparency and help nonprofits build relationships with donors.

“The relationship between the donor and the organization does not exist, which hampers long-term engagement,” said one nonprofit.

Another said that some wealth advisers are not well-versed in nonprofit work “so it’s hard to feel they will convey our passion and enthusiasm, or the nuts and bolts of what we do as well as we could.”

Fundraising experts say there are ways to break through to donors. Some tips include keeping careful records of gifts made through donor-advised funds in instances where the donors reveal their identities and speaking plainly in fundraising appeals about making gifts through donor-advised funds for those who may have created such accounts.

Idle Cash

The Center for Effective Philanthropy survey gathered responses from 419 nonprofits with annual expenses ranging from $100,000 to $88 million. The surveys were completed by CEOs, development directors, or finance directors. The organizations had received at least one grant from a foundation that gives $5 million or more a year.

Among nonprofit leaders who cited drawbacks to donor-advised funds, 47 percent said they delay donations from reaching nonprofits. Donors get an immediate tax deduction when they deposit money in a donor-advised fund account, but there are no requirements on how quickly the money must be disbursed to charity.

One nonprofit complained that billions of dollars were sitting idle while “wealth managers are doing quite well managing these funds.”

The survey also found that among those who cited benefits of donor-advised funds, 53 percent said they make giving easier.

Among those citing drawbacks, 24 percent said donor-advised funds are not transparent enough.

The survey also covered topics other than donor-advised funds. Fifty-eight percent of nonprofit leaders believe tax-law changes have hurt giving to their organizations, and they are deeply worried about the potential for a recession and a lack of preparedness for an economic downturn.