As major providers of donor-advised funds (DAFs) opt to eliminate minimums, donors of all backgrounds can become a philanthropist. It signals a shift that allows for a time-tested and proven tool to become accessible for everyone. Here’s what this tech-enabled trend means for the future of charitable giving.
A growing number of commercial DAF providers are eliminating minimums for account holders. Fidelity Charitable made their announcement in September 2020, followed by Schwab Charitable in November. At the same time, bank entrants into the DAF space are taking a digital approach, enabled by Amicus.io’s philanthropic platform for DAF 2.0, which lowers operating costs, making it possible for a financial institution to offer a digital self-directed DAF to a broader customer segment.
DAF 1.0: Expensive and limited to the wealthy
For over 90 years DAFs have offered a way to contribute to a ‘charitable savings account’ and receive immediate tax benefits. The funds can grow tax free and advisory rights for the donor can be passed on to beneficiaries. As a result, funds available for philanthropy increase before being granted to non-profit organizations.
For nearly a century, the basic function of this tool has remained largely unchanged. The philanthropic space has been slow to adopt technology, resulting in antiquated processes. Traditionally, DAF administration has been manual, inefficient and labor-intensive. Under this “DAF 1.0” model, high administration costs force most banks to limit DAF accounts to private bank clients and raise subsequently high account minimums.
Despite the historic lack of modernization, DAFs are the fastest-growing tool for charitable giving, with the number of the accounts growing 50% year-over-year. Over $120 billion in assets are currently held in donor-advised funds in the United States and Canada, according to the National Philanthropic Trust (NPT). If the current growth trend continues, DAF assets could reach an $1 trillion by 2030. However, to fully take advantage of this potential, providers must turn to digital offerings.
DAF 2.0: The shift to digital transforms efficiency
In an increasingly digital world, the DAF space is finally adopting automation. Following online banking and investment before them, DAFs are undergoing a digital transformation. This DAF 2.0 revolution modernizes charitable giving to the benefit of all stakeholders.
Shifting the mechanics of how DAFs operate means streamlined processes for all parties involved—the financial institution, the donor, and the charitable organization. Through digitized philanthropy, this win-win-win scenario enables a more flexible and transparent experience for donors and financial advisors alike. This changes the economics of DAF by dramatically reducing operating costs.
Two of the largest DAF providers have recognized the power of this trend and in turn have waived contribution minimum. This is groundbreaking for the DAF market. No-minimum DAFs will soon become the norm as technology plays a more instrumental role in the giving experience.
Democratizing donor-advised funds
For a philanthropic tool traditionally geared toward wealthy donors, removing minimums is a game-changer. And to remain competitive in the DAF market, financial institutions will need to reevaluate the ways in which they engage and retain clients.
The demand for increased DAF flexibility and accessibility reinforces the drive toward eliminating minimums. As a result of reduced minimums, DAF account holders face lower barriers to opening accounts.
Everyone now has the opportunity to take advantage of DAF accounts, often for the first time. Financial institutions that offer DAFs can reach a larger customer base, one of more diverse financial backgrounds. Without the barrier of minimums, the growth of account openings and overall philanthropic contributions is likely to continue its rapid trajectory. Without the need to meet high minimums, donors can make smaller, more frequent grants to the non-profits and causes close to their hearts.
Democratizing access to this charitable instrument enables more people to transition from being charitable to philanthropists with lasting impact. This wider pool of DAF account holders is advantageous for the financial institution to keep customer philanthropy within its ecosystem. At the same time, non-profits benefit from receiving vital support from a diverse pool of account holders.
Whether you have a hundred dollars to give or a million, anyone can now become a philanthropist. DAF 2.0 can help unlock our collective generosity and enable donors to support change in a way that fits their personal and financial goals.
If you are interested in learning more about the changing landscape toward a DAF 2.0 model, download this guide.