In addition to the usual questions that are listed in the second section below, advisors and their clients have begun to ask DAF sponsors some of these additional questions:
- How many people are on the staff? How many are dedicated solely to the operation of the DAF?
- Who is on the leadership team and what are their roles and backgrounds?
- How many serve on the board of directors?
- How many DAF accounts are there and what is the current amount of total assets? What has been the level of growth over the past five years?
- When was the DAF established?
- What technology is used to open and administer the DAFs? What security protections are in place to safeguard the data for donors and their advisors?
- What are the investment and granting guidelines?
- Are the current audited financial statements and Form 990 available?
- What is the succession plan of the leadership and board?
- Is all or most of the above information on the website or readily available?
Some of the traditional questions that continue to be asked include:
- Which grant recommendations will the DAF sponsor not approve? Are there any geographic or issue limitations?
- Can the donor’s financial advisor manage the assets in the DAF account? Is there a minimum amount at which this is available? Is there a maximum percentage allowed in any one stock or fund?
- If the advisor cannot manage his clients’ DAF assets, which investment funds are offered? What is the past performance?
- What are the fees? Minimums for establishing funds and sending out grants? Frequency of sending out grants?
- What types of assets can the DAF sponsor accept? Only cash and appreciated securities, or complex assets like privately held C or S corporation stock, LP or LLC interests, real estate, etc.? What are the minimums for these types of donations? Will the DAF sponsor hold some of these assets or does it require their immediate sale?
- Is a personal and dedicated level of service available for all donors or is it reserved just for the largest accounts?
- Can the DAF account continue in perpetuity or is it limited to the life of the donor or one successor advisor? If limited, does the donor decide where the remaining assets are distributed or does the DAF sponsor receive them?
- Can the donor determine how much to grant to various charities annually, is the amount limited in endowed DAFs, or does the DAF sponsor require that it receives a specified percentage (50%?) of the grants?
- What resources are available to help donors and their advisors? Does the DAF sponsor provide content, services, or resources when donors or advisors need advice with charitable giving?
- Might the DAF sponsor ever solicit the donor for lifetime or legacy gifts?
- Does the DAF sponsor offer DAFs through advisors or work primarily directly with donors and not with their advisors?
- Can the DAF be transferred to another DAF sponsor?
There are more DAF sponsors these days than ever before, and it is important that advisors closely evaluate them to determine which is the best short- and long-term fit for their clients. Clients may also be tempted to open DAF accounts on their own since they have become so widespread, so it is critical that advisors get involved and help select the most appropriate one before clients make a decision on their own that they may later regret. Clients will greatly appreciate the input of their advisors.
Ken Nopar is the vice president and senior philanthropic advisor for the American Endowment Foundation donor-advised fund. Founded in 1993, AEF is the sixth largest and the leading independent DAF sponsor, working with 9000 donors and their tax, wealth, and legal advisors in all 50 states.