Why Advisors Need to Help Clients Select Donor-Advised Funds

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Many national and local publications, including the Wall Street Journal and New York Times, have recently published articles about why donors should establish donor-advised fund (DAF) accounts. CPAs and estate-planning attorneys are advising their clients to do the same. The Chronicle of Philanthropy just published a column that detailed why non-profit organizations may want to offer their own DAFs. Some DAF sponsors are soliciting charities to create these, even though there are compelling reasons why that is rarely a good idea for the charities.

The DAF wave shows no signs of slowing down, and because of the recent tax law changes, it continues to accelerate. There are now 300,000 DAF accounts, twice the number eight years ago and nearly four times the number of private foundations.

People who establish DAF accounts should first speak with their financial advisor, however, because what they first read about DAFs, or hear about them from friends or colleagues, or even from the universities or charities they support and offer them, it may be natural for your clients to create DAF accounts on their own.

Therefore, it is essential that advisors proactively talk with their clients to determine if a DAF would be appropriate, how much and which assets should be donated, and which DAF sponsor would be ideal since on their own, the clients may select the wrong one. If clients rushed to set one up at the end of last year (or at some other time), the advisors still can usually help transfer the accounts to a DAF sponsor that is a better fit for both them and their clients.

Furthermore, having this conversation will often enable the advisor to manage these investments in their clients’ DAF accounts, and will prevent the client from donating assets that the advisor already manages to a DAF sponsor that leaves the advisor with less to manage. Often advisors can advise clients to donate unmanaged or illiquid assets to the DAF accounts they can manage, which increases AUM.