Donor advised giving the UK: growing giving and inspiring impact
Charities Aid Foundation
We recently launched our 2nd annual report into the UK’s donor advised giving market that showed an exciting and continued rise in the volume of donations going through donor advised funds (DAFs) and similar services, coupled with the social impact they are enabling.
As a quick recap, donor advised funds and charitable trusts in the UK are structures that allow donors to set up their own charitable fund, managed by a sponsor, which allows them to advise on both the investment and outward donation of those funds to charities in the UK and around the world. DAFs are extremely popular in the US and they are beginning to get greater profile here in the UK as major donors and their advisers recognise the flexibility, cost effectiveness, donor choice and minimal administration they provide especially in comparison to establishing their own Foundation. Funds are directed to causes chosen by the donor with the end to end process managed by the sponsoring organisation (like CAF). This includes the necessary compliance and charity validation checks.
The growing interest is backed up by our research. We found that contributions into UK charitable trusts and DAFs reached a new high of over £495 million in 2016/17, having grown by 33% since the previous year.
The growth in the use of these funds, and the ensuing social impact they have, looks promising. Based on the findings of this year’s report, we continue to predict that donations into these funds will reach £1 billion by 2025, which will make them a significant funding source for the full spectrum of charities in the UK and internationally.
In order to facilitate the continued rise of this method of giving we recommend that professional advisors increase their understanding of these vehicles and make them part of their “philanthropy toolkit” when they are advising major donors. This will help ensure they give their philanthropic clients the service they want especially as the giving landscape moves towards self-made wealth creators and the intergenerational transfer of wealth to Millennials and Generation Z. Women in particular will be recipients of this transfer and wealth advisers are beginning to tailor their services accordingly. Philanthropy and social investment should be a core part of this review and client discussion.
But growth is still far behind the US and there is still much work to be done to make donors and the sector at large aware of the flexibility of this vehicle, and the way added value services around the structure can create innovative options for givers to multiple the impact of their donations through social investments as well as grant making. As we seek to transform society to become more purpose-driven and impact focused these new innovative financing models will only increase in significance.
Just one example among many of the ability for these vehicles to change society is that of the Hummingbird Foundation (a charitable trust). Set up in 2014 by CAF clients, the foundation collaborated with local partners to co-create a Prevention of Trafficking model in 24 North and 24 South Parganas in West Bengal, India.
The support from the foundation created breathing space; allowing the community-based partners to challenge socio-cultural norms in a systemic way. Strategic thinking that would not have been as possible if these organisations were relying on piecemeal donations.
Recently in the US, some donor advised funds have come under fire for their low pay out rates. However, it is important to note the differing market and product characteristics between the US and UK versions. The pay out ratios in the UK, especially by some providers, is much higher than in the US. For example, the pay out rate for CAF’s private client charitable trusts is over 75%. We put a big emphasis on helping clients to think through their long term giving plans and take ideas to them to help this along.A lot of these charitable funds may not have been captured by the third sector if it was just left to individuals to directly donate to charities. Donors like the facility to add donations tax effectively each year and either donate the funds out immediately, or build up a philanthropic pot for when they have more time to consider their giving properly.
This shows, coupled with the case studies we present in the report, that the users of these vehicles are impact-focused givers who sincerely care about improving civil society through their philanthropy.
For further information go to: www.cafonline.org