Recent articles in the New York Times and Fast Company about the excesses of some Donor Advised Funds point to a likely new reality for community foundations: that when a more reform-minded Congress is next seated, new rules will likely be put in place that will dramatically change the landscape for community foundations.
We have worked with various community foundations over the past 15 years and know that Donor Advised Funds offer a number of benefits. They simplify giving for large philanthropic donors, create opportunities for inter-generational giving, offer tax benefits for those who may have received a large windfall, and enable someone who may have received a large one-time payout the capacity to become a life-long philanthropist.
Critics argue that Donor Advised Funds hold dollars outside the philanthropic system and that because those monies are often invested in mutual funds, through interest and fees they benefit investment firms and fund managers far more than those who need it most. They contend that Donor Advised Funds are simply a tax dodge, a profit center for investment firms like Schwab and Prudential, and a threat to community institutions like the United Way.
If you lead communications for a community foundation, here are three things you should be doing right now to ensure you shape the future reputation of your organization.
1.Differentiate
Traditional community foundations would be well served by differentiating themselves from those created by investment firms. Begin referring to the Prudential and Schwab philanthropic funds as “profit-driven donor advised funds,” as opposed to “donor advised funds focused on community needs,” and correct journalists and others who seek to lump you all into the same bucket. Maintain a (rightful) differentiation between those institutions that were created by their communities for their communities (like yours!) and those that were established by corporate investment firms in order to continue to hold on their client’s fortunes.
2. Educate
Many Americans have lost sight of the importance that communal institutions play in directing large-scale change in our communities. Research shows that while Greatest Generation givers were highly likely to support intermediary institutions like the United Way, younger givers, particularly Millenials, want to be more connected to their giving. They want to give as directly as possible and see the impact of their gift.
Yet with increased communication and opportunities for participation (particularly for those younger givers) your community foundation can make the case for its importance in your communities. It takes large communal institutions to shape agendas, guide policy, and bring together diverse voices.
Now is the time to invest in improving your annual report, newsletters, video storytelling, social media, and in-person outreach. Show how your institution is driving the agenda to address large-scale issues like poverty, homelessness, and social equity. It’s one of the key ways you set yourself apart from the “profit-driven” institutions.
3. Lead
There’s an old axiom that if you aren’t at the table, you’ll be on the table. If you want to avoid being the target of criticism, lead that criticism.
Lead the discussion about the excesses, failures, and drawbacks of Donor Advised Funds. Guide the agenda for change by requiring fund holders to invest a portion of their dollars in community loan funds, social impact bonds, and other community-investment tools. Encourage faster pay-outs from funds, and highlight opportunities to trade larger financial investment returns for stronger social investment returns.
I believe in the positive role community foundations can play in guiding large-scale change in our communities. Yet, without strong leadership, great communications, and careful differentiation, community foundations will be lumped together with those who may be using the same tools for the wrong reasons. Let’s not let that happen.
