What does the donor-advised fund teach us about our fundraising practices?
While donors continue setting up donor-advised funds in droves, the critics can't stop characterizing these people as miserly, modern day Ebenezer Scrooges. As this phenomenon has grown, I have wondered if the popularity of these funds was telling us something about contemporary fundraising practices that a lot of us don't understand. If we were to extrapolate meaning from the fact that twenty-two percent of charitable giving is now making a pit stop in donor-advised funds,1 what might we learn about the way we have gone about our work in the past and how we should go about our work differently in the future.
In order to understand why donor-advised funds receive the kind of push-back that they do, I believe we have to pay less attention to the rhetoric of their critics and more attention to the fundraising practices of those who rally around them. The critic is playing to their audience's addiction to cheap, arms-length fundraising practices that are, unlike the donor-advised fund, always out to hurry the donor’s decision making process. Experts celebrate these techniques for completely avoiding the rational, BS detecting side of our brain - the side upon which Fidelity Charitable is betting. Most contemporary fundraising practices aim to avoid this side entirely in hopes of provoking an immediate response.2 The donor-advised fund flips the script, making room for a decision making process that the alternatives don’t offer.
I learned a long time ago that one doesn’t make sense of how effective fundraising works by mastering the techniques. You don’t become an extraordinary fundraiser by becoming a master technician at direct mail, special events, grant-writing, major gifts, etc. The same is true for donor-advised funds. We don’t need an in-depth understanding of the mechanics of how these funds work in order to make sense of what they offer the donor and why their popularity has grown so rapidly.
During our roadshows we often begin with a simple exercise that identifies three kinds of decisions we routinely ask our donors to make. We refer to these decisions as trivial, meaningful and significant decisions. When a donor chooses to give through a donor advised fund, they are, in many cases, circumventing the trivial decisions that they otherwise can’t avoid. The donor-advised fund compels the donor to go straight to making more meaningful decisions and becoming more invested in the organizations they are choosing to support. What our roadshow participants discover about meaningful decisions is that they consistently yield gifts that are significantly greater than those of trivial decisions and are much more likely to be renewed. After this simple exercise, it’s encouraging to see the ah-ha moments popping up all over the room, all realizations that raising serious money has far more to do with the quality of decisions the donor has been encouraged to make than anything else.
I get it, none of us are happy knowing that money is sitting idle in these accounts. The reality, however, is that being resentful and angry doesn’t help anyone increase the likelihood of being the beneficiary of what’s in them. The question I believe a growing number of organizations will begin asking in the near future is not whether the donor-advised fund was ever the scary monster it was made out to be, but whether they were helping us make sense of a donor who is no longer responsive to the cheap tactics that nonprofits have been borrowing from the marketplace for more than a century. How many donors are setting up these accounts as a reaction to the volume of appeals they receive each week, a desire for relationships that are distinct from those they have with Amazon and Target, and an avoidance of the regret that comes with being an impulsive shopper.
Our theories about how people make decisions has long assumed that regret is the consequence of a bad outcome. We assume that, as long as our impact reports convince the donor that they single-handedly changed the world, it doesn’t matter how we have gone about the process. This isn’t how decision making always works. We have come to realize that regret is just as likely to emerge from the manner in which the decision was made as whether the outcome was a satisfactory one. Even when we are confident of a positive outcome, we don’t want to rush through it. This is especially true when it comes to a gift. As the saying goes, “It’s the thought that counts.” Even when the best possible outcome is achieved, the last thing we want is a donor saying to themselves, “I wish I had given this decision more thought.”
I would guess that those at Fidelity Charitable have a better grasp than their critics on two things. First, I believe they are well aware of the fact that the fundraising practices of many organizations make little to no room for meaningful decision making. Second, they understand that any legislative changes aimed at expediting the flow of money from these accounts will only serve to benefit those organizations that have. In short, the donor-advised fund is a means to an end - a means of ensuring the donor a place for making more meaningful decisions on behalf of causes they want to support in more meaningful ways.
If your organization wants to understand how to raise extraordinary levels of support by way of meaningful relationships and higher expectations, our team at Responsive would welcome the opportunity to help you do that. If you’re interested in learning more, email me and/or our managing partner, Michael Dixon. We will be happy to volunteer an hour to get to know you and to explore with you what a partnership with our team might look like.
Want to host the Responsive Fundraising Roadshow?
We would welcome the opportunity to host the Responsive Fundraising Roadshow in your community. Since 2014, our team has been organizing high-quality, one-day roadshows in partnership with nonprofit leaders who want to showcase their space and champion thought-provoking and highly-interactive fundraising training for their nonprofit community.
Our hosts have included the Children’s Defense Fund in DC, the Henry Ford Health Center in Detroit, Cause Leadership in Toronto, Mission Capital in Austin, North Texas Food Bank in Dallas and The Gateway School in New York City. Most recently, in partnership with the Nonprofit Association of the Midlands, we hosted our most successful roadshow to date in Omaha. If you’d like to explore the idea of hosting the Responsive Fundraising Roadshow, email us today.