By Ken Nopar, VP-Senior Philanthropic Advisor

An earlier version of this column was printed in Financial Advisor

Though a small number of large banks and wealth management firms still offer their own privately-branded donor advised funds (DAFs) with their firm names prominently displayed, few are being created today. Increasingly, firms that still offer them now also provide clients a choice since they have realized that their private-label DAF offering is not ideal for all clients or advisors.

Some advisors and firms that have only offered this type of DAF option have become aware that American Endowment Foundation (AEF)  is among the few independent DAF sponsors that allows them to manage the assets in their clients’ donor advised funds accounts at any amount. Since DAFs have become so popular and other DAF sponsors market their offerings to the public, some clients open DAF accounts directly with these other sponsors, bypassing the advisors and their ability to manage these assets.

Advisors now understand that it is prudent to proactively discuss charitable planning and DAFs with clients, and that it may be problematic if they continue to only offer their one private-label solution. AEF often serves as the alternative DAF sponsor for these advisors since AEF complements and never competes with the firms and advisors.

Some of the other primary considerations why advisors and clients are less interested in private-label donor advised funds today include:

  • Privacy and security are very important to clients today, and many do not want others to know which firm or institution manages their investments. Yet when a client recommends a grant through their wealth management firm’s private-label DAF, the name of the firm is featured in the grant letter that is sent to the charity. As a result, the non-profit knows which firm manages the donor’s wealth and can surmise that even if a grant is small, the donor is capable of donating much more and can be targeted for larger or more frequent grants.
  • Investment options at the firm’s DAF may be significantly limited, with smaller accounts having even more restrictions.
  • Some advisors are not able to charge fees to manage the assets in their own firms’ private-label DAF.
  • Some firms’ donor advised funds only allow advisors to manage the assets in their clients’ DAF accounts at much higher minimums than AEF
  • Many advisors wish to demonstrate their independence to clients by offering outside funds and investments that alternative DAF sponsors will allow yet their own offering will not.
  • Some internal DAF offerings are significantly more expensive than outside DAFs.
  • When another firm provides the back-office service for a private-label DAF and the service is poor, clients may attribute the poor service to their bank or wealth management firm since their advisor’s firm name is part of the name of the DAF, thus potentially jeopardizing the entire relationship.
  • Some firms’ private-label or exclusive DAFs are unable to accept donations of illiquid assets that other DAF sponsors can receive.
  • Some donors wish to hold certain donated stock or other assets within their account, yet some DAF sponsors do not allow this and will require immediate diversification or liquidation.
  • Some clients and advisors prefer a DAF account that is portable should they or their advisor change firms, while privately-branded DAFs typically are not.

For these and other reasons, clients often want an additional DAF sponsor option if only a private-label DAF is offered, especially if their advisor can manage the assets in their DAF account.

It is important for advisors and their clients to evaluate all of the features and flexibility of any DAF they are considering when initially opening an account. Otherwise, the number of DAF accounts that advisors and their clients transfer each year to AEF will continue to increase.  

At American Endowment Foundation, we look forward to discussing you and your clients’ needs and determine how an AEF donor advised fund can serve you best. Contact us or call 1-888-660-4508.