Decrypting DAFs (Donor Advised Funds)

Do you discuss philanthropy with your clients? Research shows that advisors who engage in discussions around giving with their clients bolster their business and increase client satisfaction by building a better, trust-based relationship, all while doing good in the community¹. Your clients have achieved financial success. Giving them a chance to express what they care about most, and engaging in a conversation about the legacy they want to create, will strengthen your relationship.

“A donor can keep their philanthropic capital in cash and make disbursement as they wish, to any registered Canadian charity, with absolutely no fees.”

If your clients are philanthropically minded, then you can offer solutions that help them achieve their goals. Exploring these easy solutions makes you, as a trusted advisor, part of their giving journey. Offering tax efficient ways to do charity, through a Donor Advised Fund, is a great option to simplify giving. Read our Q&A with the Jewish Community Foundation of Montreal (JCF), a Donor Advised Fund provider, to learn more.

Interviewer: Thank you Lizzie, for sitting down with us to discuss Donor Advised Funds and their relevance for philanthropically minded clients. Can you start by explaining what a Donor Advised Fund is?

Lizzie Cody is a Philanthropic Advisor

Lizzie Cody: Of course – it’s our pleasure. A Donor Advised Fund, commonly referred to as a DAF, is essentially a philanthropic bank account. They’re the fastest growing philanthropic vehicle because of their flexibility for clients with all levels of philanthropic capital.

Interviewer: Ok, so how does it work in practice for a client interested in philanthropy?

Lizzie Cody: In practice, a donor would work with a DAF provider, like the JCF, to establish a fund. The fund becomes their philanthropic bank account where they can gift assets to build capital and make disbursement recommendations to their chosen Canadian charities. The donor receives a donation receipt after transferring assets to their DAF and can then make charitable disbursements using their fund.

Interviewer: You mention flexibility over the size of the fund, but how else is a DAF structured? Are there fees associated? Can a donor name the fund themselves? What are the rules on granting?

Lizzie Cody: Good questions. The specific DAF structure will depend on the provider. At the JCF there are no fees for funds held in cash. A donor can keep their philanthropic capital in cash and make disbursement as they wish, to any registered Canadian charity, with absolutely no fees. For donors interested in maintaining their fund over the long term, or building their philanthropic capital, we have a Pooled Investment Fund they can choose to place their fund in. The fees are very competitive, starting at just 0.65% for balances up to $1 million, 0.3% for balances up to $10 million and 0.2% for funds over $10 million.

“We also offer significant investment flexibility for clients with a fund over $1 million. They can choose from our Pooled Investment Fund that is balanced and managed professionally to deliver steady returns over a long-term horizon or invest with a broker of their choice. So, if you’re a money manager, you could centralize your client’s philanthropy with us while still managing their philanthropic assets.”

“If you’re a money manager, you could centralize your client’s philanthropy with us while still managing their philanthropic assets.”

Donors can name their own fund and choose to have their grant(s) recognized under their fund name, or anonymously, each time they make a disbursement to a charity. We facilitate grants to any registered Canadian charity and, thanks to the generosity of our donors, collectively we grant close to $200 million per year to over 1000 different charities.”

Interviewer: Wow, that’s an impressive level of grants! So, we’ve discussed the benefits of a DAF to the donor, but what are the benefits to an advisor who might be considering this for their client(s)?

“Donors can name their own fund and choose to have their grant(s) recognized under their fund name, or anonymously, each time they make a disbursement to a charity.”

Lizzie Cody: We like to work in partnership with advisors to achieve the most tax smart philanthropic outcome for our clients. Often this starts by looking at the individual client’s needs in partnership with their advisor and determining the best donation vehicle, whether it be appreciated marketable securities, a gift of private company shares, life insurance, real estate, or other assets. There are a lot of tools to help what we’ve coined ‘Smart Philanthropy’. We also know that discussing philanthropy with your clients, if you’re an advisor, increases their trust and satisfaction with your services, so really this is a win-win.

Interviewer: Sounds fantastic for everyone involved. Thanks for sharing the basics of a DAF. If our readers wanted to understand more, or have clients who might be interested in philanthropy, how do they get in touch?

Lizzie Cody: Thanks for speaking with us – we’re here to encourage philanthropy so we’re keen to encourage advisors to work with us to increase client satisfaction and charitable impact. If your readers want to discuss more, they can email us at [email protected] or phone us on (514) 345-6414 and ask to speak to our team of Philanthropic Advisors.

¹ cagp research layout master (cagp-acpdp.org)