Financial planning groups ask advisers to encourage charitable donations

Financial planning organizations are asking advisers to nudge their clients who have donor-advised funds to make donations from the vehicles to nonprofits suffering during the coronavirus pandemic.

“With the COVID-19 crisis forcing nonprofits to cut services and staff or even shut down altogether, the need has never been greater for individuals to direct grants from their DAFs to keep our nation’s social sector afloat,” states a letter posted Wednesday on the Foundation for Financial Planning website. “Because most individuals with DAFs are clients of financial planners, we believe planners can play an important role in accelerating the release of these funds from DAFs during a time when U.S. nonprofits are needed more than ever.”

The letter is also endorsed by the Financial Planning Association, the National Association of Personal Financial Advisors and the Certified Financial Planner Board of Standards Inc.

“So many nonprofits are struggling right now,” said Jon Dauphine, chief executive of the Foundation for Financial Planning. “We just think it’s the right message to send given the dire situation. We’d love to see a significant increase in the amount of grants.”

The groups are not recommending specific nonprofit recipients.

“While we’re agnostic as to where the money goes, our sense is that donors will look at special areas of need around the crisis,” such as organizations that provide food, shelter and other basic needs, Dauphine said.

Donor-advised funds have become one of the most popular mechanisms for charitable giving. Total contributions to DAFs grew by 20% in 2018, to $37.12 billion, according to the National Philanthropic Trust.

Both Schwab Charitable and Fidelity Charitable, two of the biggest sponsors of donor-advised funds, have been encouraging their donors to give to causes addressing the pandemic.

Ken Nopar, senior philanthropic advisor at the American Endowment Foundation, which is a donor-advised fund, said contributions from the DAF over the last few months were up 30% compared to the same time last year. He attributes the boost in part to grants targeting pandemic needs.

The vehicles have been criticized for not having payout rules. Money going into DAFs generates tax breaks for donors and then can sit in DAFs for years.

But the pandemic is undercutting doubts about DAFs, Nopar said.

“This is the shining moment for DAFs,” he said. “This is what they’re built for. This [pandemic] touches everybody. People are really stepping up to the plate.”

The CARES Act included provisions designed to encourage cash donations to charity. This is an opportune time for advisers to talk to their clients about contributions, Nopar said. “They can discuss where to give, how to give and how much to give, whether that’s out of a DAF or directly to a charity.”