As DAF awareness grows, one provider is offering a course

John Bromley, Founder and CEO of Charitable Impact in Vancouver, has watched interest in donor advised funds (DAFs) grow steadily in recent years. These instruments, which can trigger a tax credit immediately, hold securities, and donate to charities over an extended period of time, are growing in popularity as financial advisors find real value in building charitable giving plans for their clients. He calls the growth ‘slow viral,’ as advisors have learned about DAFs, they’ve told colleagues who have told colleagues who have come to Bromley and his team with questions.

To manage all that interest, Bromely and his team have built a new CIRO accredited course about DAFs, explaining their utility, their mechanics, and how advisors can determine client suitability. Bromley’s goal, he says, is to expand DAF usage to as many advisors as possible. He wants to make DAFs as commonplace of a vehicle as RRSPs or RESPs among Canadians with advisors.

“Advisors are starting to figure out that the donor advised fund is something that they can use to help their clients with a certain part of their financial life,” Bromley says. “It could be just like an RRSP. It’s just a donor advised fund. They’ve already heard the RRSP. So I think what you’ll just see is continued growth because it’s such a great donor centered tool.”

Building DAF literacy

Bromley acknowledges that there are hurdles to overcome before DAFs reach that level of ubiquity. That begins with the development of a wider literacy around charitable giving and donation for Canadians. Bromley says that explaining DAFs to advisors usually begins with an explanation of their tax treatment. He has seen the ‘aha moment’ occur when advisors grasp that the creation of, or contribution to, a DAF immediately creates a tax receipt which is separate from the eventual charitable allocation made from the DAF.

From there, he says, advisors want to know whether they can still manage assets within a DAF. Bromley says that varies between DAF providers, but that his organization allows advisors to manage money in DAFs and continue to collect fees on the assets held within them. From there the questions turn to specific investment policies and an outlining of the benefits that come from the donation of securities in kind rather than cash generated from the sale of securities. The core fundamental understanding, however, is that while money can be held in a DAF for an extended period of time, it cannot be taken out for anything other than charitable donations.

Assessing suitability of DAFs

For advisors with philanthropic clients, there are three main vehicles to give. The first, and most commonplace, is in direct donation to charities. That could be a donation in cash or of securities in kind. Then there are DAFs and finally, for those with sufficient means, there’s the creation of a private foundation. DAFs, Bromley says, are often presented as the domain of higher net worth investors, those who may not have the assets for a private foundation but who require a more sophisticated means of giving to charity.

Bromley argues that DAFs can be suitable for many mass affluent clients as well. Those who have regular engagements with charitable donation can still benefit from DAFs as a single source of tax receipts, of record-keeping, and a means of holding securities to donate as they appreciate. He believes that advisors, rather than a DAF provider, should be responsible for assessing a client’s suitability for a DAF over traditional ad-hoc donations.

Educating advisors

The new course that Charitable Impact is rolling out, Bromley says, should help with those questions of suitability, tax treatment, and philanthropic planning as a whole. Bromley says that even though the financial services industry has implemented more widespread philanthropic planning services, there has not been a single authoritative source of advisor education on the subject. He wants to become that source of information and help the industry facilitate more philanthropy, which he believes will connect advisors more deeply and directly to their clients. He says he wants philanthropy to become as much a part of advisors’ work as retirement planning, not just the domain of specialists.

 “What percentage of advisors would call themselves specialists in preparing people for retirement, compared to what percentage of them have an RRSP for their client? All Canadians retire or all Canadians aspire to retire. All Canadians are charitable or all Canadians aspire to be charitable,” Bromley says. “Advising people on the charitable relationship from an investment advisor perspective isn’t about specialization. That’s actually a major misunderstanding that this course wants to break down. You don’t have to be a specialist in charitable giving to help someone understand the timing and the tax benefits of a charitable gift.”