Cofounder and Chief Product and Strategy Officer Johny Mair and Senior Associate of Product Operations Lily Louis offer a comprehensive dive into the Ethic vision for the future of DAFs and how we support advisors across the entire process of offering DAFs to their clients.
Cofounder and Chief Product and Strategy Officer Johny Mair and Senior Associate of Product Operations Lily Louis offer a comprehensive dive into the Ethic vision for the future of DAFs and how we support advisors across the entire process of offering DAFs to their clients.
by Lily Louis and Johny Mair
Key Takeaways:
- DAFs have untapped potential for systemic change: Donor-advised funds (DAFs), while widely used for their tax efficiency, are often underutilized as tools for driving high-impact, innovative initiatives that traditional investments avoid. By rethinking how DAFs are deployed, they can become transformative engines of capital for high-risk, high-impact projects.
- Integrating giving with investment goals can help to maximize impact: Aligning DAF investments with a client’s values and philanthropic goals ensures that their giving and investing strategies work together. This approach helps clients avoid investments that conflict with their values, such as supporting animal shelters while holding shares in companies involved in animal testing.
- Ethic's holistic approach to DAFs enhances client impact: Ethic integrates charitable contributions with traditional portfolio goals by offering a comprehensive support model for DAFs. This includes streamlining account operations, aligning investments with values, and leveraging innovative tools like recoverable grants and catalytic investments. By guiding clients through holistic reporting and storytelling, Ethic helps them connect more deeply with their values and build a meaningful legacy.
The potential of DAFs:
DAFs are the neglected children of impact — widely used but seldom fully appreciated for their potential to drive real systemic change. With over $230 billion in assets under management in the U.S. alone, DAFs are the fastest-growing charitable-giving vehicle in the U.S. and are projected to reach 1TN in assets by 2029. Yet too often they’re seen merely as tax-efficient vehicles rather than transformative engines of capital. What if we rethink how DAF assets are deployed? What can be gained by using them as a tool for funding transformational, high-impact initiatives to fuel innovations that traditional investments often shy away from?
Our vision: Investable, impactful giving
By doubling down on our DAF offering, we’re looking to incorporate our clients’ values in their giving, and investments, and provide them with access to high-impact investments and grants. We aim to support them in challenging their own assumptions about what is 'investable' and create a bespoke system for impactful giving. By connecting them to their values through stories, we can help them build a legacy that reflects their beliefs and priorities.
Our approach: A support model across the entire DAF process
We aim to provide a comprehensive support model across the entire DAF process, starting with streamlining operations such as account opening and asset contributions. This includes leveraging and integrating our active tax capabilities to determine the optimal securities to donate from a client’s traditional portfolio, considering tax benefits (donation of appreciated assets) and sustainability impact (donation of company names flagged for sustainability reasons). We incorporate clients' values and priorities into their portfolio allocation and investment strategy to create bespoke multi-asset portfolios that complement their giving. The flexibility of DAFs provides an opportunity to make use of innovative fiscal tools, such as recoverable grants, program-related investments (PRIs), and zero interest bonds, to maximize impact. We provide tailored giving and grant recommendations that align with their values and support the broader investment portfolio goals. Through holistic reporting, we guide clients on a journey, sharing stories and the overall impact of their investments and giving to help them connect more deeply with their values.
The opportunity: What advisors could gain by offering DAFs
DAF assets are earmarked for giving. By treating giving and investments as separate, we can undermine the impact of a client’s charitable giving by investing in companies whose actions are misaligned with their values. For example, we’ve worked with new clients who are active in their local animal shelter but hold companies that carry out cosmetic animal testing. We’ve also onboarded clients who contribute to lung cancer research but hold companies involved in tobacco manufacturing & sales. Sustainable investment solutions provide advisors with an opportunity to support their clients in aligning investments with philanthropic objectives and attaining more impact. DAFs should serve as a way for advisors to support their clients in building a legacy as well as a tax-efficient tool. By opening a DAF, advisors can give their clients greater control over the potential impact of their assets and create the opportunity to bring more sophistication to their core portfolio.
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Disclosures:
Ethic Inc. is a Registered Investment Adviser located in New York, NY. Registration of an investment adviser does not imply any level of skill or training. Information pertaining to Ethic Inc’s registration or to obtain a copy of Ethic Inc.’s current written disclosure statement discussing Ethic Inc.’s business operations, services and fees is available on the SEC’s Investment Adviser Public Information website – www.adviserinfo.sec.gov or from Ethic Inc. upon written request at support@ethicinvesting.com. Information provided herein is for informational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Any subsequent, direct communication by Ethic Inc. with a prospective client shall be conducted by a representative of Ethic Inc. that is either registered or qualifies for an exemption or exclusion from registration in the state where a prospective client resides. Information contained herein may be carefully compiled from third-party sources that Ethic Inc. believes to be reliable, but Ethic Inc. cannot guarantee the accuracy of any third-party information.
Ethic Inc. does not render any legal, accounting, or tax advice. Ethic Inc. recommends all investors seek the services of competent professionals in any of the aforementioned areas. Ethic Inc. cannot provide any assurances that any investment strategies, simulations, etc. will perform as described in our materials. ALL INVESTMENTS INVOLVE RISK, ARE NOT GUARANTEED, AND MAY LOSE VALUE. BE SURE TO FIRST CONSULT WITH A QUALIFIED FINANCIAL ADVISER AND/OR TAX PROFESSIONAL BEFORE IMPLEMENTING ANY STRATEGY.