How nonprofits benefit from Donor Advised Funds

While nonprofits across the country seek ways to combat post-coronavirus pandemic trends of donor fatigue, others are doubling down on the relative security of Donor Advised Funds. 

FJC, a New York City based foundation of Donor Advised Funds, recorded no declining trends following the pandemic. According to Sam Marks, CEO of FJC, between 2018 and 2023, the number of donor-advised accounts overseen by the firm increased steadily from 800 to nearly 900. This upward trend was also seen among contributions into philanthropic accounts and disbursements for nonprofit activities (mostly grants).

Despite Giving Tuesday’s modest figures nationwide, FJC suggests that the robustness of these numbers is attributable to the stability of Donor Advised Funds. Founded in 1995, the firm has connected philanthropists with creative innovators, helping funders and recipients collaborate on lasting projects. Managing nearly 1,100 philanthropic accounts, totaling nearly $400 million assets, FJC helps both young and established philanthropists award grants and loans to nonprofits across various sectors. 

New York Nonprofit Media spoke to Marks about FJC’s management of Donor Advised Funds and his recommendations for struggling nonprofits.

This interview has been edited for length and clarity. 

What are Donor Advised Funds? 

So, when you open a Donor Advised Fund account, you make a contribution to a foundation. We're a 501c3 and you get an immediate tax deduction, so you give those dollars away for good, irrevocably. It's no longer your asset, it belongs to the foundation, but you retain recommender privileges over two things: One is how those dollars are given away to nonprofits (the nonprofits you recommend) and the other is how those dollars are invested at the foundation, while you're waiting to figure out where your grants can go. We offer our donors a core investment menu of stocks and bonds, money market funds at low-cost mutual funds, but we also offer our donors the opportunity to invest in a pool of loans that we make to nonprofit organizations, like an impact investment where you're investing your dollars for growth. But while they're being invested, they're being deployed to help nonprofits meet their urgent business needs. We work with a lot of nonprofit borrowers who have contract receivables from the city that are delayed, so we're helping them with timing issues on their payments from public agencies. Or if they need to acquire a property that they want to develop for housing or a community facility, and so they need those resources now in order to assemble the financing to actually build and operate the project in the future. 

What’s unique about FJC’s Donor Advised Funds model? 

What makes us unique is we come with a very particular capability around complex financing transactions, both on the donor side and on the nonprofit side. We think of ourselves as almost like a financial intermediary between our donors and nonprofits in the financial services sector. So we're able to do much more complex transactions with philanthropic dollars than many of the other places that offer Donor Advised Funds. One of the reasons FJC was formed back in the mid-90s, was that the donors who started FJC had Donor Advised Funds at other foundations but what they were able to do was very narrow and constrained. They were interested in lending to nonprofits and investing their funds in more complex and esoteric investments. And so they formed FJC to be a foundation of Donor Advised Funds that was as creative, nimble and flexible as they were. So these donors were doing impact investing even before it was widely used in the industry. Through our loan program, we help our donors build their philanthropic capacity, because their accounts are growing as they're being invested. But we also help nonprofits with their urgent business needs. We have a donor that's interested setting up their DAF account as a 0% interest revolving line of credit for their favorite nonprofit, or we had a donor that wanted to refinance the mortgage of their favorite nonprofit, which involves purchasing a tax-exempt bond and amending the terms to make it more affordable for the nonprofit. Those are the types of complex financial transactions that we can work with a donor to execute.

Do you have any recommendations or budgeting tips for nonprofits who want to stay creative but work with more modest budgets?  

A lot of nonprofits really struggle with having not just the dollar resources, but the human resources necessary. There's a lot of strategic thinking and analysis that nonprofits can do, particularly the larger ones that have a range of different city or state hotspots, a range of different business lines to really dig in and understand what parts of the organizations are net positive in revenue and which are net negative. Not to say that nonprofits need to close down programs where they’re losing money, but it's really important to understand in a larger, complex nonprofit, what programs are subsidizing what, and have more informed conversations with the public sector, funders, as well as private fundraisers about where their needs are and where are the gaps. 

One of the things you stressed was a shift in mindset regarding philanthropy, from something reactive to something more long-term, strategically. Would you mind elaborating on this?  

A lot of nonprofits and nonprofit board members come to me for advice about fundraising. Many of them are encouraging their board members to go out and fundraise for the organization, [such as] end of the year campaigns or Giving Tuesday. And I think nonprofits often can get donations from the social circles [of board members] who will give to a nonprofit because they want to support their friend. I think the bigger challenge for nonprofits is to find the ways to engage potential funders in ways that hook them into an organization for the long-term, and get a donor to really fall in love with the organization and its mission and its impact. And that can sometimes take a long time. But those owners that do really fall for an organization and get to know the leadership, can be some of the most valuable long-term stakeholders for an organization and pull others into the nonprofit's orbit. Particularly for the nonprofits that rely a lot on city funding, those payments are delayed and the city's facing budget cuts. And it's important for them to have other sources of funding that are more flexible and longer term to help them invest in the organization's long-term sustainability infrastructure.

Any upcoming projects you’d like to highlight? 

At FJC we’re excited about some projects in the coming year that use the philanthropic funds in Donor Advised Fund accounts as enterprise capital – dedicated funds that help nonprofits manage cash flow or take on entrepreneurial projects. We’re opening a DAF account this year that will be funded by a private foundation that wants to create a low-cost revolving line of credit for one of its longtime New York City based nonprofit grantees. This will help the nonprofit manage their cash flow from city contracts, which often encounter delays in payments. Instead of borrowing from a bank, the nonprofit can borrow from this philanthropic fund at a lower cost.  We also want to work with funders to replicate the “Boss Up” business plan competition programs, which made grants to entrepreneurs last year through pitch competitions. We expect to have second rounds of the programs we administered for veterans and residents of the (New York City Housing Authority).  Now that we have the basic template, there’s no reason we couldn’t launch similar programs to focus on small business owners from other underrepresented groups, if we can work with public sector partners and funders. We’re also excited about the social entrepreneurs that will be reaching out to FJC for fiscal sponsorship in the coming year.  These are nonprofit programs and organizations that apply to operate under our 501(c)(3), where we can receive charitable dollars on their behalf and provide back-office support. These are projects that are driven by passionate people who want to move quickly without setting up a whole new entity, and my staff and I always draw inspiration from them.