Note: This post is a part three of a three-blog series by Gideon Taub, Ren’s Chief Strategy Officer providing his perspectives on the DAF ecosystem, the latest trends, and insight into Ren’s vision.
In addition to his role at Ren, Gideon leads the content and programming for the DAF Giving Summit. You can follow Gideon on LinkedIn, and join the DAF Giving Summit email list to keep up with the latest event details.
In my most recent post, I shared the options for insourcing and outsourcing key components of a DAF program. This post focuses on overarching trends across financial services firms with regard to outsourcing parts of their operations along with considerations specific to DAFs.
The quick takeaways from the previous post is:
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- At the highest level, programs must choose to insource or outsource their tech platform, sponsoring charity, and admin services.
- For the most part, programs can mix and match insourcing and outsourcing.
- Programs can switch from insourcing to outsourcing and vice versa as their program evolves.
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With that, let’s look at the growth of the outsourced services market, which directly aligns with the admin services discussed in the previous post. Often referred to as business process outsourcing (BPO) or managed services, the BPO market in the US is valued at roughly $90B and is growing at 8.9% annually through the end of the decade, according to Grand View Research.
Banking and financial services will grow their use of BPO the fastest of any industry, followed by IT, healthcare, and retail. And that may leave you wondering what functions financial services will seek to outsource. The two leading areas are finance and accounting as well as customer service.
Why are financial services firms outsourcing these functions? They aren’t core differentiators for their business, and their firms can drive greater profitability by outsourcing them. Recruiting, hiring, training, and retaining talent is expensive, and it’s more efficient to leverage vendors for these functions.
What’s strategic for your firm and what isn’t?
That closely aligns with what we’re seeing across DAF administrators. Having a DAF program is a strategic priority for many leading financial services firms. The full list of benefits is long, but starts with stronger client relationships and ends with more total assets under administration. But the administrative work to operate a DAF is often NOT a strategic priority and so, programs are actively outsourcing more of the administration.
The graphic below offers a list of the services that typically need to be provided by each program. This is a long list and isn’t comprehensive. As programs evolve their outsourcing strategy, they often start by evaluating which are most strategic to their firm and focus there.
New accounts
- Platform access
- Online applications
- Paper applications
- Custom applications
- Application validation
- OFAC notification/reporting
- Donor welcome communication
- Financial advisor welcome communication
- Legal review
Contributions
- Receiving account setup
- Receiving account monitoring
- Publicly traded securities
- Complex assets
- Cash
- Credit cards
- Liquidation of assets
- Investment of liquidated assets
- Contribution letters
- Tax receipts
- Legal review
Grants
- Branded checks issued
- Branded letter insertion
- Charity vetting
- Grant due diligence
- Grant board approval
- Individual invoices for funding
- OFAC notification/reporting
- Payments
- Ren for Charities integration
Investments
- Daily/monthly/quarterly reconciliation (Pooled or SMA)
- Data feeds received
- Paper statements received
- Investment account website access
- General ledger integration files
- Monthly activity reports
- Daily unitization
- Daily NAV
Disbursements
- Distributions calculated
- ACHs/Wires processed
- Payment advice issued
- Branded letter insertion
- Stale check processing
- Void processing
- Daily/weekly check run
- Positive pay file
- Bank account reconciliation
Program support
- Designated support team
- Dedicated #800 number
- Dedicated email address
- Training and education support
- Broad packages/reports
- Federal and state forms prepared/filed
- K-1s prepared
- Audit support
- Admin fees calculated
- Commissions calculated
- Commission file produced
- Other fees calculated
- Admin fee applied
- Individual invoices for redemption
- Central report for redemption
Client-facing functions and back office functions
The second way programs often segment the services list is into ‘client facing,’ which supports advisors and donors, and ‘back office,’ which includes all of the behind-the-scenes work to support a DAF.
Many programs start by outsourcing the back-office components deeming the Client-facing work to be strategic, and thus worth handling in-house. Other programs choose to outsource everything, knowing that their service partners can meet their brand standards while driving success for their program, advisors, and clients through their DAF expertise. Of course, some programs still insource all of it, too.
Giving season and seasonality
DAFs are seasonal. 40% of our transactions happen during Giving Season, with significant increases in both contributions and grants. Donors and advisors, of course, still expect quick turnarounds, immediate responsiveness, and perfect service.
Delivering those service levels is hard.
Scaling up staff to support that is even harder!
Expecting your team members to work long overtime hours all throughout the giving season isn’t realistic.
An outsourced services partner can help alleviate that seasonal pain, being your release valve when volumes increase.
Ultimately, the suite of services is a menu, and programs can pick and choose which to outsource with a trusted partner, and which they wish to own. In addition to considering which are strategic for your program, I’d also recommend identifying functions that can be outsourced to help support the increased activity volume that we invariably see during Giving Season. Rather than your firm hiring to support Giving Season, lean on your service partners during those busiest months!
At Ren, we are constantly evolving every aspect of our services offering. We’d love to discuss your needs with you as well as additional services that we should be offering.
Note: This post is part of a monthly blog series by Gideon Taub, Ren’s Chief Strategy Officer providing his perspectives on the DAF ecosystem, the latest trends, and insight into Ren’s vision. In addition to his role at Ren, Gideon leads the content and programming for the DAF Giving Summit. To make sure that you don’t miss any future posts, subscribe to Ren’s email list here, follow Gideon on LinkedIn, and join the DAF Giving Summit email list. Gideon founded Pinkaloo Technologies, which was acquired by Ren in 2021.
