Making predictions for the year ahead is a dicey undertaking. The economy is unstable, the global stage is frightening, and the only thing certain about our political scene is that no one knows where the next shenanigan will come from.
Even in the midst of all that uncertainty, history assures us of one thing: Americans are going to be generous, supporting charities at levels that lead the world. Sure, giving declined slightly in 2022, but Giving USA’s 2023 report on charitable giving revealed that, despite inflation, stock market performance, and other negatives, Americans gave almost $500 billion to charity in 2022, an amount comparable to pre-pandemic giving when adjusted for inflation. And a good deal of Americans’ giving is conducted through donor-advised funds (DAFs) – more on that below.
Understanding Americans’ ongoing generosity and their growing interests in DAFs, firms that want to fully participate in their clients’ financial lives would do well to add to their giving resources and, especially, their DAF options. As they do so, they should keep the following trends in mind.
Three broad trends
To begin our projections, I’d like to point to three broad trends we can count on in the coming year, and then I’ll tap into some of my colleagues’ expertise to address some finer points.
First, giving will increase so long as we don’t see seismic economic upsets as donors are compelled to address ongoing needs and opportunities. And even if the economy does see a hiccup, donors who have DAFs will be equipped to continue to give regardless, as DAFs provide a reliable pool of funds from which to give.
Second, we will hear more talk about the coming multi-trillion transfer of wealth. As the New York Times recently reported, some $84 trillion is expected to be passed from older Americans to their heirs by 2045, with about $16 trillion being transferred in the coming 10 years. Interestingly, economists already see an indicator of that process as bequests increased by 2.3% from 2021 to 2022, garnering charities more than $46 billion.
Third, we will continue to see a democratizing of philanthropy, which is the industry’s way of saying more people will become involved in charitable giving, with money coming in at lower dollar levels, a trend also supported by developments in DAFs, which have become easier to create and accessible at lower asset levels.
DAFs will continue to grow
As they continued their generous ways, in 2022 Americans leaned heavily on DAFs. According to National Philanthropic Trust’s Donor-Advised Fund Report, donors deposited $85.53 billion into DAFs, a 9% increase over 2021. Grants distributed from DAFs also increased by 9%, for a total of $52.16 billion being provided to charities from DAF assets.
My colleague, Kelly Palmer, Ren’s senior vice president of strategic partnerships, believes this trend will continue, as DAFs remain the go-to philanthropic choice for most donors. High-net-worth individuals will be especially attracted to DAFs due to their ability to accept complex assets and invest in alternative investments, adds Kim Ledger, Ren’s Vice President of Complex Assets. Another factors Kim sees appealing to those donors: DAFs make it easy to give anonymously.
Additionally, Kim sees donors who don’t have heirs embracing DAFs as a great way to give away money during their lifetime. “We’re seeing people gift their passion assets to fund DAFs for that reason,” she says.
Technology will play an increasing role
The whole world is watching the development of artificial intelligence (AI), and the philanthropic community is no exception. Kelly Palmer sees AI helping donors make better decisions through data-driven insights, personalized recommendations, and real-time feedback, and Senior Vice President of Customer Success, Kyle Christopherson, adds that AI will help to more deeply engage donors and create new gift opportunities.
Kyle adds AI won’t be the only way that technology supports charitable giving. He expects more donors to tap into tech to support and facilitate their giving, to learn about charities and more.
M&A and partnerships will grow
Kim Ledger’s looking for mergers and acquisition to heat up, which means owners and investors will have extra cash for charitable giving and, often, windfalls they need to offset. This could also feed into the wealth transfer mentioned above, adding to the opportunity for the philanthropic community.
Kelly Palmer expects to see an increased interest in meaningful partnerships that allow for faster market solutions and feed innovation and creative problem solving.
Impact will continue to matter
One of the key drivers in charitable giving – even more important that the tax deductions we hear so much about – is a desire to make a difference. Kyle Christopherson believes this will drive donors to seek more information and greater transparency about their gifts, working to ensure they are being as impactful as they are generous and wanting to know how their gifts are being used. Kim Ledger adds that investors will want to feel real connections to the causes they support.
In a similar vein, Kyle believes impact investing – the practice of making investments that deliver a return while also supporting specific causes or delivering societal benefits – will continue to grow. The Global Impact Investing Network estimates that worldwide impact investing totals $1.164 trillion.
More advisors will make philanthropy a consideration
Finally, Kelly Palmer expects that, in the year ahead and many more to come, financial advisors will increasingly recognize the need to incorporate philanthropy into their practices, as their clients increasingly see giving and investing as two sides of the same wealth management coin.
That doesn’t mean a firm or advisor can simply say, “Hey, we do giving” and expect to meet clients’ needs. Kyle Christopherson expects that donors will want more services, options, and expertise. They’ll want giving plans tailored to their goals and passions, and they’ll want their advisors to know how to incorporate giving into overall wealth management strategies, with approaches that maximize impact, tax benefits, and more.
If the advisors in your firm will be among those seeking to embrace this trend – or if those already doing so would like to learn more about DAFs and other giving options – talk to our experts at Ren.
