Hiring the Right Millennial and Getting the Work Done


Despite the differences in defined work ethics between generations, talent leaders CAN (and must) successfully hire and retain high-performing employees of this generation. Cultivating a keen understanding of millennials is the first step. Adapting company policies to their workers’ attitudes is another way to create an advantage over less flexible companies. But before you can focus on motivating these employees, you must determine how to hire the right ones.

To address the potential challenges posed by relatively fixed expectations and dispositional characteristics shared by many millennials, companies have two options:

1. First, they can carefully select employees with certain qualities. By exercising care when conducting interviews and determining which assessments to deploy (assessments can be chosen and implemented by many online websites such as http://www.mgassessments.com or http://www.profilesinternational.com), talent managers can better gauge the degree to which their millennial applicants can adapt to the workplace. For example, millennials who score higher in intellectual flexibility and comfort with ambiguity should be more adaptive than those who score lower.

One of the major ways millennials on the fast track distinguish themselves from their cohorts is how keenly they appraise uncertainty and reason inductively. Thus, talent leaders who select millennials with these characteristics will fill their ranks with employees who’ll succeed in the short run and be ideally equipped to lead when they do ascend the hierarchy. Further, selecting young workers who are self-aware and sensitive to how their co-workers perceive them means these new employees will be savvy enough to adhere to company norms as well as fit in with employees from older generations.

2. Second, companies can benefit from clearly articulating the traditional career paths through the organization. A well-designed path up an organizational chart — including what to do, how to do it, and how long it usually takes — will appeal to millennials’ preference for structure and relatively low-interest in ambiguity. Millennials tend to thrive when they know precisely what’s expected of them and how they should go about accomplishing goals. But this must be regularly communicated with clear challenges and benefits to entice a millennial worker.


Once you have hired Millennial employees, however, the work has just begun. They’ve always felt sought after, needed, indispensable. They are arriving in the workplace with higher expectations than any generation before them—and they’re so well-connected that, if an employer doesn’t match those expectations, they can tell thousands of their cohorts with one click of the mouse…

Therefore, proper management techniques developed specifically for this generation is very important to keep and motivate Millennial employees. In Managing Millennials by Claire Raines, she defines 6 Principles of Millennial Management based on the generation's own most frequent requests:

1. You be the leader. This generation has grown up with structure and supervision, with parents who were role models. The “You be the parent” TV commercials are right on. Millennials are looking for leaders with honesty and integrity. It’s not that they don’t want to be leaders themselves, they’d just like some great role models first.

2. Challenge me. Millennials want learning opportunities. They want to be assigned to projects they can learn from. A recent Randstad employee survey found that “trying new things” was the most popular item. They’re looking for growth, development, a career path. 

3. Let me work with friends. Millennials say they want to work with people they click with. They like being friends with coworkers. Employers who provide for the social aspects of work will find those efforts well rewarded by this newest cohort. Some companies are even interviewing and hiring groups of friends.

4. Let’s have fun. A little humor, a bit of silliness, even a little irreverence will make your work environment more attractive.

5. Respect me. “Treat our ideas respectfully,” they ask, “even though we haven’t been around a long time.”

6. Be flexible. The busiest generation ever isn’t going to give up its activities just because of jobs. A rigid schedule is a sure-fire way to lose your Millennial employees. Consider flexible schedules, time off incentives or even a Results-Only Work Environment (ROWE).

5 Cool Ideas for Managing Millennials

Just as the Xers and Boomers finalize their own negotiations for an uncertain workplace peace, optimistic millennials find themselves at the mercy of Xer skepticism. Gen-Xers complain the millennials are another indulged generation like the Boomers—that they’re self-absorbed with no work ethic. millennials charge that Gen-Xers are cynical and aloof—that they throw a wet blanket on fresh ideas and idealism. Why can't we all just get along?

Maybe using our own creative side is what we need to connect and motivate the millennial generation. Here are a few ideas to get your creative juices flowing!

5 Cool Ideas for Managing Millennials

1. Design office space so that millennials are set up physically to share ideas. They do not work well when left alone in an office (even though they WANT that personal office… It really does not provide the most productive environment).

2. Consider assigning projects to groups of employees who are evaluated as a group for reaching a goal.

3. Set up a reverse mentoring program. Companies from Procter and Gamble to Siemens have set up tutoring for middle-aged executives. Young newcomers help the executives navigate the Net. Jack Welch of General Electric fame says that “e-business knowledge is usually inversely proportional to age and rank.” GE matched 1,000 managers and 1,000 young employees. Even though the younger cohort had just joined the firm, they tended to understand new technologies better than GE’s finest.

4. Provide time off for incentives. I have used this as a way for millennials to earn the time off and flexibility they want. They could earn up to 1/2 day per week based on weekly goals… If they reached their goals one week, they get to choose a morning or afternoon to take off the following week. It helped them feel short-term rewards and kept both myself and them on track with their goals. It also ensured they were never bored, as they were always trying to reach that weeks goals (longer-term goals were rewarded with bonuses).

5. Ask them to draw up their own job description. Then you can meet with them and combine it with your job description, explain why certain things in your job description are important (millennials need context, and the more context you give them the more they will work to reach & excel your goals). Ask them to include any professional/personal goals they are willing to share as well, so while managing & mentoring you can help them reach those goals.

More Specifics about Millennial employees (according to Managing Millennials by Claire Raines):


distaste for menial work

lack of skills for dealing with difficult people


lack of experience




goal orientation

positive attitude

technical savvy


What They Want From a Job

• to work with positive people

• to be challenged

• to be treated respectfully

• to learn new knowledge and skills

• to work in friendly environments

• to have flexible schedules

• to be paid well

Where Employers Go Wrong with Millennials

• not meeting their high expectations

• discounting their ideas for lack of experience

• allowing negativity

• feeling threatened by their technical knowhow

Millennial Learning Preferences

• teamwork

• technology

• structure

• entertainment & excitement

experiential activities

Millennial Communication Preferences

• positive

• respectful

• respectable

• motivational

• electronic

• goal-focused

Questions To Ask Before Opening a Donor-Advised Fund (DAF)

Whether you plan to open a donor-advised fund through a community foundation, national financial service institution, a public foundation or a specific charity, there are several questions you should ask before finalizing your new fund.  The questions below will not only protect your philanthropic investment, but be sure there are no miscommunications that may create problems in the donor-provider relationship later on.
Minimum contribution requirements and account balances – This is important because many donors want to make a good sized contribution once a year at tax time, and then grant from those dollars all year; but some foundations charge a heavy fee once your balance goes under a certain amount. 

Investment options – As a donor, you may or may not feel strongly about how your money is invested.  However, if you wish to grant income from your fund contributions, you will want to be sure the investments are aggressive enough to have a goal of at least a 5% return (most foundations have a return goal of around 8%, but use 5% as a conservative return amount on sustaining grants).  On the other hand, you will want to know that the investment is conservative enough that your fund will not be significantly reduced because of overly aggressive investments.

Some fund providers will offer a variety of options, so you can decide how conservative or aggressive you want your fund to be.  In this case, make sure you consider the long-term health of your fund, as well as what you want your fund to do as a whole.  Someone wanting to fund a current theatre renovation, and someone wanting to pay for community capacity building for as long as possible, will obviously have different goals in mind for their fund and how it is invested.

Donor services and access to professional expertise – this is an area where community foundations are often much stronger than the national donor advised funds run by Fidelity, Schwab and other big investment firms.  However, the service you desire will depend on your charitable goals.  For example, community foundations become very involved in their local nonprofit sector, thereby giving their donors access to extremely beneficial information on how use their funds to make an impact in their local community.  But if you are already firm on the grants you want to make, or want to make all your donations to one organization, you may prefer more limited grant expertise, lower fees and the technical capabilities of the nation DAFs. 

No matter what your goals are, make sure you ask what services and professional expertise are offered.  And if you feel you could use different or additional support… keep looking.  Chances are, there is a provider out there offering what you need.

Fees and payment schedules – Because of the wide variety of services and expertise made available to donors, fees can vary substantially.  Make sure you understand what the fees are, what they are for and when they will be assessed against your fund.  Remember you will most likely have multiple fees (i.e. investor fees, provider fees, grant fees, etc.), so be sure you understand everything.  The best option is to ask for all standard fees, processing or administrative fees and penalty fees to be provided to you in writing.  Also be sure to ask when the fees were last adjusted, and if there are any plans to increase them in the near future.  

Grant recommendations –  In other words, ask the extent to which the DAF provider adheres to donor requests, because once you write that check and you receive your tax benefit… that provider becomes the owner of those funds and they, not you, make the final decision on grants.  Now don't let this scare you too much, because this is necessary in order for you to get your tax benefit immediately after depositing the money into your fund.  Also, keep in mind that any organization that took advantage of this policy in ANY situation that was not extremely critical and easily defendable would not be around very long (i.e., word travels fast on these sorts of things).  Plus, you have some protection as long as you have confirmed that you retain the ability to transfer the fund to another DAF Provider, which leads to the next, and probably the most important, point.

Ability to transfer the account to another institution – On this last point, I can't emphasize the extreme importance enough of selecting a DAF that allows donors to transfer their accounts elsewhere, should the donor become dissatisfied with any aspect of the sponsoring organization's services. This is your umbrella protection, so make sure you confirm it as a policy of this organization.  It is also prudent that donors do a simple google search on the organization, and maybe ask around if it is a local community foundation, to get a feel for their reputation.

Although DAFs facilitate a relatively unencumbered giving process, philanthropic best practices still apply. Both donors and their advisors should take care to conduct careful due diligence on potential grantees, follow-up with grantees to assess impact and strive to develop working partnerships with grant recipients to ensure that both donor and grantee needs are being met.


Donors – A Case for Funding Capacity Building

When you ask a donor what their goal is with their philanthropy, they will most certainly respond that they "want to make a difference".  They may have a specific ideas about how they want to make a difference, and maybe even what organization they wish to support, but in the end they want to make a difference

Furthermore, they probably want to make a difference for as many people as possible.  As a foundation representative, you obviously see the value in perpetual giving because those philanthropic dollars can be recycled year after year with the income making a difference even after the original donor is gone.

Well you can help donors make their philanthropy even MORE valuable by introducing them to the importance of capacity building.   Whether you provide capacity building in house, or utilize a third party (which I highly recommend, and is explained in my blog article "Foundations & Capacity Building"), your donors should understand that effective capacity building means significantly more impact for the same (or less) dollars.  And ensuring capacity building support in provided to nonprofits in combination with grant funds is something National Donor Advised Funds (by investment groups such as Fidelity or Schwab) could never provide.  Meaning, not only do you provide local expertise & personalized donor relations, but a larger impact (which can be seen as a legacy) as well.

For a donor new to capacity building, I explain it to them like this.  "Every nonprofit organization has a continuous number of people needing their support.   There are always more families who are hungry, more children who want a better education, more elderly people who need medicine, etc.  So the biggest issue for every nonprofit is how to serve more people so they don't have to turn anyone away.  Capacity means how much can be done for how many, so capacity building is key."

The Edyth Busch Foundation did a study in 2010 of the capacity building efforts they had funded in addition to their standard grants over the previous 5 years.  The study concluded that ALL of the programs had increased productivity substantially, and collectively the productivity grew by an average of almost 400%!  That means that a $10,000 grant actually made an impact previously valued at $40,000!  Now THAT is making a difference.

Benchmarking and Best Practices… Evaluation is Not Enough

I would be fairly confident saying that most nonprofit executives, board members and employees are working hard every day for their organization.  They follow procedures, evaluate their programs and even provide outcomes.  They are no doubt working their best, but are they working "best practices"?  Most are not.

Many nonprofit organizations conduct some form of program evaluation, either as a funding requirement or as good practice, but benchmarking is often reserved for those "lucky" nonprofit organizations with extra resources or staff.  Evaluation is necessary because it is for accountability (proving results were accomplished), but benchmarking takes too much additional time and resources not readily available.

Evaluation may prove results, but it does nothing to show if these results are actually efficient.  Nor does it help to improve these outcomes over time.  Benchmarking, on the other hand, takes these outcome measurements and looks at improving existing processes by searching out best practices that, if implemented, would improve overall performance and impact.  Shouldn't that be every organization's goal?

Furthermore, benchmarking looks at improving areas beyond just programs, evaluating other critical organizational processes such as financials, fundraising, board management, etc.  Searching out improved processes and procedures means a more effective and efficient delivered mission.  Something every nonprofit today should be striving for… something the sector needs in order to reach the efficiency of the corporate and government sectors.

So where do you start?

Benchmarking is defined as an ongoing process of measuring your organization against leaders, then changing your practices and processes to pull the organization's performance up a notch.  These can be small changes that over time make a big impact in your organization's effectiveness.  Or they can be big projects that your organization takes on in order to implement a best practice by an organization you believe is doing well in that area of expertise.  You can also identify an area in which you are struggling, and find help with a professional consultant or volunteer with that expertise.

The benefits of the benchmarking process are numerous. It can help set higher standards so you are constantly improving, sharpen your mission focus, identify strengths and weaknesses, reach new stakeholders, raise more money, consider innovative ways of solving old problems, and demonstrate to donors that you are trying to make the biggest impact possible with the highest efficiency.

Much of the time, the term "best practice" makes people nervous that you are working to reach someone else's impossible dream rather than a manageable, practical goal.  Jason Saul, in his book, "Benchmarking for Nonprofits: How to Measure, Manage, and Improve Performance", defines best practice as the most successful and efficient means of achieving a particular outcome for an organization.

Saul lists six principles to determine what is a best practice:

*  Is there a proven track record of success? (Obviously, without a track record, the success could be a fluke unrelated to the "best practice.")

*  Are the results sustainable? (A practice that requires unsustainable inputs will eventually fail.)

*  Can the idea be replicated? (A practice that is unique to a particular leader or set of circumstances has little chance of being adapted to fit another leader or situation.)

*  Is it cost-effective? (As with sustainability, a practice that is too expensive for its results is not "best.")

*  Does it help us achieve our mission? (Mission relationship is at the heart of any practice we adapt.)

*  Does it fit the particular context? (Many practices are suitable only for certain situations and not for others.)

Included with "Benchmarking for Nonprofits", is a useful chart showing a set of common indicators for various nonprofit attributes listed horizontally–that is, across commonly-shared outcomes as opposed to “vertical” program activities–to help organizations figure out how to measure and compare performance even when their programs are very different.  This is an excellent resource to review as you determine what areas of your organization you would like to start benchmarking.  This very helpful chart can be found in full as part of Fieldstone Alliance's Free Resources at http://www.fieldstonealliance.org/client/book_excerpts/069431_perf_meas.cfm.  (I highly recommend printing this chart and keeping a copy on hand.  As far as free resources go, this is one of the best I have seen.)

With this chart, an arts organization could actually begin to compare itself in one of many indicators with a homeless shelter. For example, both might want to share their approaches to community engagement. Despite huge differences in their missions, these organizations could learn from each other by studying the processes that resulted in particular outcomes.

If there are no local organizations you feel are "leaders" and would like to benchmark against, you can obtain benchmarking information for many nonprofit organizations online or through a local or state nonprofit association.  If your state does not have a nonprofit association, you can go to the National Council of Nonprofits at http://www.councilofnonprofits.org to see if there are any smaller associations in your state, or where the closest might be.  Many colleges and universities have this type of information as well, and can be found with a simple google search for "nonprofit research in (name your state)".

For further information on benchmarking, here are some websites devoted to the subject:

The Not For Profit Benchmarking Association (www.nfpbenchmarking.com) – offers a free membership as well as more in-depth paid studies.

The Center for What Works, founded by Jason Saul (www.whatworks.org) – offers a wide range of information and links.

eNonProfit Benchmarks Study (www.e-benchmarksstudy.com/2012infographic) – offers studies on social media and other online resources.

The American Productivity and Quality Center, APQC (www.apqc.org) – offers access to studies, but you do have to pay a fee.

I Am Thankful For The Work of Philanthropy in my Life

Nonprofits are not just organizations – they are the face (and soul) of our communities. They help millions of individuals every day meet basic needs, such as food, shelter, health care and education. But that us not all nonprofits do for our communities.

Nonprofits also give shape to our boldest dreams, highest ideals, and noblest causes. They turn our beliefs into action – as promoters of democracy, champions of the common good, incubators of innovation, laboratories of leadership, protectors of taxpayers, responders in times of trouble, stimulators of the economy, and weavers of community fabric.

From your local PTA to Harvard. From a neighborhood free health clinic to the American Red Cross and the American Cancer Society. From your local community theatre to the Kennedy Center. From a local animal shelter to the National Humane Society. Nonprofits are all around us and touch millions of lives each day. You would be hard pressed to find anyone who has not been touched in some way by a nonprofit organization, whether they knew it or not.

Take, for example, this nonprofit life journey…

Being born in a nonprofit hospital;

Attending middle school and high school at a nonprofit;

Attending many arts & theatre events by various nonprofits;

Studying at a nonprofit college;

Earning your undergraduate degree from a nonprofit university;

Earning your professional degree from a nonprofit law school;

Working several years at nonprofits in New York and Chicago;

Honing your community-organizing skills by teaching at a nonprofit and running another nonprofit;

Teaching constitutional law when employed by a nonprofit university;

Playing basketball at countless different nonprofits;

Adopting a pet from a nonprofit;

Serving as a board member of several other nonprofits;

Getting married in a nonprofit;

Marrying the leader of a community nonprofit who became an executive at a nonprofit hospital; and

Sending your children to a nonprofit school.

This isn’t just a hypothetical of how someone can be touched by nonprofits throughout their life. This is the journey that Barack Obama took that shaped his life before he became President of the United States. Take a moment and trace your life’s nonprofit journey. Think about the people you’ve interacted with on that journey – and be thankful for the philanthropy in your life.

Focus on Outcomes, Not Overhead

Often nonprofit executives are so focused on keeping our budget tight that we forget to ask ourselves, are we cutting corners? What could we do if we had more money? What opportunities to better serve our beneficiaries are we missing by being so fiscally conservative?

Most long-time nonprofit leaders have a “do more with less” mindset, and have had it for so long they don't even recognize the consequences of doing so anymore. According to the article “The Nonprofit Starvation Cycle” in The Stanford Social Innovation Review, even new nonprofit leaders have adopted this thinking, most often due to the unrealistic demands of some of their funders.

Article authors Ann Goggins Gregory and Don Howard report that the result of "doing more with less" has been a hollowing out of nonprofit infrastructure that has crippled the ability of many organizations to fulfill their beneficiaries’ needs.

Their solution? Fixing funders’ unrealistic expectations about how much it costs to run a sustainable and EFFECTIVE nonprofit organization. Unfortunately, Gregory & Howard suggest that many grantees find it very difficult to be brutally honest about how much it costs, particularly in terms of overhead expenses, to run their organization.

I not only believe that with a little preparation grantees could easily show donors the importance of not cutting overhead too low; I believe this conversation is a great opportunity not to be missed!

Grantees must first shift their own focus, and then the focus of their grant-makers, from costs to outcomes.  Gregory & Howard believe this shift is fundamental to getting away from the current culture of “low pay, make do, and do without” that has created dysfunction and low outcomes in many organizations.  I have found that the best way to successfully do this is by providing a detailed comparison of your program, it's estimated costs and outcomes with little to no overhead and with a "lean but healthy" overhead.

When your donor sees they can either keep the overhead too low (spending X to  serve Y), or pay a little more in overhead to serve substantially more beneficiaries (spending X + 10% to serve Y x 10), they will not only pay for additional overhead, but will become a more loyal partner of your organization because together you both share the same goals.

Once goals are clear, donors and grantees should together honestly answer the question, “What will it take to deliver these outcomes consistently, or to deliver these outcomes at an even higher level of quality or quantity?”  This is where many new opportunities lie.

Explore possibilities with each other, and consider ideas and impact without the constraint of cost.  The donor may conclude that more money is needed to be most effective, or the grantee may realize there is a new option that is more effective.  Either way, it will be a partnership where both parties have participated and feel comfortable that the donor's gift is being used efficiently and effectively.  This collaboration will not only solve your program's overhead issue, but will show the donor they are a true partner and will further cement their ongoing loyalty to the organization!

"Outcomes, not overhead."  This statement gets beyond the question of money and refocuses the listener on the question of results. Because ultimately, none of us, neither grantee nor donor, is in it for the lowest overhead!  We are in it for the outcomes!

Throwing Starfish: A Philanthropic Debate

I was really moved by a recent article in the Stanford Social Innovation Review written by Rich Tafel, titled "Social Entrepreneurs Must Stop Throwing Starfish".

Tafel begins by summarizing the beloved starfish story often told by motivational speakers: A man walking along a shore covered with washed-up, dying starfish notices a boy throwing them back into the ocean, one by one. The man says to the boy that there are miles and miles of beach and hundreds of starfish, and that he’ll never make a difference. As the boy throws a starfish back into the ocean, he says, “I just made a difference to that one."

Tafel writes that this story epitomizes the mindset of our social entrepreneur movement—the lone hero making a difference in the life of one person by not falling into the paralysis of cynicism. The power of one.

But goes on to write that the story also represents the great failure of the social entrepreneur movement. Too often we fail to recognize the complex nature of the problems we face. We engage in linear, simplistic solutions, when lasting change requires collaborative efforts.

Action is important, but we also need to ask the bigger, strategic questions to create real solutions. In the starfish story, that would mean asking questions like: “What caused all of these starfish to dry up on the beach? What systems are at work here? Where can we have the greatest impact?"

Not only did I love Tafel's analogy between the classic starfish story and the mindset (and possible failures) of the social entrepreneur movement, but I think it provides the clearest explanation I have seen for one of the most fundamental issues in all types of philanthropic giving today.  As a donor or funding organization, do you want to engage in classic charity where you help with immediate needs (saving the dying starfish), or do you want to create real social change that improves or solves the problem creating the need?

One problem I had with Tafel's article was the title, "Social Entrepreneurs Must Stop Throwing Starfish".  This implies that basic charity is bad, and I don't agree with that.  I think both charity AND social change are necessary, I just think the donor or funding organization should understand the difference and recognize that the outcomes will depend upon which goal is chosen.

As an example Tafel wrote about an event in 2008 where thousands of starfish actually did wash up on the shores of Kent, England. Agencies and environmentalists considered weather and the possibility of disease as the cause, but after asking more questions, they found the cause was likely man-made. Dredgers, a tool fisherman use to scrape the sea floor for mussels, were almost certainly to blame, and the Marine Conservation Society (MCS) concluded that the incident was an example of overfishing. The MCS began to lobby the government “to dramatically extend its protection of the seas.”

Tafel used this example to make his point that when we confuse charity with actual social change, we often perpetuate the problem.  He believes that had the citizens of Kent organized a starfish-throwing campaign, they would have been perpetuating the problem.  Because without new fishing practices and policy, those same starfish surely would wash ashore again.

Real world problems and solutions most often require some kind of change to the rules, and that takes time. I personally don't believe one starfish needs to die simply because the solution has not been found and developed.  Starfish throwing may not be a solution, but it isn’t a bad thing either.  Why can't the charitable organizations throw back the starfish, while social change organizations work on the solution?  Why can't we do both?

If the example was instead about the millions of poor elderly persons in the US, who often can't afford medicines, shelter and even food; would we stop trying to feed, house and medicate these people because we should be instead working on a solution?  No one would argue that we have a problem in this country and need to find real solutions to better take care of our growing elderly population; but I don't think it perpetuates the problem to take care of these people's immediate needs.

Tafel worries that social entrepreneurs too often throw a few lucky ones back into the ocean and pat themselves on the back saying, “Well, it made it difference to that one.” That we might even frame our heroics at our annual fundraising banquet, giving the impression that we’re solving the problem.

I agree that every social entrepreneur, donor & funding organization must understand and educate others on the important differentiation between charity and social change.  We must have the courage to work within our complex systems to change the rules, but we must also help those suffering from problems yet unsolved.

Another way to frame the issue is, as a donor would you like to fund the SYMPTOMS of social problems (the dying starfish) or fund ideas on how to affect the CAUSE (overfishing).  What we must remember is that there is no wrong answer, and whatever your passion leads you to do IS the right thing.

For strategic philanthropists trying to increase efficiency and effectiveness, the complicated part is determining who does what.  Many organizations have already determined which goal they seek, and by making it clear that their mission is either charitable or social-change oriented, they making it easier for the rest of us to find what needs are left.  For instance, United Way focuses on social charity (the symptoms of problems in the system) and does a great job covering many of the basic needs within each local community.  Smaller donors who give annual gifts of $1,000 or less usually also focus on charity, because it is easier for them to see their gift make a difference.

I believe that community foundations most often have a great overview of the needs of their local community.  If they have a strong United Way and/or generous community that helps those in need of charity, they can focus more on encouraging the funding of social change.  If they don't, they may need to balance their giving more between the two.  

In terms of charity versus social change, there is no wrong approach.  The only way to go wrong is not understanding that there IS a difference… in the goal, the approach and the outcome.

How To Find The Right Donor-Advised Fund (And Why)

Donor-advised funds have long been a popular vehicle for charitable giving, and many in the field expect the popularity of DAFs to continue to grow as the Baby Boom generation reaches retirement.  But as the concept has grown in popularity, so have the number of options and providers. It is therefore important that both donors and their advisors understand the types of funds available and choose the ones that will best facilitate their wealth management and charitable goals. So how do you find the best donor-advised fund for your purpose and how do you find the right provider?

The first step is understanding your options.  There are four major types of DAF providers, each of which is explored below.

The Donor-Advised Fund Marketplace 

1.  National DAF Organizations - Today there are approximately 30 national organizations that sponsor DAFs. Some are the charitable arm of for-profit financial services institutions such as the Fidelity Charitable Gift Fund, the Schwab Charitable, and the Vanguard Charitable Endowment Program. Others are independent sponsoring organizations (i.e., they are not affiliated with a particular financial institution or charity) such as the National Philanthropic Trust and the American Endowment Foundation. Unlike most DAF options, national organizations are issue and geography agnostic, which is fine if a donor is set on where his/her funds will go, but can be a huge deterrent to those donors who could benefit from targeted philanthropic advice.

National funds most often appeal to donors because of their technological capabilities. Their websites allow donors to simply login and access grant activities and other national databases with relevant information about prospective grantee organizations (i.e. Guidestar and Charity Navigator).

National funds also provide fee calculators on their websites so that donors know exactly how much services will cost. The relative low cost of national funds is another reason donors choose them. Because of their large capacities, national funds charge up to 40% less than other DAF options, according to Wright-Violich, representative of Schwab Charitable.

National funds are also attractive to donors because they have the expertise to deal with complex gifts and they have the most sophisticated investment options. Donors with large accounts ($10 million+) have access to alternative investments, allowing them to customize their investment choices so that their DAFs have similar investment flexibility to private foundations.

2.  Community Foundations – There are also more than 700 community foundations that sponsor donor-advised funds, as well as hundreds of faith-based institutions. In fact, it was such institutions that originally pioneered the DAF as an alternative to the relative inefficiency of checkbook giving or the more complicated process of establishing a private foundation.  Over the years these organizations have become very technically savvy, with many offering similar online access and investment options as the national DAFs.

What really sets community foundations apart, however, is the local expertise and community commitment.  These foundations become very involved in their local nonprofit sector, thereby giving their donors access to extremely beneficial information on how use their funds to make an impact in their local community.  Many community foundations even have a grant process where local nonprofits can submit grant requests that are compliled into a "catalogue" of opportunities for donors.  For donors interested in impacting their local community, this is by far the best option, even if the cost is a bit higher than national DAFs.  This does not, however, mean all donations must go to the local community.  Donors still have the flexibility to donate anywhere in the world.

3.  Public Foundations – Public foundations typically give nationally and sometimes internationally, often focusing on a particular issue or geographic region. Their staff members usually have regional and/or issue specific expertise that they use to assist DAF holders in finding causes that interest them. For example, the Peace Development Fund houses DAFs for donors interested in creating systemic social change throughout the Americas.

4.  Other Charities – Other public charities, like hospitals and universities, set up donor-advised funds within their organizations to advance their own charitable missions.

Finding The Right Donor-Advised Fund Provider

When selecting a DAF provider, with a little due diligence donors can ensure that the organization they select is one that reflects their interests and values. After all, there are almost as many different types of DAFs as there are donors.

The main reason donor-advised funds were designed was to remove the barriers to giving, by outsourcing the administration, record keeping, and due diligence on the charities.  If you know what parts of the charitable process you want to control, what parts you want to outsource, and what you want the outcome to be, you will have the information you need to make the right choice.

Benefits of Donor-Advised Funds

Donor-advised funds (DAFs)–simply defined as funds held within, and managed by, a public charity–are fast becoming THE most popular vehicle for charitable giving in the U.S. Despite the sluggish economy, the number of DAFs in the United States actually grew by 152,365 (3%) in 2009, according to the National Philanthropic Trust's 2010 Donor-Advised Fund Report. The report shows that DAFs not only outnumber private foundations by more than two to one, but they also exceed the combined number of charitable remainder unitrusts, charitable remainder annuity trusts, charitable gift annuities and pooled income funds.

So why have DAFs become so popular?  There are many reasons why these types are so popular, with a few of the biggest reasons outlined below.

First, establishing a DAF is a relatively cost-effective way for donors to reap maximum tax benefits while supporting the causes they care about. It eliminates the complications of starting your own private foundation, provides better tax benefits and includes all of the administrative responsibilities related to grants made, reporting and record keeping and tax paperwork.  Many also include expertise in helping you make grants, follow-up services and even get your donation returned if it was not used as you required.

Often, DAFs can be set up with as little as $1,000 or $5,000. In addition, DAF holders can take a federal income tax deduction up to 50% of adjusted gross income for cash contributions and up to 30% of adjusted gross income for appreciated securities. Further, by transferring assets such as real estate or limited partnership interests to a DAF, donors can avoid capital gains taxes and receive an immediate, fair-market-value tax deduction.

In addition, DAFs are not subject to a legal minimum payout requirement, unlike private foundations which must give away 5% of their annual assets, so the donor has more flexibility in how and when he/she decides to make grants.  DAFs allow account holders to choose what information is disclosed to grantees, and therefore, donors have the option of remaining completely anonymous (a very important issue to many donors, who were unable to do this in the past).