Community Foundation Model Broken?

The Council on Foundations held their annual community foundations conference in San Francisco last week. The importance and strengthen of community foundations in the philanthropic sector is undeniable. In the U.S., over 700 community foundations administer $31 billion in charitable funds (here is a great map of where they are located). But is the community foundation model broken or working too well in helping donors with their philanthropic interests?

Many of us know the model of community foundations – they host, invest and adminster charitable funds that support local charitable organizations. Community foundations host many various funds but the most often used and what they are well known for are the donor advised funds (DAFs). Donors can set up these funds and recommend the amount and organization the funds should be directed to.

Community foundations charge a fee for managing these funds.Unfortunately, this model is not working very well because the funds do not cover the overall costs of managing these gifts including operational costs and the advice and stewardship that donors expect to receive.  In his speech at the COF conference, Emmett Carson, CEO of Silicon Valley Community Foundation said:

“Revenues aren’t meeting expenses. Other people offer what we perceive as our core product at a cheaper price — zero. As for raising costs: Talk to Netflix. In this environment, that doesn’t work.”

Not only is the fee an issue but commercial providers such as Fidelity, Schwab, and now many other nonprofit groups and universities are also offering donor advised funds.

It appears that the community foundation model is broken if we look to it as merely a financial management tool for charitable assets. Afterall, if the purpose was to encourage donors to open DAFs and recommend organizations that they wish to give to – then the DAF model actually works very well. Hypothetically, donors would get to know the foundation’s work and eventually make unrestricted gifts to its operations or projects. However, this is usually not the case. Community foundations must wait until a DAF terminates before it can receive the residual funds – and this can be a very long time. Meanwhile, the community foundation is basically serving as a transactional provider and providing free and valuable information to the donors. If this is the case, then do the donors need to open a DAF at a community foundation while other providers charge a lower fee?

There are many reasons why donors choose to partner with community foundations. Knowledge of local issues is one of the main reasons. The ability to convene community leaders, tackle difficult economic and social challenges, and serve as knowledge leaders and advisors to donors who are interested in particular issues are strengths that commercial competitors and others cannot provide. But not all donors are willing to pay for these services above and beyond the DAF fee. The challenge then is finding a model that is financially sustainable while providing services that benefit the community.

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