Seth Goldman, co-Founder and TeaEO of Honest Tea, was already giving philanthropically when he sold his company to Coca Cola, but he wanted to do more. Having bootstrapped Honest Tea to success, he wanted to provide seed stage investments to a next generation of sustainable food and beverage businesses.
Since then Seth has made multiple investments into early stage companies, while also making charitable donations. Should the risks pay off, he won’t pay a penny in taxes because the returns will go right back into the donor-advised fund (DAF) he used to make the original investments. And, he’ll have used the invested portion of his DAF to have an impact aligned with his values, putting more capital to work towards his philanthropic goals to complement his charitable gifts.
Financial advisors have likely heard plenty about why opening a DAF now or increasing the contribution to an existing one is good advice for clients who are concerned about pending changes to the tax code. But DAFs offer a much larger opportunity than a place to store money. Indeed, they’re a powerful vehicle that can be uniquely sculpted to further your clients’ personal philanthropic mission.
A donor-advised fund is a tax-preferred philanthropic vehicle similar to a private foundation. A donor can establish a DAF with an initial tax-deductible contribution, and then advise on charitable gifts to other nonprofits throughout the life of the fund. Donor-advised funds can accept traditional and non-traditional assets including cash, appreciated securities, real estate and non-publicly traded assets, addressing a variety of tax concerns for clients. Assets within the DAF are invested for financial return that will sustain the fund for the long-term.
Impact DAFs
The newest development in donor-advised funds employs impact investing, which enables fund owners to maximize their impact on the social problems they’re passionate about. This can be an ideal solution for financial advisors with clients who are expressing interest in values-aligned investments, as impact investment DAF providers bring an expertise that can help navigate the fragmented and complex market of impact investing.
The invested assets of a DAF can be placed in a range of investments that provide a positive social and environmental return, as well as financial return. Seth Goldman uses his DAF to philanthropically support nonprofits, and he is also able to make equity and debt investments into sustainable food and beverage businesses using the same vehicle – ImpactAssets’ Giving Fund.
Financial advisors who can educate clients on this holistic approach, referred to as an “impact strategy”, are increasingly able to differentiate themselves from the crowd and appeal to the next generation seeking financial advice.
ImpactAssets, RSF Social Finance, Tides Foundation, and some community foundations are among a select group of specialized providers that are pioneering the practice of a unified portfolio approach to impact. Such a comprehensive impact strategy is not available through most commercial DAF providers.
Donor-advised funds are especially suited to an impact investing strategy for a number of reasons:
• Many DAF providers are small and nimble philanthropic institutions and well positioned to take on innovative strategies for advancing social and environmental agendas.