Community Foundation Business Model Disruption in the 21st Century

Community Foundation Business Model Disruption in the 21st Century

The community foundation business model, which is often tied to the performance of local financial services firms, is facing disruption as the financial services industry undergoes changes with the rise of online and mobile aletrnatives, a report from the Council on Foundations finds. The report, Community Foundation Business Model Disruption in the 21st Century (28 pages, PDF), argues that with the introduction of donor-advised funds in the 1990s, some community foundations built substantial portfolios of DAFs, while others, with already large endowments, focused on maintaining their leadership position in the community. While the business model of DAF-dependent community foundations led to a period of exceptional growth, that model is threatened by legislation that would impose taxes on or cap deductions for DAFs, another economic downturn, and/or fund outflows to larger national financial services firms with lower administrative costs. Similarly, community foundations with a more traditional business model face a future of low growth driven by the rise of robo-advising firms with little incentive to refer their clients to community foundations. The report poses a number of salient questions for the sector, including whether asset growth is an imperative for community foundations, whether DAFs are an unalloyed good, and the kinds of metrics by which community foundations should be rated.