Author: Jeremy K. Kuhlen, CFP®, CRPS®, AIF®
Managing Director | Private Client Practice
CapGroup Advisors, LLC
Non-profit organizations play a critical role in American society. According to The Foundation Center, asset levels in foundations alone are estimated to exceed $600 billion. They support everything from medical research to land preservation and anything in between. Consequently, the health of these entities is critical to the American way of life.
The long term viability of non-profits is largely determined by effective governance processes implemented by the committee responsible for oversight, typically the Board of Directors. Part of the fiduciary responsibility of the governing committee is the implementation of a prudent investment policy for the management of the organization’s investable assets. Legal requirements for oversight of the investment process are defined by the Uniform Prudent Management of Institutional Funds Act or UPMIFA. UPMIFA defines the basic requirements of the investment stewards overseeing the investment process, but we believe it falls far short of the requirements needed to have a truly robust and effective investment process.
The Center for Fiduciary Studies®, in partnership with experienced investment professionals, attorneys, educators and other professionals, has developed a framework for developing a prudent investment process known as the Global Fiduciary Standard of Excellence ® (GFSE). Endorsed by the American Institute of Certified Public Accounts, this standard defines 21 best practices that stewards of non-profits should incorporate into their investment management program. The entire list of best practices can be found at Best Practices for Investment Stewards, but I will highlight below several practices that, in our experience, are among the most important but which are often overlooked.
- The roles and responsibilities of all involved parties (fiduciary and non-fiduciaries) are defined and documented.
- The Investment Steward identifies conflicts of interest and addresses conflicts in a manner consistent with the duty of loyalty.
- An investment time horizon has been identified for each investment portfolio, an appropriate risk level has been identified for the portfolio, and an expected return to meet each investment objective for the portfolio has been identified.
- The Investment policy statement contains sufficient detail to define, implement, and monitor the portfolio’s investment strategy.
- A reasonable due diligence process is followed to select each service provider in a manner consistent with the obligations of due care.
- Decisions regarding investment strategies and types of investments are documented and made in accordance with fiduciary obligations of care.
While no investment process can insure that investment losses to the portfolio will not occur, adhering to the standard offers the highest probability of a successful outcome. Another often overlooked benefit is the confidence that the prudent investment process inspires in those who financially support the organization as well as those who benefit from the mission of the non-profit.
More information can be found regarding the GFSE® at www.fi360.com.
Want to make sure you’re doing everything you can as board member? Let’s talk. Together we can work through your questions and help you to make smart financial decisions that will serve the non-profit well.
Please contact your Keiter team at 804.747.0000 or firstname.lastname@example.org to schedule a time to talk.
CapGroup Advisors, LLC
Tim Jester, CAIA®, AIF® – Managing Director and Chief Investment Strategist – Institutional Advisory Services
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