As a nonprofit organization, you have unique investment needs. At eCIO, we understand these needs and are here to help you navigate the complex world of investment management. Our guide, "Your Investment Questions Answered," addresses common concerns and provides valuable insights into building a strong investment program. Here's a summary focusing on governance, fiduciary responsibilities, investment fees, and optimizing cash reserves.

Establishing Strong Governance and Structure

An enduring investment program begins with strong governance and structure that will outlast the tenure of individual board and committee members. Establishing fiduciary best practices is crucial for your nonprofit organization. Key processes include:

• Regular review of investment performance
• Thorough documentation of investment decisions
• Secure storage of accessible records

Several essential policies should be in place:

1. Committee Charter: This document establishes your investment oversight group, defining roles and responsibilities. Learn how to create a Committee Charter.
2. Investment Policy Statement: This serves as a roadmap for your investment program, outlining strategies, asset allocation, and risk tolerance. Learn the elements of an investment policy statement.
3. Spending Policy: This policy outlines spending decisions, ensuring that funds are used prudently. Learn five topics your investment spending policy should cover.

These policies support your fiduciary oversight, align your board, and ensure smooth operations. Our resources provide detailed guidance on creating and maintaining these essential policies, and you can access templates for these documents through them.

The Importance of Working with a Fiduciary Advisor

Most financial advisors operate under a suitability standard, making recommendations suitable for the client but often serving their employer's interests. In contrast, a fiduciary advisor is legally bound to act in your best interest. For your nonprofit organization, working with a fiduciary advisor is crucial because:

• They must place their interests below those of the client.
• They ensure assets are managed prudently and cost-effectively.
• They establish policies to avoid conflicts of interest.

As your nonprofit’s board members, you must be fiduciaries of your organization’s assets. Therefore, partnering with a fiduciary advisor who understands nonprofit needs and offers specialized services can significantly benefit your organization. Learn how to get the most from nonprofit investment advisors.

Managing Investment Fees

Investment costs are one aspect of investing you can control and directly impact the funds available to support your mission.  Many nonprofits are unaware of their total investment costs and may be overpaying for advice and portfolio management. Ensure you work with advisors who leverage reduced costs and offer comprehensive, low-fee solutions.

Optimizing Cash Reserves

If your cash reserves exceed your spending needs, it's time to make that money productive for your organization. The first step is to determine the proper account structure for accumulated assets. Setting up separate accounts for specific purposes, such as operating reserves or board-restricted endowments, can help manage these funds effectively.

Ensure that your assets are managed prudently and cost-effectively. Too much idle cash that earns no income for your organization can be detrimental. Learn how to put excess cash to work for your organization.

Approaching the Request for Proposal (RFP) Process

An RFP is a tool to gather information for selecting an ideal investment partner. However, many nonprofits can bypass the lengthy RFP process by leveraging publicly available data to identify potential candidates. If an RFP is necessary, a well-defined process helps streamline candidate selection.

Avoid lengthy RFPs by focusing on a few key questions, saving time and improving the effectiveness of the evaluation process. Some critical questions to ask include:

• What is your firm’s experience with nonprofit investments?
• Who will manage and service our account, and what are their credentials?
• What is your approach to nonprofit investment management?
• What is the ongoing client servicing process?
• What are the total fees, and are you a fiduciary advisor?

Investment Management Options

As a nonprofit, you have three main options for managing your investment programs:

1. Board-Managed Approach: This low-cost option places full management and oversight responsibility on the board, which may rely heavily on a single board member.
2. Traditional Financial Advisor: Easily accessible but typically geared toward individual investors with limited offerings for nonprofits.
3. Nonprofit Investment Advisor: Specialized advisors offering fiduciary services tailored to nonprofit needs. While they may not be located down the street, their expertise can be invaluable.

Selecting the right option is critical to building a sustainable investment program that supports your mission.

Conclusion

Navigating the complexities of nonprofit investing is crucial for your nonprofit's success. You can build an enduring investment program that supports your long-term goals by establishing strong governance, working with fiduciary advisors, managing investment fees prudently, optimizing cash reserves, and streamlining the RFP process. At eCIO, we provide comprehensive resources and expert guidance to help you succeed in your investment endeavors. For more detailed information and access to templates and guides, visit our nonprofit investing resource center.