How to Select an Investment Advisor for Your Nonprofit Organization

How to Select an Investment Advisor for Your Nonprofit Organization

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One of the key responsibilities of the board is to ensure that the funds are managed in a responsible and prudent manner. This typically involves selecting an advisor who can guide the board and help them fulfill their fiduciary duty - ideally an advisor who will act as a co-fiduciary.

How to Select an Investment Advisor for Your Nonprofit Organization

Every nonprofit board has a unique makeup of individuals - varying in ages, backgrounds, and ethnicities - who come together for an organization they believe makes a difference.

So how does your organization find the right advisor?

Selecting an investment advisor for your nonprofit organization

Before selecting a pool of advisors for consideration, it is important to identify the type of advisor  that is appropriate for your organization.

  • Fiduciary or Non-fiduciary Advisor: One of the first considerations is to recognize that advisors fall into two categories: 1) fiduciaries and 2) non-fiduciaries. A fiduciary advisor is required to always act in your organization’s best interest.

  • Advisor Practice Focus - the second key issue to consider is the practice focus of the advisor. Institutional advisors focus primarily on working with organizations and their oversight groups (typically boards or committees).  Private wealth advisors typically work with individuals.

Once your group knows the type of advisor they would like to consider, the second step is to identify a pool of qualified candidates. This typically involves issuing a request for proposal (RFP). The RFP gives your organization a systematic way to evaluate potential candidates.  Generally a RFP will include questions in the following areas:

  1. Organization Background and Ownership
  2. Employees and their Experience
  3. Investment Philosophy and Process
  4. Performance Reporting
  5. Assistance with Investment and Spending Policies
  6. Fees

When you have a pool of qualified candidates, evaluate their responses to the RFP and select two or three for your board or committee to interview. Use this opportunity to evaluate items that were not included in the RFP such as:

  • The advisor’s experience and commitment to working with nonprofit organizations
  • Ability to clearly explain and educate the board or committee
  • Access and availability to your organization’s needs
  • Additional services and benefits that the advisor offers
  • References and examples of other nonprofit organizations the advisor works with
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