Look for experience, a practical approach and genuine interest in your nonprofit
One of the responsibilities of a nonprofit board of directors or trustees is managing endowed funds or other investments prudently. Unless you have someone on staff with significant investment expertise, this typically involves working with an investment adviser — someone your board can rely on to provide trusted guidance and help grow and protect your organization's assets.
So, how do you find an investment adviser? Start by asking other nonprofits, private foundations or search firms if they can recommend someone experienced in nonprofit endowments and institutional portfolios.
Once you have a pool of qualified candidates, review their qualifications and references carefully. Then narrow down the field to two or three individuals for your finance committee or board to interview. Questions to ask include:
- What services do you provide and what certifications do you have?
- What is your experience with our industry?
- Are you familiar with our organization?
- How would you develop and implement an investment strategy that's right for us?
- Are you typically available for in-person meetings and/or calls?
- How much time do you anticipate spending each month on our account?
- What is your fee structure?
Throughout this process, members of your finance committee or board should also be asking themselves questions — starting with a sense of confidence in each interviewee and whether he or she seems up to the task of handling important and sometimes challenging issues. Other traits to look for in candidates include:
- Willingness to work closely with and counsel the board
- Ability to educate and explain things in a clear, simple way
- Genuine interest in your organization's mission, values and obstacles
- A practical approach to tackling issues and resolving problems
The benefits of staying local
If you're debating between an adviser based in your community or someone who lives in another area, consider the advantages of working with someone local. Not only does it facilitate in-person meetings, it allows that individual to attend fundraising events and meet with donors, which could provide fresh insights into strengthening your nonprofit's financial base.
Beyond investment advice
Another thing to bear in mind when interviewing candidates is that an investment adviser's role doesn't have to be limited to managing investment assets. If he or she has the qualifications, your investment adviser may also offer guidance on other aspects of your nonprofit's finances, including:
- Spending policy. This might involve evaluating the policy, calculating an appropriate spending rate and ensuring that everything aligns with best practices.
- Cash flow management. Analyzing cash flow on a quarterly or annual basis could prove invaluable for your nonprofit, helping you predict and plan for shortfalls and surpluses. This is especially helpful if your revenue stream is irregular.
- Creating an investment policy statement. This is a written document that identifies investment goals, strategies and investment preferences, including asset allocation and risk tolerance. It also clarifies the roles and responsibilities of anyone involved in your investments.
- Compliance with applicable regulations. Nonprofits are affected by ever-changing guidelines that address a wide range of issues, including acceptable spending rates, donor restrictions, fiduciary roles and more.
- Donor development. A good investment adviser might also generate ideas for planned giving strategies and donor development, and possibly connect your nonprofit to new potential donors and partner organizations.
Consider fee structure
Investment advisers can be compensated in several ways, including trade-based fees or commissions. However, many nonprofits prefer to compensate based on time spent or value of the assets being managed. This sidesteps any concerns of whether recommendations or trades were made in the best interest of the organization or the adviser. That said, if your nonprofit makes few transactions or requires committee approval of all transactions, a commission-based fee might lower your costs.
Bottom line: An investment adviser can make a powerful difference to your nonprofit, so choose carefully. The right fit is someone with the requisite skills, a strong track record and a genuine interest in partnering with your nonprofit.
First Republic: What nonprofits should look for in their investment advisor by Rebecca DeCesaro
Gross Mendelsohn: Raising the bottom line by Chris Johns (2013)
Regent Atlantic: 6 things your nonprofit should expect — but might not be getting — from your investment advisor by John Zeltmann (2014)