Stewarding Investments Well: What Boards and Executives Need to Know

By Dennis Gogarty, President, Raffa Wealth Management and Tom Adams, Director, Succession and Sustainability

Nonprofits plan every fiscal move with great caution, backed up with thorough analysis. However, when it comes time to plan their investment policies and gauge their investment performance, they operate in a silo, without access to any information about how their peers — other nonprofit finance executives — manage their reserves and perform on their investments.

The Study on Nonprofit Investing (SONI) is changing this, providing senior nonprofit finance executives with peer benchmarking data on investment policies and ROI. Commissioned by Raffa Wealth Management, LLC (RWM) and Raffa, PC, SONI is a survey of finance executives from associations, public charities, and private foundations.

Investments and reserves, no matter the amount, are critical to the ongoing success and survival of organizations. It is easy to not pay much attention or delegate to board members or an advisor and think you are doing OK. The reality is delegation without clear Board policies and agreed upon reporting, often results in poor decision making including sudden and perhaps knee-jerk reactions to market changes.

Five years ago, to answer client requests for peer benchmarking, Raffa Wealth Management began the annual SONI survey. In 2016, SONI (Study of Nonprofit Investing) gathered data from over 700 nonprofit organizations and sought to identify what works and what does not when it comes to investing nonprofit reserves.

The annual SONI report supports board leaders and executives by:

  • Providing peer benchmarking – nonprofits deserve to know how they are doing compared to other similar organizations;
  • Providing guidance and education about Board oversight, particularly the importance of benchmarking and clear expectations on accountability and reporting; and
  • Empowering Boards to make more informed decisions and bring discipline to decision making.

The biggest lesson from this study of investing habits is: “Keep it simple.” Simplicity means taking the time to develop clear investment policies and reporting agreements and then sticking to them. Unnecessary complexity occurs when well-intentioned board leaders or advisors try too hard to “beat the market” and make hasty or risky decisions with money intended for the good of the organization.

A related aspect of keeping it simple is to agree on success benchmarks and stick to them. Another area to pay attention to simplicity is fees and reporting. Some Boards are paying a lot in fees; others don’t know or understand what fees they are paying. A simple transparent fee structure understood by executive and board is a critical part of prudent stewardship.

Complex voluminous reporting may be entertaining for some. However, it does not always help the board know how we are doing. Reporting on investment returns should be short, simple and clear.

Looking at the five years of SONI data and our work with nonprofits, four important principles stand out:

    1. Align investment policies with the time frames related to various organizational goals. For instance, if you are buying a building or important piece of equipment, be clear on the time frame and how part of your investment dollars are allocated for this purpose. The organization may have spending goals with short, intermediate, or long-term timelines. The policy should be clear about these distinctions.
    2. Document procedures that lead to policy guidelines related to risk tolerance. Board members rotate so it is important for future board leaders to know what risks were on the board’s mind when it set its investment policy and the process by which that policy was made. This helps inform future discussions of the policy.
    3. Document reviews as frequently as necessary.
    4. Require reporting that makes oversight simple. There are two goals for reporting: ensure our investments are compliant with our policy and our performance is in line with expectations.

Developing investment policies is the key. This begins with a review of goals and time frames during which investments may need to be used. Next, assets are segmented and policies and return expectations established. Once there is a written record of the policies, expectations, process and reasons for setting them, the next step is implementation and reporting as agreed.

Participation in the annual SONI survey starts January 2017 and results in a detailed report on the findings at no cost to all participants. This data, segmented for Public Charities, Associations and Foundations, will provide important benchmarking data to assist your organization in reviewing or setting its policies. To sign up to be part of the 2017 SONI, email soni@raffawealth.com.

For more information on investing, listen to our podcast on this topic, visit our website at www.Raffawealth.com or call 202-955-6734. Other helpful resources can be found at the CFA Institute’s primer for trustees and FI360’s handbook for investment stewards.

You may also find this SONI Investment Policy checklist helpful when reviewing your policy or developing an investment policy for the first time.

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