What Nonprofits Should Look For in Their Investment Advisor

By Rebecca DeCesaro, Senior Managing Director and Wealth Manager, First Republic Investment Management

A nonprofit’s board of directors is responsible for ensuring that the organization’s endowed funds are managed in a responsible and prudent manner. This role typically includes working with an investment advisor who can guide board members on investment decisions and help them fulfill their fiduciary duty.

Considering this responsibility, a board should select its investment advisor carefully and seek one who is a true partner—not just one who delivers a statement once a quarter. It is imperative that Board members feel comfortable turning to this advisor with important—even tough—questions, and know they can trust his or her guidance. 

So, how do you find a true partner? Here are some key services a board should expect from its investment advisor:

Cohesive Investment Process

In order to ensure Best Practices, the advisor should assist the board in developing an investment policy statement that outlines guidelines for the funds to be invested. The advisor should report on adherence to the policy statement, explain their due diligence process used to make investment decisions and compare returns to appropriate market benchmarks, providing the board an accurate picture of the portfolio’s performance. Detailed reporting helps the board monitor the advisor, fulfill their fiduciary responsibilities, and supports the board’s adherence to the Uniform Prudent Management of Institutional Funds Act (UPMIFA), an industry guideline meant to assist nonprofits to better manage their endowed funds. Keep in mind, that large donors may request to see financial statements to discern if they are gifting to an organization that follow strong due diligence and performance-tracking practices.

Investment guidance and economic outlook

The advisor should counsel the board on investment and asset-allocation decisions and provide a realistic outlook of current economic and market conditions. In turn, the board should use this information to determine how the organization should adjust their investment policy statement. Having the board ultimately informed and involved with investment decisions—even by just approving those recommended by the advisor—ensures buy-in and that the board is upholding its fiduciary duty.

Local presence

While not mandatory, having an investment advisor who is part of the local community can be a positive advantage. An advisor who actively supports the cause, attends fundraising events, and is available to meet donors in person adds tremendous value to his or her role and promotes a closer, more collaborative partnership with the nonprofit.

Spending policy guidance

The advisor might be asked to assist the board in evaluating its spending policy and habits to ensure they are in line with best practices and that the organization is spending prudently.

Given the challenges and costs of finding the right advisor, some smaller nonprofits may choose to invest their assets through a community foundation that can provide investment research and due diligence by pooling their assets with other nonprofits’ assets. While that can be a fine solution for certain nonprofits, it has limitations: A community foundation’s investment options are often limited and donors may have fewer giving strategies they can use.

For most nonprofits, the best solution is to work closely with an investment advisor who can help the organization understand their investments, invest its assets wisely and ensure sound, long-term financial management of the funds.

First Republic Private Wealth Management includes First Republic Investment Management, Inc. (“FRIM”), an SEC-registered investment advisor, First Republic Securities Company, LLC (“FRSC”), Member FINRA/SIPC, First Republic Trust Company (“FRTC”) and First Republic Trust Company of Delaware LLC (“FRTC-DE”).  FRIM, FRSC, and FRTC-DE are wholly owned subsidiaries of First Republic Bank.  FRTC is a division of First Republic Bank.  Investment advisory services are provided through FRIM.  Securities brokerage services are provided through FRSC.  Trust and fiduciary services are provided through FRTC and FRTC-DE.