How to Invest in an Investment Advisor for Your Not-for-Profit

by | Aug 22, 2019 | Not-for-Profit, Tax and Accounting Desk

You may think that only large, well-endowed not-for-profits require the advice of an investment advisor.

But even smaller not-for-profits with modest endowments — particularly smaller not-for-profits that don’t have in-house financial expertise — can benefit from hiring an investment professional.

Finding Qualified Candidates
Finding the right investment consultant for your organization starts with identifying a pool of qualified candidates with proven track records. Ask for referrals from local private foundations (possibly ones that have funded you in the past) or other area not-for-profits. Also, members of your board may know investment managers they can recommend. Qualified candidates should have experience working with not-for-profit endowments.

Request detailed proposals from candidates on how they’d manage your investments — as well as how they wish to be compensated for their services. Generally, investment advisors charge clients based on one (or a combination) of three structures:

  1. fees or commissions on trades,
  2. a percentage of the asset values they’re managing, or
  3. an hourly rate.

Many not-for-profits prefer that their investment advisor’s compensation be based on asset value or hours, rather than commissions.

After reviewing the candidates’ proposals and checking their references, allow search committee members to talk to other not-for-profit leaders to gauge their satisfaction level with your short list. Then select two or three people to interview.

Conducting Interviews
Members of your board’s investment or finance committee should interview the candidates carefully. They should look for someone who closely follows market movements and trends, has a thorough understanding of different types of investments and is capable of creating and managing a balanced portfolio that can grow without incurring excessive risk. Understanding the candidates’ investment processes, along with their long-term results, is essential.

Other desirable qualities include experience assisting investment committees in drafting and changing investment policies and an ability to clearly explain the processes and considerations behind their investment decisions. To get at some of these issues, committee members might ask candidates their advice for an organization that’s more (or less) risk averse than a traditional not-for-profit. Or based on what they know of your organization, what changes to the current investment strategy might they propose?

Good candidates should express empathy toward the kinds of problems facing your organization and suggest investment solutions specific to your not-for-profit. And they should have the time to properly manage your investments. Ask how many hours per month they anticipate spending on your account and whether they’d be able to attend off-hour meetings, if necessary.

Trusting Your Choice
Finally, consider how much you trust the candidate. Don’t engage an investment advisor for your not-for-profit unless you’d wholeheartedly trust the person to handle your personal life savings.

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