I’m a Nonprofit Board Member – Now What?

If you’re on the board or in a decision-making role, you are a fiduciary. Fiduciary Excellence Leads to Trust. Trust leads to enhanced donor confidence and Board Engagement – which leads to increased donations, financial security and mission success.

“Are There Really 3 Types of Investment Fiduciaries?”

I got a call last week from a nonprofit board member who told me she was a bit confused about what appeared to be overlapping fiduciary responsibilities regarding the nonprofit’s investments.

Unfortunately, she’s not alone as many nonprofit board members share in this confusion – but once you understand that there are three different types of investment fiduciaries, the fog dissipates. While their roles often intersect and become interdependent to fulfill various fiduciary responsibilities, the three types of investment fiduciaries are:

1. Investment Steward
2. Investment Advisor
3. Investment Manager

Investment Stewards are the “Big Dogs” as they generally bear the overall responsibility of selecting and approving Investment Advisors and Investment Managers – and they:

1. have direct oversight of the investment portfolio; and
2. are responsible for the Nonprofit’s investment decisions and day-to-day management.

Investment Advisors are typically professionals (although, be aware that job titles don’t necessarily connote which are actually fiduciaries and which are not, and some “financial company representatives” are not fiduciaries) with training and experience. Where the fiduciary Investment Advisor provides advice for a fee, he or she must act in the best interests of the nonprofit and its beneficiaries. In order to avoid confusion, it’s a best practice to have the Investment Advisor acknowledge his or her fiduciary status in writing.

Investment Managers are usually given full discretion by the Investment Steward to act as a Prudent Expert and make investment decisions, and it’s a best practice to outline this in the Investment Policy Statement. The Investment Manager selects the actual investments and implements the mandate (Investment Policy Statement) of the Investment Steward. Investment Stewards can potentially insulate themselves from the Investment Manager’s decisions and actions, but only where the Steward prudently selected and does ongoing monitoring of the Investment Manager.

One of the great ironies is that although they are ultimately responsible for managing the investment process in a knowledgeable, prudent and responsible manner, there are no training or experience requirements for Investment Stewards. Consequently, understanding these responsibilities and distinctions is crucial. We can help!

Understanding these responsibilities and distinctions is extremely valuable and puts you directly on the path to Fiduciary Excellence.

Learn more about Prudent Practices for Investment Stewards published by Fi360, here.

Our team of experienced fiduciaries and CEFEX Analysts provides practical fiduciary education and consulting services to help you readily meet your fiduciary responsibilities so you can focus on what inspires and motivates you!

See our Training Introduction – Allan Henriques Fiduciary Consultants