- Does your church, nonprofit or school have an endowment or reserve fund?
- Do you know what rate of return you need and what asset allocation will get that return?
- Is your investment advisor also a member of your board?
I met Dick Kinney, Principal of Legacy Wealthy Management, LLC, a couple years ago. He's a board member for a school that serves the students that just can't make it anywhere else, and I love that about him. I was really intrigued by his passion for helping nonprofits, churches and schools protect their assets. I hadn't really thought about this too much, as my focus is usually on generating new revenue.
Dick and a few other impressive experts in the Milwaukee Community are sponsoring a seminar on September 18th at Concordia University about this very topic, and I have been invited to share my message of effective community engagement, along with quite a few other respected nonprofit consultants.
Sneak Preview of September 18th Seminar
(For more details click here and request a flyer for the seminar)
I thought I'd give you a taste of Dick's message by inviting him to share some key concepts he shared in an article he wrote called The Eight Sins of Church (Nonprofit, School) Investment Committees.
The Eight Sins - Are you Guilty?
While over the years, clergy and church leaders have expressed frustration about their investment committee's approach to managing their endowment or reserve funds (e.g., lack of transparency, poor results, nonexistent reporting, substandard fiduciary practices, lack of purpose and direction for the funds), media attention of the increasing number of fraud and embezzlement stories has moved me to get the word out to prevent nonprofits, schools and churches from getting into these situations in the first place.
#1 - Conflicts of interest. I never understand why the members of a church council (nonprofit board) would hire an investment advisor that is a member of the church, but this happens a lot. You have to ask yourself, "How do you fire a fellow member of your church, who is sitting on the other end of the pew from you, when something goes wrong?" DON'T HIRE THAT PERSON. This is just one of the many mistakes that get repeated over and over.
#2 - NOT having a review process in place to prevent fraud. It's not uncommon to learn that hundreds of thousands of dollars have been stolen from a church endowment (nonprofit, school) by its own fellow church member (board member), who was the money manager. What's worse is that the fraud often is not found out for sometimes years after the fund is drained, and the defense for not finding out sooner is, "We trusted the guy . . . he was a pillar of the community . . ." PUT A PLAN IN PLACE TO MAKE SURE AT LEAST TWO DIFFERENT INDIVIDUALS ARE RESPONSIBLE FOR REVIEWING AND REPORTING THE RESULTS TO THE CHURCH COUNCIL (nonprofit or school board). #3 - NOT knowing what you own. While it is common practice to invest permanent funds in large co-mingled funds, there is a lack of transparency and long-term performance may be questionable. In order to judge the success of your investment strategy, it is necessary to KNOW WHAT YOU OWN.
#4 - NOT asking the right questions. Often when I meet with a nonprofit investment committee, the basic question of "How do you measure whether an investment strategy is successful" has not been asked. An investment committee needs to understand the inflows (gifts coming into the fund), outflows (the spending) and the required rate of return needed to maintain the purchasing power of the fund. KNOW THE RATE OF RETURN YOU NEED so you can you judge whether you have the proper asset allocation.
#5 - NOT having the appropriate spending policy to support the endowment purpose. An example of a spending policy would be: The fund will take out 4.5% per year on December 31st, and the 4.5% will be based on an average account balance over the past three years. It is important for the investment committee and the church council (nonprofit board) to AGREE ON THIS FORMULA and the formula confirms to the desire and mission of the church.
#6 - NOT keeping track of the donor's intent for past gifts. It is important to have a gift acceptance policy, which will identify the donor's intent and records it for future reference. Ideally, all gifts would be unrestricted, but for restricted gifts, have the restriction be time limited if possible. HAVE A GIFT ACCEPTANCE POLICY.
#7 - NOT having a Big Idea to excite members to give or leave legacy gifts. Successful organizations think long term! Successful endowments engage donors with a string of ideas that the congregation (supporters) WANT to support over a long period of time. HAVE A BHAG - BIG HAIRY AUDACIOUS GOAL (that's Deb Lukovich talk).
#8 - NOT having the right kind of expertise on the investment committee. The best investment committees have a mixture of professionals and non-professionals. I believe it's good for professionals to have to explain their thinking to non-professionals. The questions asked by nonprofessionals help legitimize the investment process for the church as a whole. The committee agenda should focus on this question: "Are we invested in the right asset allocation (investment mix) with the appropriate amount of risk to achieve our required rate of return?" What often sounds like "dumb" questions get to the core. HAVE SMART NON-PROFESSIONALS ON THE COMMITTEE THAT ARE COURAGEOUS ENOUGH TO ASK THE DUMB QUESTIONS.
Hopefully, some of these RED FLAGS will help you feel more comfortable about your own investment practices, or tip you off to something that's not quite right before it's too late.
Hope to see you on September 18th!
Dick Kinney
Principal
Legacy Wealth Management, LLC
www.legacywlth.com
I hope you enjoyed this perspective. Click here to request a flyer about the September 18th seminar. If you are interested in putting my formula for effective community engagement to work for yourself or your organization, consider purchasing my Sustainability Workbook (click on the BUY NOW button at the top of this page). It's just $7.95.
Deb
alinea, LLC
www.alineaconnect.com
