July 8, 2016 - Written by: George Shirley. Any opinions are those of George Shirley and not necessarily those of RJFS or Raymond James.
One of the gratifying aspects of this job is to help people with philanthropic and charitable endeavors. I have found that being able to give time and financial support to causes that are important to people is extremely rewarding and can provide almost a renewed sense of purpose, especially for retirees. Through this process, our team has worked with many people from various organizations in facilitating planned giving, and has also worked with many organizations in improving their own financial situation. We will discuss the benefits of donor advised funds, charitable remainder trusts, gifting appreciated securities and other giving strategies in a later post, but for today, I want to expand upon a crucial document for any organization: the Investment Policy Statement.
Most of the time, the organizations that come to us are dealing with one of 3 issues:
- There is uneven cash flow which leaves them with a cash-heavy position for a significant portion of the year (e.g. dues or fees come in to start the fiscal year but the expenses are more evenly spread out)
- There are excess reserves beyond normal operating expenses (usually sitting in a bank account) and the board wants options to increase the return above 0.
- There are currently invested funds (either endowment or longer term assets) but the organization has changed in some meaningful way since the original investment and they are looking for a review of their holdings.
And an organization can be dealing with all of these issues simultaneously and not have an overall plan to address any of them properly.
The first question that we ask is “Do you have an investment policy statement?” And the responses we have received have varied from “What’s that?”, “I don’t know”, to “Yes but I think it needs updating” and several more.
Put simply, an Investment Policy Statement is an evolving document that clearly establishes the goals and needs of the organization for which the funds are to be invested. This should include liquidity needs, time frame for investment(s), tolerance for fluctuation of principal and possible loss, permissible investments and special considerations for the organization among other things. As many non-profits have regular turnover in their Board and decision making committees, this document should be clear enough that any new member will be able to understand how the invested funds support the mission and key objectives of the institution yet thorough enough to address the key areas of concern and opportunity for the organization. Additionally, a pre-determined review period should be established as a regular checkpoint and to determine if there has been any changes to the organizations financial picture, goals and/or needs.
While this is a simplified explanation, the IPS creation process probes deeply into different aspects of the financial situation to determine the appropriate path forward. And going through that process will usually lead to an alignment of finances with goals, values and purpose of the institution.
While we have served in a role of simply providing lower-risk, short-term cash equivalents and also executing an investment strategy that an organization had agreed upon, where we have provided the most value (and had the most fun) is helping to craft the personalized investment policy statement and creating an investment strategy according to said IPS. There is almost a zen-like mindset that occurs when finances are aligned with values which is what we strive to reach with every client. For non-profits, this starts with an Investment Policy Statement.
Listen to our IPS podcast: