ACCEPTANCE OF DONOR'S INVESTMENT MANAGER

By Mike Gricius, CPA - Manager

Not-for-profit organizations are starting to field more requests from donors to use the investment firm of their choice to manage assets contributed rather than using the organization's current investment portfolio. This viewpoint has the potential to have a positive impact on charitable giving as it could lead to unexpected donors. On the flip side, organizations need to be cautious and structure this in a manner that clearly states the donor does not control the funds held in the investment. The control shall remain with the organization.

To avoid disagreements or uncertainty, if an organization is willing to keep donor funds with their existing investment manager or a manager specified by the donor, a related policy should be established. This policy would include the following key points:

1. The organization's investment committee should perform due diligence procedures on the investment manager prior to acceptance of the arrangement.


2. The direct relationship needs to be established between the organization and the investment manager.


3. The donor or related parties to the donor should be restricted from serving as advisors for the investment pool.


4. The investment manager must agree to follow the investment objectives set forth in the organization's investment policy.


5. The organization should consider establishing a minimum amount the organization is willing to accept under such arrangements.


6. Continued oversight by the investment committee should be performed to assess performance against benchmarks and evaluate fees.


7. A comprehensive investment summary needs to be prepared to ensure there is appropriate diversification achieved among investment managers.

Given the struggles that our not-for-profit organizations have experienced due to the economy, adopting such a policy has been seen as one way to potentially open more opportunities to attract donors. Adopting the aforementioned policies will ensure the organization properly manages such arrangements.