Accredited Investment Fiduciary
Certified Foundation Fiduciary Specialist
"Working for You, Ensuring
Your Investment Managers are Too"
Looking deeper into your investment manager's background, registrations, tenure at the decision-making top, support team and management style are requisites to determining whether to hire, maintain or dismiss a manager. Your fiduciary duty as a trustee is enhanced with this information.
Measuring a manager's performance against his benchmark is the generally accepted norm for determining the value of his expertise. After all, it is the measuring stick to determine if the fees paid for management have been well spent. However, a complimentary if not more telling measurement, is how the manager compared to his peer group. Beating a benchmark is one thing, but if the manager's performance is among the bottom 10 or 25% among his peers, you haven't received the results you've paid for. Where does your manager rank among his peers?
The Uniform Prudent Management of Insitutional Funds Act (UPMIFA) spells out specifically the threshold spending rate where it is considered imprudent management by Trustees if it is exceeded. At that point, the Act considers Trustees to not be acting in the best interests of the organization thereby not meeting the fiduciary obligations they are required to meet.
It's wise not to spend more than we take in. As individuals with salaries, we have a good idea of what to expect annually enabling us to plan living expenses, education and perhaps a vacation if able. Non-profits generally don't often receive such luxuries as known minimum incomes due to their dependence on combinations of attendance, grants, donations and investment growth and income. Each is subject to numerous negative impacts beyond anyone's control that can arise at any time. Careful planning on the expense side of the Income Statement enables establishing reasonable objectives for investment returns encompassing at a minimum planned-for cash outflows. Is your organization planning so carefully?
Issues arise for shareholder voting that may require a highly informed opinion before a shareholder's vote is cast. Delivering in-depth information is vital to casting votes.
Asset allocation aims to balance risk with reward by apportioning assets according to the goals, risk tolerance and investment horizon of the owner, whether an institution or an individual. The three primary investment classes - equities, fixed-income, and cash/equivalents - have different levels of risk and return, each behaving differently over time. Additional alternative investment classes exists.
One of many points of asset allocation is to diversify against the classic "too many eggs in one basket" adage.
How do the fees paid for management measure against national averages or the specific style? For the style of investing elected (Separately Managed Accounts, mutual funds, commission trades and Funds of Funds) are you receiving the correct fee structure and benefits? Being overcharged for investment management fees reduces your bottom line returns.
An IPS is a document drafted between a portfolio manager and a client mandating the general rules for the manager. This statement provides the investment goals and objectives of a client and describes the strategies the manager should employ to meet these objectives. Specific information on matters such as asset allocation, risk tolerance, liquidity requirements, prohibited investments and the hiring and dismissal of managers would also be included in an IPS among other directives. No investment program can begin without this vital direction. We do not work with clients who do not have an Investment Policy Statement.
The science, perhaps more accurately described as an art, of benchmarking returns is the yardstick for performance. Managers and funds' benchmarks tend to be long-established and not subject to change. Benchmarks serve a second purpose in revealing if a funds stated investment style has incurred "drift." Has the Large-cap fund's stated style drifted into a Mid-cap style? If so, your existing Mid-cap assets may be duplicated thereby defeating the purpose of diversification so diligently sought after.