The Nonprofit Fiduciary

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Does Your Nonprofit Board Membership Mean You Are a Fiduciary?

The answer may surprise you. By Kathleen McBride, AIF™, AIFA®, CEFEX Analyst®   We get a lot of questions about who is or isn’t a Lay Fiduciary™.  A Lay Fiduciary, in the nonprofit sense, is someone who is not an investment professional, but is a decision-maker such as a member of the Board, trustees, investment […]

The answer may surprise you.

By Kathleen McBride, AIF™, AIFA®, CEFEX Analyst®

 

We get a lot of questions about who is or isn’t a Lay Fiduciary™.  A Lay Fiduciary, in the nonprofit sense, is someone who is not an investment professional, but is a decision-maker such as a member of the Board, trustees, investment committee, an executive, or some staff members.

 

Lay Fiduciaries are responsible for stewarding the organization and its assets. The investment assets, including the endowment and donations, must be prudently managed.

 

In your role as a decision-maker for your nonprofit, you are a Lay Fiduciary, someone who is responsible for:

  • making decisions that are in the best interest of the beneficiaries of the organization,
  • the prudent management of the assets,
  • ensuring that donations are managed appropriately, and according to the donor’s intent.

 

You may be surprised to find that there are an estimated 12,733,664 Lay Fiduciaries, at 1,661,597 US nonprofits, responsible for management of $6.112 Trillion in assets.[1]

 

This doesn’t mean you must manage the investment assets yourself!

 

If you are not a professional investment fiduciary, you can – and should – delegate investment advice and investment management responsibilities to professional fiduciaries, such as Registered Investment Advisers. There’s even a safe harbor for this kind of delegation to professional fiduciaries – provided this delegation of responsibilities is done prudently, following a substantial prudent process to select and retain these professional fiduciaries, giving them authority for their roles in managing the assets, and regularly monitoring them and the investment process, with their assistance.

 

There are fiduciary tasks that Lay Fiduciaries always retain – can never delegate to professional fiduciaries. These include due diligence and prudent selection of the professional fiduciaries, monitoring the investments to make sure they are performing as expected, and with the expected level of risk; monitoring the prudent fiduciaries and other investment service providers; knowing all of the direct and indirect investment-related fees and costs, making sure those costs are reasonable for the service provided, and making changes – in investments and service providers – when necessary.

 

Questions We Hear About Who is a Lay Fiduciary:

 

I’m not an investment professional, so how could I be a fiduciary? You are responsible for managing the nonprofit for the interest of the program beneficiaries, including the investment assets – but you can hire prudent experts to help you and take some of the fiduciary burden, IF you do this prudently.

 

Does it matter whether I’m a volunteer or paid staffer? No. The majority of nonprofit Board members or trustees are unpaid. What matters is that you’re in a decision-making role.

 

What is the best way to understand and fulfill my Lay Fiduciary role? Understanding your responsibilities is the first step. Then understanding the best practices will help you to fulfill those responsibilities and your fiduciary role, build a fiduciary culture for your organization, and understand the Language of Nonprofit Fiduciaries™. This knowledge will help you speak confidently with your donors, who in turn will be more confident about the care you take with their hard earned gifts.

 

FiduciaryPath™ trains and consults with Lay Fiduciaries to help them understand and fulfill their fiduciary roles, increase value from service providers, and attract more donors and gifts.

Kate McBride is President of FiduciaryPath™, LLC. She is also a Founder of the Center for Board Certified Fiduciaries™, (CBCF™), which is affiliated with the Wake Forest University School of Professional Studies, and a Specialty Leader and an author of its Foundations & Endowments curriculum. She is a Board Certified Fiduciary™, (BCF™), an Accredited Investment Fiduciary Analyst® (AIFA®), and a CEFEX Analyst® with the Centre for Fiduciary Excellence. For more please contact kmcbride@fiduciarypath.com.

 

[1] “Where are the Lay Fiduciaries Who Have Responsibility for More Than $26 Trillion of US Investment Assets?” By Allan Henriques, Kathleen McBride, David J. Bromelkamp, Trevor Merrill, and Tony A. Michael. Published by the Center for Board Certified Fiduciaries™.

 

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