Just like households, charities and other groups need wealth-building strategies.

Provided by Christian DePaul, CFP

 As non-profit organizations grow, they also need to grow and preserve wealth. In accepting donations to fund their operations and programs, they realize they cannot rely on fundraising alone. They decide to invest, and they turn to financial professionals for input.

Because non-profits exist to carry out particular missions, their investment preferences may differ from those of individuals. A non-profit may shy away from investing in certain companies because of what they represent. Additionally, some types of investment vehicles may clash with a non-profit organization’s image.

Like businesses, non-profits constantly need cash. Unlike businesses, however, non-profits cannot rely on sales for revenue or promise third parties a quantifiable return on investment.

While some non-profits, associations, and charities fail on leadership, many more fail because of insufficient revenue and the lack of an investment strategy. Investing will not solve short-term cash flow issues, but it may help a non-profit grow into a larger, more impactful organization with greater stability.

An investment strategy is part of a non-profit’s evolution. While not every non-profit is ready to have an endowment, many want to invest for organizational sustainability. A commitment to investing is part of a long-term vision for success.

An Investment Policy Statement (IPS) may help. An IPS is a written statement that defines the investment approach of the non-profit. That approach must align with the organization’s mission and purpose.

An IPS for a non-profit group lays out its preferred investment style, the level of investing risk it will accept, and its near-term and long-term goals. Periodically, the IPS is reviewed and revised.

A periodic portfolio review is also important to consider. Investment choices that return well for a few years may return poorly when the financial climate shifts. A financial professional who consults a non-profit needs to help the organization revise a portfolio in light of economic and market trends. If an individual’s investment portfolio suffers a 10% loss, that downturn may affect a handful of people at most; if a charity’s investment portfolio suffers a 10% loss, hundreds or thousands of people may feel the financial pinch.

That periodic portfolio review should also check to see if the portfolio needs rebalancing. Just as non-profits can suffer philosophically from mission drift, their investment portfolios can be plagued by style drift: a diversion from the original, stated asset allocations per investment type. Rebalancing seeks to address this problem and restore the preferred allocations.

Some non-profits invest in a wide variety of asset classes. A recent, joint study of 835 college endowment funds by Commonfund and the National Association of College and University Business Officers found that a slight majority of the money in those funds was allocated to so-called “alternative assets.” This phrase refers to commodities, real property, and other investment types away from the usual Wall Street options. The famous Yale and Harvard endowments were pioneers in this regard. Hospitals, arts groups, and faith-based groups, on the other hand, tend to invest more conservatively than universities.1

A financial professional can also help a non-profit plan and control the way it spends. In addition, he or she can help the organization determine how to adjust that spending in response to changing economic pressures, altered priorities, or the absence or appearance of major donors.

 A fiduciary standard must be upheld. A financial industry professional serving as an investment manager for a non-profit group should be licensed to assume a fiduciary duty. That duty means the assumption of a legal obligation to help the organization make investment decisions in its best interest. As the partnership between the financial professional and the non-profit group develops, this should never feel like a secondary concern.

Both the non-profit and the investment manager must understand regulatory requirements. A full discussion of them is beyond the scope of this article, but it should be noted that they are frequently amended and revised at both the state and federal level. Non-profits and their investment managers must follow federal and state guidelines when it comes to the role of a fiduciary, the entrustment of investment authority, the treatment and assignment of individual donations, establishing spending rates, and maintaining the investment policy.

As non-profit groups think about their future goals, they may consider an investment strategy and a relationship with a financial professional who can serve as an investment manager.


Christian may be reached at (434) 385-1340 or christian@depaulwealthmanagement.com.


Christian H. DePaul is a Registered Representative offering securities through Cadaret, Grant & Co., Inc. Member FINRA/SIPC. DePaul Wealth Management and Cadaret, Grant are separate entities.


This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.



1 – insights.som.yale.edu/insights/how-should-nonprofits-invest [6/26/15]

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