Key Takeaways:
- A nonprofit may be ready for an investment advisor when its reserves have grown past a single cash or money market account and now hold money for purposes with different time horizons.
- A missing Investment Policy Statement, or one that has not been reviewed in several years, leaves the board without a documented standard to govern against.
- Committee turnover, limited investment experience, and infrequent meetings can make it difficult for a finance committee to provide real oversight without outside support.
- A staff member or board volunteer who selects investments or places trades is exercising fiduciary judgment on the organization’s behalf, whether or not that role has been made explicit.
- Wanting independent oversight, whether for a first advisor relationship or to reevaluate a current one, is a legitimate reason for a board to begin a formal search.
Disclaimer: This article is for informational and educational purposes only and does not constitute investment advice. The considerations described here reflect Raffa’s perspective as an investment advisor serving nonprofits and associations, and other advisors may weigh them differently. Raffa Investment Advisers is a registered investment advisor. Each organization’s financial situation is unique. Please consult with a qualified investment professional before making financial decisions.
How to Tell When Your Nonprofit Needs an Investment Advisor
A nonprofit is usually ready to hire an investment advisor when more than one sign appears rather than after a single event. Reserves may have grown, the investment policy may have fallen behind, committee members may have changed, or the person managing the portfolio may have been doing so informally for years. Any one of these can be managed for a time, though together they often indicate that the organization’s investments have outgrown the oversight structure around them.
This article covers five signs that a nonprofit or association is ready for professional investment support.
Sign 1: Your Reserves Have Outgrown a Single Blended Account
Reserves have outgrown a single account when the money in it is being asked to serve more than one purpose. A balance that began as a few months of operating cash may now include funds for a planned project, a cushion against a revenue disruption, and money the board expects to hold for many years. Each of those purposes carries a different time horizon, and one money market account or one blended portfolio cannot be invested appropriately for all of them at once. When reserves with different purposes share a single pool, the resulting reserve strategy is often a compromise that fits none of them well.
Organizing reserves into separate pools by purpose and time horizon allows each pool to be invested for what it is meant to do. Our guide on how to segment your nonprofit’s investment reserves and create a reserve policy walks through how to set up those pools with a focus on both time horizon and purpose. Additionally, our Sample Reserve Policy can help your board organize its decisions into a detailed policy.
Sign 2: Your Nonprofit Does Not Have a Current Investment Policy Statement
A nonprofit without a current Investment Policy Statement (IPS) has no documented standard for the board to govern against, or to point to if a decision is later questioned. An IPS is the board-adopted document that sets the objectives, risk tolerance, asset allocation, and benchmarks for the organization’s investments, along with who is responsible for each decision. BoardSource, in its guidance on the board’s role in supervising investments (updated October 2023), lists adopting investment policies first among the board’s responsibilities for its investments.
An outdated IPS can also be a large concern, because it creates the appearance of governance without the substance. A policy that has not been reviewed in several years may name an allocation, a benchmark, or a reserve structure that no longer matches how the funds are invested. A committee reviewing investment performance against that policy may be measuring the portfolio against the wrong standard.
We recommend a formal review of the IPS at least annually, with a more substantive update after significant committee turnover, a material change in financial condition, or a shift in strategic direction. Raffa’s investment policy development process treats the IPS as a living document for this reason. For boards drafting a policy for the first time, our sample investment policy statement provides a template for nonprofits and associations to adapt. Additionally, our educational guide on investment policy statement best practices discusses how to create or strengthen your IPS.
"A policy that has not been reviewed in several years may name an allocation, a benchmark, or a reserve structure that no longer matches how the funds are invested."
Sign 3: Your Committee Cannot Keep Pace With Oversight
A finance or investment committee has fallen behind on oversight when it can review what happened last quarter but cannot evaluate whether the portfolio still fits the organization’s policy and needs. Three conditions tend to contribute. Volunteer members rotate off on regular cycles, and institutional knowledge leaves with them. Many committees pair one or two members who have a finance background with others who have limited investment experience, which can leave most of the work to a small number of people. Committees that meet only a few times a year may also have little time left for investment questions once the budget and audit are covered.
The result is that a new committee chair often inherits a portfolio, a policy, and a set of past decisions without a record of why those decisions were made, and rebuilding that context from meeting minutes takes time the committee may not have.
An advisor can support continuity through turnover by onboarding new members, walking them through the IPS and the reasoning behind current reserve and allocation decisions, and providing consistent reporting tied to the policy. Raffa’s finance committee and board support and board education and training services are built around this need, so that a change in membership does not require the committee to start over.
Download A Sample Investment Advisory Services RFP
Download a sample investment advisory service RFP created specifically for nonprofits or associations. Each template is fully editable in order for you to customize the RFP to your organization’s objectives.
Sign 4: A Staff Member or Board Volunteer Is Managing the Portfolio Directly
When a staff member or board volunteer selects investments or places trades, that person is exercising fiduciary judgment on the organization’s behalf, whether or not the role has been made explicit to them. This sign is distinct from the previous one. Sign 3 concerns whether the committee can oversee the portfolio well, while this sign concerns who is making investment decisions day to day.
The arrangement often begins for good reasons. A treasurer with an investment background offers to help, or a finance director takes on the portfolio because no one else is available. Over time, the organization comes to depend on one person’s judgment, availability, and records, and if that person leaves the board or the staff, the decision history may leave as well.
The same BoardSource guidance places legal responsibility for supervising investments with the board, and it encourages boards to consider hiring investment advisors rather than managing investments directly, provided the board regularly reviews the advisor’s work. Under a discretionary investment management (OCIO) arrangement, the advisor makes implementation decisions within the limits the IPS sets, while the board keeps responsibility for the policy and for oversight. Our comparison of discretionary and non-discretionary management explains how each model divides those responsibilities.
Sign 5: You Want Independent Oversight of Your Nonprofit or Association Investment Program
A board that wants an independent, objective view of its investments is ready to begin a search for a nonprofit investment advisor, whether it is hiring an advisor for the first time or reevaluating a current relationship. For a first-time hire, the goal is usually a documented selection process and an advisor who can take on work that has been handled informally. For an organization with an existing advisor, a review may be prompted by a board policy calling for periodic review of service providers, questions about fees or reporting, or a sense that the relationship has not kept pace with the organization’s needs. Reviewing a nonprofit investment advisor relationship does not mean the current advisor has done anything wrong, and some boards review these relationships on a set schedule as a matter of policy.
A board that recognizes this sign is usually ready for the next step. Raffa’s sample investment advisor RFP is a customizable template for nonprofits and associations, and our guide on how to write an investment advisor RFP covers what to include and how to evaluate the responses.
Get Support Through Raffa
Recognizing one or more of these signs is often a starting point and suggests a board conversation, not a commitment to hire. Some boards begin by reviewing their reserve structure and investment policy, then decide what level of outside support fits. For boards ready to begin a search, Raffa’s sample RFP template is available to download and adapt. For those who would prefer to talk it through first, our advisors have worked alongside nonprofit and association finance committees for more than 20 years. If these signs raise questions about your current arrangement, it may be worth a conversation with your board or with an advisor.
Schedule a Meeting with Our Team of Advisors Experienced in Partnering with Nonprofits and Associations
Frequently Asked Questions: Hiring an Investment Advisor
Should our nonprofit run a formal RFP or reach out to a few investment advisory firms for proposals?
Either approach can work. A formal request for proposals asks every firm the same questions in the same order, which makes responses easier to compare and creates a documented record of the board’s decision. Requesting proposals from a few firms can be faster and may suit a smaller organization. Our RFP guide covers when each approach fits.
What happens to our current investments while we search for an advisor?
In most cases, current investments stay where they are during the search, under the existing arrangement and policy. Once a new advisor is selected, assets can often be transferred in kind, meaning existing holdings move to the new custodian without being sold, which avoids unnecessary transactions. Holdings that cannot be transferred, such as some proprietary funds, may need to be sold, and the timing of those sales is best coordinated with the new advisor.
Is there a minimum asset size a nonprofit needs before hiring an investment advisor?
There is no universal minimum, and individual firms set their own account minimums, so it can help to ask about them early. From our perspective, readiness depends less on a dollar figure than on whether a portion of reserves is set aside for longer-term purposes, can remain invested through market cycles, and is ready to be managed under a board-adopted policy.
How long does it typically take to hire and onboard a new investment advisor?
The search itself depends largely on the board’s meeting calendar, since a committee typically reviews proposals, meets with finalists, and brings a recommendation to the full board. Onboarding is often shorter. At Raffa, policy review and development typically take about three to four weeks, and account setup and asset transfer take about two to three weeks, with the two often running at the same time.
About the Author
Mark Murphy, CFA
Chief Investment Officer
Mark Murphy, CFA, is Chief Investment Officer at Raffa Investment Advisers and has more than 15 years of direct experience serving as an OCIO and lead portfolio manager for nonprofit organizations and membership associations. As Chief Investment Officer, Mark works closely with investment committees and staff to implement policy-driven investment programs designed to balance liquidity needs, risk management, and long-term financial sustainability. Mark is an active participant in the nonprofit and association community and has spoken on governance, fiduciary oversight, and nonprofit investing for organizations including the Greater Washington Society of CPAs, the AICPA, BoardSource, and the American Society of Association Executives.
Disclosures:
Raffa Investment Advisers is a registered investment advisor with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training.
All investments involve risk, including the possible loss of principal. Past performance is not indicative of future results. Any forward-looking statements are based on current expectations and are subject to uncertainties.
This article is for informational purposes only and should not be construed as personalized investment advice.
Portions of this article were drafted with the assistance of AI tools and reviewed by Raffa Investment Advisers staff for accuracy and compliance.