The Financial Side of Nonprofit Board Service
Serving a local nonprofit as a board member can be a meaningful endeavor. Assuming you are passionate about the nonprofit’s mission in your community, your engagement within the role can provide personal fulfillment, leadership training and networking, and an opportunity to meet new people. A board position also comes with significant responsibilities that may include governance, financial oversight, and strategic planning. Learning to evaluate what is important when it comes to a nonprofit’s operating and capital needs can be tricky.
The National Bank of Indianapolis is a leading provider of banking and investment management services to nonprofits throughout Central Indiana. Our dedicated Nonprofit Services team and Wealth Management advisors can help new and existing board members better understand their organizations’ long-term financial strategies.
Investment Philosophy
Not all board members sit on the finance subcommittee, but understanding the nonprofit’s investment philosophy, spending policy, and time horizon is key for all board members. Prior to committing to a board position, it is common to review several annual reports which summarize current financials and illustrate recent past performance. Asking other board members about the current investment strategy is also key to better understanding the finances.
Do your organization have an Investment Policy Statement and, if so, when was it last reviewed? Does it support the organization’s mission, such as affordable housing, community development, or loans to small businesses in underserved areas?
Risk Management
Another key area to understand would be how the board and its investment partner handles risk management. Good questions to ask include:
- What level of risk is acceptable in the investment strategies?
- What would a worst-case scenario look like in a downturn for investments and operational budgets?
- How much of the investments need to be liquid at any given time?
- What is the time horizon for the invested assets?
Fees and Transparency
One additional area of inquiry for board members regarding its investments includes the cost structure. There may be multiple fees to consider, including advisory, management, custodial, trading costs, and revenue sharing. As endowments or foundation investments grow, the costs to manage those funds may continue to grow. Understanding the fees charged by your partners is part of the fiduciary responsibilities of the board. At The National Bank of Indianapolis, we provide transparent fees and disclosures so that it is clear what is charged to our nonprofit clients. This is also reviewed in person on a regular basis. Make sure your nonprofit board knows what you pay for in terms of investment advisory services.