Fiduciary Best Practices for Nonprofit Boards and Investment Committees

Why Process Matters More Than Performance

Board members and investment committee volunteers are often selected for their judgment, their standing in the community, or their willingness to serve — not for deep investment expertise. That is normal, and it is not a weakness. What matters is whether the organization has a documented, prudent process for overseeing its assets, one that would hold up to scrutiny regardless of how markets perform in any given year.

This guide covers the foundations of that process.

Section 1: The Investment Policy Statement

Every organization managing pooled or endowed assets should have a written Investment Policy Statement (IPS). At minimum, it should define:

• The purpose and time horizon of the assets
• Spending policy and how it connects to the organization’s budget
• Asset allocation targets and acceptable ranges
• Risk tolerance, stated in terms the full board can understand
• Roles and responsibilities of the board, committee, and any outside advisor
• Criteria and process for selecting and reviewing investment managers

Section 2: Board and Committee Structure

• Is there a defined investment committee, separate from the full board, with a clear charter?
• Does committee membership rotate, so institutional knowledge does not depend on one or two individuals?
• Are conflicts of interest disclosed and documented at the start of each term?
• Is there a defined quorum and voting process for investment decisions?

Section 3: Documentation and Prudent Process

Prudent process is proven through documentation, not memory. At minimum, organizations should keep:

• Meeting minutes that reflect what was discussed and decided, not just attendance
• Records of manager or advisor due diligence and selection criteria
• A history of IPS reviews and amendments
• Documentation of any deviation from policy, and why it occurred

Section 4: Ongoing Oversight and Review Cadence

A reasonable cadence for most organizations:

• Quarterly: performance and compliance review against the IPS
• Annually: full IPS review, spending policy review, and fee review
• Every three to five years: broader search or re-evaluation of the investment advisor relationship

Section 5: Working With an Investment Advisor

When evaluating or working with an outside advisor, boards should be able to answer:

• Is the advisor a fiduciary to the organization, in writing, at all times?
• How is the advisor compensated, and are there any indirect forms of compensation?
• Does the advisor provide the documentation needed to support the board’s own fiduciary duty?

A Governance Self-Check

Use this as a quick gauge of where your organization currently stands:

• We have a written IPS that has been reviewed within the last 12 months
• Our investment committee has a defined charter and rotating membership
• We document our manager and advisor due diligence process
• We conduct an annual fee and performance review against our IPS
• Every committee member has read the current IPS

Any unchecked box is a reasonable place to start a conversation with your advisor or legal counsel.