Nonprofit Executive Director: Fiduciary or Not? - YouTube

Hello everyone, Vitaly is here.

Over the last couple of years, the word fiduciary has almost become a household word.

There have been multiple articles written

about who a fiduciary is and what it entails.

Yet fiduciaries, especially of nonprofit organizations, are often unaware of their

fiduciary status and what the risks of this unawareness can lead to.

In this video, I'm going to share a recent conversation with an executive director

who has been inadvertently exposing herself to an unnecessary fiduciary risk.

So without further delay, let's get started.

The other day, I talked to an executive

director of a small nonprofit organization here in Chicago that had accumulated about

one million dollars in liquid investable assets.

The money is currently sitting in a

savings account that has an interest rate of 0.01%.

The executive director, who is deeply involved in carrying out

the mission of his organization, wasn't sure what the best course of action

would be in regard to this money. Moreover, as the economy started to slowly reopen,

she and her team got extremely busy out in the field.

As a result, she barely has time to take

care of administrative and operational tasks, not to mention investments.

Managing investment decisions isn't

an easy task and requires time, resources, and knowledge.

Since this executive director lacks investment knowledge and has limited time

and resources, we come to a million-dollar question:

Could she be potentially breaching

fiduciary duty by putting off dealing with this matter?

In order to answer this question,

we first need to find out whether she's a fiduciary or not.

An investnment fiduciary is a personal who is

providing investment advice on managing the assets of another person and stands

in the relationship of trust, confidence, and/or legal responsibility.

Furthermore, investment fiduciaries can be divided into three groups:

investment steward, investment advisor and investment manager.

Since this executive director is not

in the business of providing investment advice or managing assets,

we can safely exclude the last two groups from consideration. An investment

steward, on the other hand, is a person who has the legal

responsibilities for managing investment decisions.

While this definition seems to hit the spot, it is still not clear whether

the executive director has fiduciary status regarding this money under the law.

In many cases, government documents near fiduciary directly.

But in other cases the fiduciary status

may be determined by the job functions that individual performs.

Investments stewards are entrusted to manage or assure the proper management

of the assets of the beneficiaries that they serve.

Because our executive director has been entrusted with his assets and exercises

the ultimate discretion in decision-making, which includes the discretion over

how to invest the money up on the board's approval,

there is no doubt that she absolutely is a fiduciary.

By the way, the same applies to members of the board who are also considered

investment stewards of the organization's assets.

But I will leave this topic for the next time.

As the fiduciary of her organization

she owes duty of care,

loyalty, and obedience to the investors and beneficiaries.

In addition to that,

she must act knowledgeably and with diligence and prudence.

Since our executive director has no

investment expertise making, this decision on her own wouldn't be prudent.

So what does she do then?

The answer is simple.

Delegated this responsibility to other professionals and subject matter experts

who have the time, resources and most importantly,

the expertise in investing and managing assets.

For example, she and the board could hire an investment adviser who would then

create an investment policy statement that will specify the organization's

goals, constraints, time horizon and asset allocation structure,

and potentially even invest the money in accordance with it. By doing so,

the executive director would partially

meet her fiduciary duty regarding managing investment decisions.

I say partially because fiduciary responsibility can never be abdicated and the executive

director, as well as the board members, would still be responsible for overseeing

and monitoring actions of the investment advisor.

The main takeaway from this story is simple.

If you are an executive director, a board member, a member of an investment

committee, or act in a similar capacity and exercise discretion in decision-making,

then you are 100% a fiduciary. Period.

As such, you must follow a prudent process,

is obligated to act in the best interests of the beneficiaries

and are being held accountable for your actions.

Remember, ignorance isn't a viable defense. If you are not sure whether your

a fiduciary or not and what exactly your fiduciary duties are,

talk to a fiduciary expert who knows all the ins and outs of fiduciary processes.

The fiduciary expert not only will educate

you on this topic, but will help you to put fiduciary best practices in place.

All right, that's it for today.

If you like my video, please hit the like button down below,

share it with your nonprofit friends, and subscribe to my channel.

Also, if you have any questions for me, or still not sure whether you

a fiduciary or not and what your responsibilities are,

please feel free to reach out. Bye.