Nonprofits Should Consider When Creating an Investment Account

Nonprofit organizations have an important role to play in the social and economic wellbeing of the world. For-profit institutions have common functions and can use any surplus capital to pay out dividends to stockholders or re-invest into growth efforts for the company.

Nonprofits differ in the fact that their bottom line cannot be as straightforward as for-profit businesses due to the concept of restricted funds. Restricted funds represent funds that have been committed for a certain use or have a time restriction in place for use.

If your nonprofit is lucky enough to be in a position that leaves you with surplus capital beyond your typical reserves, you may be in a position to establish an investment account for the organization. Typically, surplus capital is realized when the nonprofit has expenses and expenditures for the next 12 to 24 months of operation.

The difficult task in setting up an investment account for a nonprofit is simply acquiring the surplus funds to do so. Once you have eliminated that hurdle, the next steps include finding a firm and an investment policy to adhere to.

You will want to find an advisory firm that will act in a fiduciary capacity to help grow assets for the future of the nonprofit. The most common way to go about finding the right investment firm would be to distribute a Request for Proposal, or RFP. 

Generally, there are a few important factors to consider when soliciting an RFP.

Investment Firm’s History

The history of a firm can tell you a lot about the type of business they handle and how successful they have been. Ideally, you will want to find a firm with a history of working with nonprofit organizations. Oftentimes nonprofits will have different goals for their investment portfolio than an individual or a for-profit business. Finding a firm with a history of working with nonprofit organizations can help ensure they understand and align with your goals.

The client base of the firm in question also gives insight into the type of work they do. Ask the firm for a description of their client base that includes the number of nonprofits they currently work with, the length of their service, and the range of asset values of their nonprofit clients.

You will also want to request client references from a few of their nonprofit clients. With this you can reach out to other organizations and inquire into the professionalism or responsiveness of the firm in question.

Ask the firm if they have registered with the SEC or state securities regulator. You will need to identify their disclosures and licenses to ensure they are credentialed to provide the services you seek.

Investment Process

Now that you have some background on the firm you will want to identify their processes for investment selection. Gain an overview of their strategies by inquiring into their investment philosophy and process for analyzing your portfolio structure. Also important to note is their process for recommending modifications and how active their management is for the portfolio.

Another key factor to consider is the working behind the scenes. Inquire into the number of analysts the firm has on staff, if any. Analysts help the firm research strategies and investments as well as evaluating the performance of a portfolio.

Along with the concept of research and development is their process for making projections and future outlooks. Inquire into their capital market and economic outlook processes and determine how that information will be used in your nonprofit’s investment strategy.

Overall, you want a firm that will assist your organization’s finance committee in meeting their responsibilities. The firm should review and provide recommendations on the investment policies enacted by the organizations investment or finance committee to meet fiduciary responsibilities.

Service Structure

Hiring an investment firm is an asset for many nonprofits. Advisors can be a haven for financial advice that can help determine both long term and short term strategies to promote growth within an organization. For this reason, you will want to be aware of and develop a relationship with the primary point of contact or contacts.

You will also want to learn about any other additional support professionals the firm can offer you. Furthermore, the firm you search for should be registered as an investment advisor under the Investment Advisers Act of 1940. Without this registration, the firm will not have the ability to provide certain fiduciary services.


An investment portfolio is only useful if the nonprofit leaders have an understanding of its outlook, performance, and key areas of concern or growth. This will come down to the reporting of the firm in question.

You will want to know the firm’s process for preparing and providing performance measurement reports. Inquiry into whether the software the firm uses is their own or provided by an outside third party.

Firms establish certain benchmarks of performance or development as well as a strategy for comparing similar portfolios and their success. Understanding the processes the firm uses for these metrics is important as well. Request sample copy of portfolio reports that would typically be relayed to the nonprofit to gain a better grasp on what the relationship would look like if it was explored.


Fees and Costs

The idea of hidden fees should not exist when you are looking to onboard an investment firm for your nonprofit. The firm should be open and willing to describe their fee structure and services. Typically, this should include a breakdown of all fees and all various forms of compensation paid between the nonprofit and all the firms utilized.

Fees could include but are not limited to transaction fees, license fees, management fees, distribution fees, or any other expenses charged by various funds, investment managers, or investment firms.

Another key fee to note is a minimum fee. Some firms require a minimum fee for a partnership while others do not. Furthermore, certain fees may apply that are not directly related to management services. Inquire into any fees as a result of services related to preparing policies, asset allocation analysis, or conducting manager searches.

Again, when your nonprofit is looking for a relationship with an investment firm there should be no such thing as hidden fees.

Finding the Perfect Match

There are a plethora of factors to consider when looking for an investment firm for your nonprofit, and for good reason. For a nonprofit to be in a position to have an investment account they must have thrived in the past to realize a surplus of capital.

For many nonprofits, the goals of the organization are geared towards helping others, making it crucial to partner with a firm that will hold your values close while actively looking for ways to expand your portfolio.

The undertaking of financial planning for a non-profit organization is often an incredibly complex and daunting one to take on yourself. Having financial knowledge alone is not going to be enough, as access to professional services and guidance is invaluable. This is exactly what Fragasso Financial Advisors offers – a Pittsburgh-based wealth management firm, they will help you in the process of creating your RFP, as well as advise you every step of the way. To kickstart the process, check out their blog post entitled “Five Questions a Non-Profit Should Ask When Soliciting a Request for Proposal” for some great advice. Their team of nonprofit investment professionals are ready to help with every aspect along the way.

Investment advice offered by investment advisor representatives through Fragasso Financial Advisors, a registered investment advisor.

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