Tony’s guests this week:
Paula Park, senior vice president at BankUnited.
Also, Gene Takagi, our legal contributor and principal of NEO, the Nonprofit & Exempt Organizations Law Group.
There’s more at tonymartignetti.com
Tony’s guests this week:
Paula Park, senior vice president at BankUnited.
Also, Gene Takagi, our legal contributor and principal of NEO, the Nonprofit & Exempt Organizations Law Group.
There’s more at tonymartignetti.com
Tony’s guest this week is:
Kathy Boyle, Chapin Hill Advisors
Read and watch more on Tony’s blog: http://mpgadv.comView Full Transcript
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Welcome to the show on the aptly named host of tony martignetti non-profit radio big non-profit ideas for the other ninety five percent, one will give a little shout, teo larry bloom, who has the show right before this one, the divorce, our with larry bloom if you haven’t listened to the divorce our and if you have that situation in your own life or in a friend’s life for someone else’s life, who you know ah, larry does very heartfelt and sincere, almost cathartic radio. But today was more straightforward, he’s talking about ah change in laws in new york state around divorce and his practices in new york city and new jersey. That’s larry bloom, the divorce our who comes before me here on this show last week, it was we’re looking hr consultant karen bradunas helped the museum of chinese in america think and work strategically around their job. Opening for a curatorial director and second segment last week was fabulous. Facebook, our regular tech contributor scott koegler who’s, the editor of non-profit technology news revealed seven things you must do with your facebook page this week we’re minimizing money management mayhem what upmifa means for your ceo, cfo and board. Kathy boyle, president of shaping hill advisers, distills the requirements of the uniform, prudent management of institutional funds act in new york and just about every other state where upmifa has been approved. What is prudent management? We’re going to talk about what’s, prudent, what needs to be in your investment policy statement, and we’ll leave you with tips for compliance and action items around this important law on tony’s. Take two at thirty two minutes after the hour, we’re going to talk about the fact that mohr non-profits are going to be filing the irs long form long nine ninety this year because of changes in the requirements for who files that that’s at roughly halfway through on tony’s, take two, but for the hour, it is cathy boil, and we are minimizing money management mayhem. Starting after this break, you’re listening to the talking alternate network, get in. Nothing. Duitz is your marriage in trouble? Are you considering divorce? Hello, i’m lawrence bloom, a family law attorney in new york and new jersey. No one is happier than the day their divorce is final. My firm can help you. We take the nasty out of the divorce process and make people happy. Police call a set to one, two, nine six four three five zero two for a free consultation. That’s lawrence h bloom two, one two, nine, six, four, three five zero two. We make people happy. Falik are you suffering from aches and pains? Has traditional medicine let you down? Are you tired of taking toxic medications, then come to the double diamond wellness center and learn how our natural methods can help you to hell? Call us now at to one to seven to one eight, one eight three that’s to one to seven to one eight one eight three or find us on the web at www dot double diamond wellness dot com. We look forward to serving you. Hey, all you crazy listeners looking to boost your business? Why not advertise on talking alternative with very reasonable rates? Interested simply email at info at talking alternative dot com dahna welcome back to tony martignetti non-profit radio big non-profit ideas for the other ninety five percent. I’m joined in the studio now by kathy boyle. Kathy is the president of chapin hill advisors. She is a frequent contributor to bloomberg and fox tv, and her expertise is in non-profit investment practices. Kathy, welcome to the show. Great to be here, tony, why don’t you tell this a little about shaping hill advisors first? Well, shape until his investment advisory firm we basically covered three different areas, high net worth individuals, families and a natural extension of that is the foundations of families run and not for-profit organizations to which they contribute and we helped them with both their planning needs, consulting needs and managing their money, and we’re here to talk about upmifa, which is all on the non-profit side of your of your three problem practice the uniform, prudent management of institutional funds act recently passed in new york, it applies in about well, as of june of last year, it was in forty seven of the fifty states, right? I think it was i saw florida, mississippi in pennsylvania haven’t passed it, but new york most recently and that’s why we’re talking about it today, so but it does apply in forty seven of the fifty states generally, kath, what is upmifa? Well, basically it’s it’s an over lying law to cover the prudent, this strategies and the standards that you should be following if you’re running enough for-profit organization or foundation endowment, and it specifically is about endowment endowment management, right? Yes, absolutely, absolutely. And you know what people? What people don’t realize is that there have been so many not-for-profits organizations funded in the last several years, they’ve grown dramatically, it’s largely because we have the baby boomers, we outlawed them coming into wealth, whether they work for corporate companies and took a left and decided do their own thing, or they’re entrepreneurs and sold a business, they want to help the world, but they want to do it their way. So there’s a plethora of these organizations and has been very loosey goosey, they’re able to do sort of there under the radar, and a lot of them are doing things incorrectly, they’re not falling the rules, there really hasn’t been any bite there’s been these laws and these things have been out there for a while, but there hasn’t really been any big fines. What types of organizations does upmifa apply to? Well, naturally applies to a lot of endowments. So you may have a school endowment let’s say you went to cornell and they have an endowment to help pay for their future things. Keep the school fundez so the public charities five oh one c three public charities, absolute endowments, absolutely any money, any pool of money like that that’s covered under either chaillou trust or five twenty three is covered under this law. And what about private foundations? Private foundations also fall under this. You always have this prudent standard. This is not your money, it’s, not your piggy bank. Once you set it up and you get the tax deduction, which is where the private comes in now you have those rules to follow that way. And then if you have the foundation, the endowment, you have to make sure you’re following him as well, and the enforcement around this and we’re going obviously talk about a detail about the requirements, but enforcement, where do we typically see that in in all the states that have that have enacted upmifa well, you know, unfortunately really haven’t seen again, a lot of bite you haven’t seen a lot of them coming down hard on anybody. There’s been no big cases, there was a very big case with robin hood, which is a great foundation, and they had what we call self dealing with a lot of the board members were getting paid through the organization if they were on the board, you’re supposed tohave, you know, arm’s length agreement here on dh yet there was no fine, there was no penalty, you know? And so a lot of people feel like, oh, well, if they didn’t get slapped, then i’m okay, or some people don’t even realize they don’t even it’s not even bold up to the top, i can tell you i can meet with so many organization that don’t even know that they’re supposed to have a written spending policy that they’re supposed to have an investment policy statement. The size of the endowment doesn’t matter all right now it does so this could apply to ten or fifteen thousand dollar endowments as well as many, many multi million dollar endowment, right and that’s that’s again something else to people don’t realize that thinking, oh, this is new it’s small. I just started it a lot of times people think it’s an extension of themselves, they think it’s an extension of them, they’ve done like the filing and they think they’re done they’re non-profit is an extension of themselves exact, and they’re so wrapped up in it may be there work-life and personal life are intertwined, but the financial side can’t be right. Exactly. And also you have to have this distance. You have to follow the rules, it’s, just like when you set up a corporation, maybe nobody tells you that if you file a sub chapter s you have to now file it with the state in order to be recognised, otherwise you’ll fall back and be recognized as a c. So it’s these kinds of things, a lot people there’s no little manual that says, this is how you go one, two, three, four and you said that there hasn’t been a great deal of enforcement, but i think we would see enforcement if what i think when it does come, i mean, there aren’t forty seven states enacting this for nothing except i think, from the state attorney’s general, aren’t they generally the ones? Yes, the state attorney general is the one that would visit your offices and then perhaps put a fine out there, and i think the possibility can arise if a couple of ways i’m thinking of donors being unsatisfactory with the way they’re endowed fund has been managed, disgruntled, anybody donor-centric who worked their employees. Ah, former boardmember you really have a lot of risks just like when you’re running company, somebody fire somebody and you don’t take the right steps, they could sue you. So you have to remember this kind of thing is the same thing. You have to make sure that you’re watching out for all of your areas and also remember tony, all these states and local cities and towns are in deficit look at new york state, ten billion dollars, i’m sorry, but i think this is going to be easy money because they haven’t been find we’re looking for other ways you could only tax the consumer in the property holder so much and these guys have not been taxed. So in my opinion, i think going down the road, this is gonna be an easy place for states to raise revenue. You raise an excellent point to about disgruntled employees. Another one i think about is disgruntled heirs of donors who look at what they’re like, the legacy that their parents or maybe grand parents left. And they’re not satisfied with the management of it. With kathy boils she’s, president of shaping hill advisers, were talking about the uniform, prudent management of institutional funds act, and we’re going to take a break, stay with us. Talking alternative radio twenty four hours a day. Are you feeling overwhelmed in the current chaos of our changing times? A deeper understanding of authentic astrology can uncover solutions in every area of life. After all, metaphysics is just quantum physics politically expressed. I am montgomery taylor, and i offer lectures, seminars and private consultations. For more information, contact me at monte m o nt y at r l j media. Dot com are you stuck in your business or career trying to take your business to the next level, and it keeps hitting a wall? This is sam liebowitz, the conscious consultant. I will help you get to the root cause of your abundance issues and help move you forward in your life. Call me now and let’s. Create the future you dream of. Two, one, two, seven, two, one, eight, one, eight, three, that’s to one to seven to one, eight one eight three. The conscious consultant helping conscious people. Be better business people. Buy-in i really need to take better care of myself if only i had someone to help me with my lifestyle. I feel like giving up dahna is this you mind over matter, health and fitness can help. If you’re expecting an epiphany, chances are it’s not happening. Mind over matter, health and fitness could help you get back on track or start a new life and fitness. Join Joshua margolis, fitness expert at 2 one two, eight sixty five nine to nine xero, or visit w w w died mind over matter. N y c dot com upleaf you’re listening to the talking alternative network. Dahna welcome back to the show. I’m tony martignetti and i’m with kathy boil, the president of chapel hill advisors, which you will find at shaping hill advisor’s dot com doing that right is a cheap way also in shape and held outcome kapin hill, dotcom thank you, bond. We’re talking about the uniform prudent management of institutional funds act. It applies in forty seven of the fifty states. Kathy let’s on, before we get back to the questions, i’m sorry, i wantto remind people that we are live and can take your calls at eight seven, seven for eight xero for one, two, zero, eight, seven, seven for eight xero for one to zero if you have questions about upmifa cath let’s, go through the the overview detail overview of what the requirements of upmifa r and then we’ll look at each one individually and flush them out. All right, well, let’s, just talk about a couple of bullet points. One of the things that this new upmifa does is that it allows spending from what’s called an underwater endowment. So that means if a phoner dahna gave you a million dollars and the market went down and it’s now worth eight hundred thousand dollars before this, you wouldn’t be able to take any money out of that. So if you were relying on let’s, say four percent, so four percent of one million dollars is forty thousand dollars. So if that was going out to make grants or to help run your operating fund, then you can no longer use that money because it’s dropped eight hundred thousand. So now they allow this, but it must be permitted by the donor. So you have to go back to the person who gave you that million dollars and say, is it okay with you? Tony it’s down eight hundred thousand dollars would like to continue spend out of this. Are you okay with that? All right. And you referred to four percent for us? Just a little bit that’s. You’re referring to the spending rate just at a non-profit. What? Intel? Yes, for there. And that other? They’re spending endowment spending rate at a non-profit. What goes into determining what that spend rate should be year after year? Well, that’s, a good question. The board has teo address this. And now it’s required to be in writing. You need to have a spending policy. How much is pertinent? First of all, the market, what can the market bear? Are we looking for? Total return? So we’re gonna have fizer and collected dividend or bristol myers and collect our five percent and hope that we make two or three percent in in capital gains. So we have a seven percent return, and then we’ll pull five percent out of that. So depending on how much risk you want to take and what kind of allocation you have in your endowment’s investments, then you determine your spending policy. So i think we can easily achieve four percent without dipping into our principal that’s how you come up with your spending policy, okay? And now there are formulas that will look at the last three year average called moving average of what the endowment was earning each of those three years and and we’ll base the current year’s spending rate on the the average of those previous three years, i’ve seen more sophisticated formulas, right? There’s, lots of formulas, but the bottom line comes to are you going tobe? Invest this entire thing in bonds and just take the interest only or you’re going to invest it in a partial stock and bond portfolio and assume that you have a rolling rate of return, which is where the three year average would come in on you know, if rates go down and you’re completely in bonds now you’re at the risk of the interest rate environment, so you’re spending policy has to have a little flexibility for getting four percent your bonds today, you can’t keep it right a four percent, because what if next year you rolling into three percent bonds so your average is going down? So it’s really a calculation? You have to look at how sophisticated your board is, how what your formula is going to be on your investment policy on your investment allocation, and then go back and use a formula determined on the other side. So moving away from the financial factors that go into determining the spending rate from year to year, this is in part funding programs, so the other side of the balance is how much do we need to sustain our programs in addition to fund-raising revenue, maybe fees for services that we have with government government agreements or maybe fromthe service? Recipients themselves, whatever all the different sources of income are, we have to make sure that we can fund it years program, right? You have to really look at typically a family will get together and say, well, we want to help schools, you know, very typical concerns for families, our education, healthcare helping the underprivileged. So if you want to solve all three of those in your local community, how much do you need to give to the you know, police, you know, to do the junior league or the you know, the uniforms or help the school’s buy books for the kids? Whatever you’re doing, you got to figure out what the need is and do you have enough money to support that need and what happens? What if you want to support five things begin to have enough money to do two things? So what do you do? Do you increase your spending policy and give yourself a little more flexibility and say, well, temporarily, we’re willing to steal a little bit more, so we’ll take a five percent or six percent out, even though we might not be earning that. But again, this has to be written. You have to carefully think through this. Okay, so a written policy around investment and spending rate. What else is a major point of upmifa? Well, there’s. Another one they have to really keep in mind. It presumes that anything over seven percent is inappropriate. Okay, again, talking with spending rate, the spending race of spending rate over seven is assumed, presumed to be impertinent. Imprudent. Right now it can be rebutted. But do you want to go down that path so it’s? Better to adjust your spending limit to something under seven percent. So keep that in mind. Okay. Do you know if different states have set different thresholds for that imprudence determination? Do you know that’s? A good question. I don’t. Ok. But in new york, it’s seven percent in new york. It’s percent. I’m gonna assume that in the states it’s, it’s. All very close to that. I mean, it is a uniform act, eh? So i’m gonna assume that. Okay? What else? Highlights? One of the thing i think is important is you are here today. The market dropped quite a bit. No ate. A lot of organizations have not made all the money back. They’re trying to win the market’s been on a tear for eight months, so nine months, almost. But we’re in a period where we could experience more volatility. So well, you have to do is if you need to spend the underwater endowments, you’ve still that made it back. You need to actually go out and have written consent from the donors who gave you that money? Yes. Okay. And again, underwater you mentioned it being less the value is less than the original gift. Yes. Now suppose that gift is many years old. Wood wood under water then mean it’s lower than what it’s been in just the recent past. Or would you still look back, say, ten or twelve years to the original gift? That’s, another trick question really award. It depends on your spending policy again because they were spending policy allowed you to spend a certain amount of principle than you have principle erosion. And so you would want to look that at what you considered your average. If you assume that you are on ly taking income out now, you really need to go back to the original and have the original amount of rachel. Okay, so, that’s an interesting point. Ah, spending policy can allow dipping into the principal of the gift. We’re not spending nearly income. Well, but again, you have to have the written permission from the donor. Because, again, it’s underwater. Ideally, you want to leave the principal intact? It depends on whether this a perpetual and you want to keep this intact and be ableto have the income on lee. Ok, ok. Um, not you again, you know, flushing out to some of the some of the details you mentioned. This is assuming that this is a perpetual endowment. Why don’t you distinguish that from maybe other types of end down? Well, there’s, other kinds of endowments that go for certain number of years and they spend down. So the bill gates foundation is a big proponent of this that they’re going to go and just dump all this money into a cause and solve it in a certain period of time. And that’s an area of contention. A lot of people feel that well, the problems of aids and hepatitis and things like that will not just be solved just by dumping huge billions of dollars. But that’s how? The organisation is funded and that’s. How it’s a spend down policy. So it has a finite time it’s going to be done by twenty, twenty, or twenty, fifteen or whatever. The mandate is all right. So just making the point that all endowments are not perpetual and they’re not created equal, right? Okay, i’m with kathy boyle, she’s, the president of shaping hill advisers were talking about the uniforms. Prudent management of institutional funds act. What does the policy seo the sari? What does the law say about delegating the decision making around investment management? That’s another good point? You actually have to have a committee. You need to have somebody who’s making the decision. Whether is the board of directors, a subcommittee, the executive director with the help of an advisor consultant. But you have tohave it stated, and who is responsible for this? Who is that? There has to be an active committee of some sort to be one person, but somebody has speed in charge of this, all right? Right? And you said, i mean, in a small a small institution that could be the executive director, larger one could be the investment committee or finance committee of a very large board of trustees, right? And, you know, again, tony, this is an area so many people. Look, i understand i run a business there’s eight million things to do every single day you always run out of time. My joke is ten more hours, and i’ll be fine. I’ll catch up. So when you’re the executive director or it’s your foundation that you created, so you’re running it and you’re running. A business or whatever you’re doing with your family life, you know, there’s a million things to do you trying to grant your china fund-raising tryingto make sure that everything is running correctly, you’ve got employees to manage. Perhaps you’ve got eight million things to do every day, so i find that this falls to the bottom of the of the of the totem pole, as compliance often does. One part of my practice is charity registration compliance that non-profits b in compliance with state laws in all the states where there soliciting and there’s been some enforcement, but compared to the one point, two million public charities, a drop in the bucket in terms of enforcement. So again, like like a upmifa compliance issues seem to fall to the bottom until there’s a headline, right? And then, you know, there’s, a perp walk in the case of more likely be a perp walk in the case of financial impropriety. Right? Then there is charity registration, but until you have that, it just doesn’t get the board’s attention, right? Right, right. And, you know, again, there’s so many things that you need to be compliant with. So it’s very difficult. And a lot of times your boards are not compensated, they meet quarterly. They may care passionately about the cause of the organization, but they have limits on their own time as well. And so they’re not going to get into the nitty gritty generally. And so if somebody on the board is not going to get into the nitty gritty of falls back on the executive director’s or the founders plate toward the end, we leave people with some action items and some specific best efforts that they can make tio put themselves at least close to compliance. I know you have some good ideas around that it’s the uniform, prudent management of institutional funds act. What does the act say about prudence? What is prudent? Well, prudence really means quite a bit in this take, because people just think that if they put money into a cd, they’re fine, and i can tell you again how many organizations i run into where they’re in cash there in money market or they’re in cds and they say, well, at least it’s safe. Well, prudent also, you have responsibility to diversify, so you have to have a written policy investment. Policy statement of what is called ni ps and you have to take a lot of things into account, like the economic conditions. So if we think interest rates are going up from here, which that’s my view, you know, maybe short term, they’ll will continue go down, but longer term rates have to go up, so it would be imprudent of you to take your entire foundation and put it one hundred percent in twenty year government bonds. You’re not diversified your you’re open to investment risk, so you have responsibility to diversify, and that generally means among a different asset classes. Now you’re going to have a very small allocation and stock, but being one hundred percent cds is important because you’re not protecting your principle for a longer period of time for inflation. A rhodes, you’re spending patterns is quite a bit more than safe. Yes, i’m saying in six words what you elaborated in particularly, but it means a lot more than safe what else i know they’re a lot of elements, teo prudence beyond diversification what else write? Well, you have to actually this is fairly new. You have to take into account inflation or deflation in the past, we wouldn’t have worried about that, but that could be a real concern, especially given that we have oil at one hundred dollars barrel right now, so that could create quite a bit of inflation food, inflation, heat inflation which can effect again some of your causes. So if you’re granting money to a school or you’re trying to help her lower income area, they’re hyre costs caused inflation there, so you have to take inflation into account terms your own portfolio as well. Okay, let’s, let’s dive a little deeper. And because i want to understand this, you make sure that people who are not as investment savvy is ur understand that as well. What? What types of investments are inflation protective? Just just generally expect inflation be rising. What what types of assets would people be investing in? Well, generally, stocks are considered an inflation hedge because if the environment goes up cos remember stocks or just cos and if company conditions the thrive, the stock goes up theoretically so stocks give you inflation protection now, it’s over a longer time period because they can be very volatile. Another thing to consider is now you can buy all kinds of commodities you can buy them through exchange traded funds. Etfs is what we call them, so you can buy exposure to cotton and wheat and bread and oil so you can buy these exchange traded funds and there’s some professionally manage commodity funds so you can put a commodity. Gold is a great inflation hedge, but your investment policy statement needs to state that you do have the ability to look at hard assets and commodities very important can’t have the investment. And again, i would just met with someone. I asked him if his i p s had an allocation had the permitted ability to go into hard assets. He said no. When i got the statement, they had five percent allocation of hard assets. So again, you want to be in compliance with this couple of the things you want to look at. It is you want to look at the tax consequences of the investment, whether or not there is any unrelated business taxable income we call u b t i and you also want to look at the other resources of the organization. So let’s say the market takes another. Header, and it goes down thirty percent over the next year and a half, and you still have recovered from the last one. You’re now down to five hundred thousand dollars from your original million, which went down to seven hundred, back-up two, nine hundred. Now you’re down to five hundred, i can’t spend it the same rate. So what do you dio? Do you have other resources? Can you pull in other money? Is there short term money that he can use so you can leave your longer term money to grow back? This’s tony martignetti non-profit radio. We’re talking about the uniform, prudent management of institutional funds act. After this break, i’m going to have to give cathy a short stint in jargon jail for u b t i unrelated business, taxable income, but she’s going to flush it out and and she’ll get parole after this break. You’re listening to the talking alternative network. Oh, this is tony martignetti aptly named host of tony martignetti non-profit radio big non-profit ideas for the other ninety five percent technology fund-raising compliance social media, small and medium non-profits have needs in all these areas. My guests are expert in all these areas and mohr tony martignetti non-profit radio fridays, one to two eastern on talking alternative broadcasting do you want to enhance your company’s web presence with an eye catching and unique website design? Would you like to incorporate professional video marketing mobile marketing into your organization marketing campaign mission one on one media offers a unique marketing experience that will set you apart from your competitors, magnify your brand exposure and in cancer current marketing efforts. Their services include video production and editing, web design, graphic design photography, social media management and now introducing mobile marketing. Their motto is we do whatever it takes to make our clients happy contact them today. Admission one one media dot com hey, all you crazy listeners looking to boost your business, why not advertise on talking alternative with very reasonable rates? Interested simply email at info at talking alternative dot com metoo welcome back, it’s. Time for tony’s. Take two at thirty two minutes after the hour. Roughly i want to just make you aware that the thresholds the revenue thresholds for what non-profits have to file long irs form nine. Ninety, which is a pretty burdensome for me, have changed this year. The thresholds have come down. So that means that there are b’more organizations that are suffering. Should i say the non-profit of the the long form nine ninety filing this year? And i blogged about that? My bloc is that m p g a d v dot com. Just generally the thresholds in terms of financial gross receipts has came down in two thousand eleven. Last year it was half a million dollars in gross receipts, or total assets of one and a quarter million. This year, those limits air down to just two hundred thousand dollars in gross receipts, or total assets of half a million. And if you hit that threshold which more non-profits will because it’s lower you had then have to file the long form nine ninety and there are other forms to there’s the there’s always the the nine ninety postcard, which is quite simple and there’s a nine ninety easy and i lay out all those requirements for for which form you have to file on the on the in the post on my block, it mpg a dv dot com in the name of that post is more non-profits filing long irs form this year back with kathy boyle, we’re talking about the uniform prudent management of institutional funds act kathy’s, the president of shaping hill advisors, a frequent contributor as well to bloomberg and fox tv and she’s with us demonstrating her expertise in non-profit investment practices before the break, we were defining prudence. What does it say about boardmember tze on board members conduct around prudence? Well, boardmember sze have responsibility to act with prudence is what we call it, so i find what i see sometimes is, especially since we’re in new york city, we see a lot of organizations with a lot of wall street experience on aboard. What happens is all the guys have very strong opinions or women, and nobody does anything so that’s it’s not prudent if your money sitting in cash because you’re bored can’t come to an agreement, you’re not fulfilling the letter. Of the law, so considerable board requirements and oversight. We’re going to talk about overseeing investments shortly. I did promise before the break that i would give you a reprieve. Parole from jargon jail. So you unrelated business, taxable income there you’re talking basically about income that’s not related to the charitable mission, right? Right. And you want to be careful of that, you know, with kinds of investments that you make and how much is that income going, too? Hit your bottom line and how is it going to affect it? Do you really want to take a look at that? And sometimes that gets very technical? It does, and there are a lot of code sections related to unrelated business income. There are a lot of cases and private letter ruling from the irs and those cases that i’m referring to roll in tax court all trying to figure out, you know, what is unrelated business taxable income? Because what it means is that your tax exempt non-profit now ends up having to pay tax on the income that is unrelated to your charitable mission and that’s the last thing you want when you set this whole thing. Up to be tax free and be able to do something good for people. The other thing after member with board members, their personal financial liability, it’s called fiduciary responsibility. Okay, and people wave over this the first question get oh, well, we have dino. Dino is directors and officers insurance, and it protects the board against, you know, a mistake essentially. So if somebody makes a mistake or somebody under your watch makes a mistake so let’s, say the foundation. You did all the rules, you followed the prudent investor rule. You have an i p s but you got bernie madoff for a piece of your you did your due diligence. You pass it off to consultant, you still ended up in made off, and somebody wanted to sue you because of that that would tend to be protected as long as you took all the steps under the dino, so you would have some kind of protection. Personally. However, if you’ve not taken the rights steps and you haven’t followed the rules, you’re not protected. A new dino and that’s jeff, remember so you could be personally sued. Tony, personally, if you’re on a board and you’re not falling these rules. So that’s critical plus that’s just a thin reed toe. Hang on. We have insurance to cover ourselves if we’re not doing things right right way have insurance to cover it. But it’s kind of like leaving the water on in the in the in the washing machine for the washing. Machine’s not working, you know. Well, i have flood insurance. You know where i have water insurance. So i’ll fix the basement later. Why in god’s name would you want to do that? And shouldn’t we just be operating non-profits the right way? Yes, but the right way gets again. You know, i understand how it works, you know, i sit on several boards and the mission and the operating all takes precedence, and so you want to do good and you’ve got your gala coming up and you’re running around like a chicken without your head trying to get donors and get the gala attended to and raise some money and make sure it’s profitable and so and board members only me quarter to quarter, and they’re like chasing cats, trying to get them around the board and get them on a call together. And doctor thought that thought so. I understand it’s a challenge is always a challenge, but the’s things air critical and you really have to do him. The investment policy statement the i p s your calling the act is pretty explicit about what needs to be in an investment policy statement. First of all, the thing needs to be in writing, which we find a lot of non-profits haven’t even done right, right, exactly, exactly. And you want to state your objective? What are you trying to dio it could be is you can’t really be a one pager, but it can be very short, so you really have to go through the steps of creating it. There’s lots of things online, you can take things online or if you’re a bigger organization, might want hyre consultant help you write one if you do have ah finance committee and you’re bored, that would be a very good place to start as well, right, exactly. That’s an excellent place to start. And you want to have knowledgeable people on that, so okay, before we get to the high ps yes, knowledgeable people on your board finance committee does that necessarily. Mean, i i have a boardmember who works for bank of america. Right? So they must be knowledgeable, right? Right. And that’s ah, that’s. Another miss number. You know, it’s kind of lee analogy i use is when i have a recent widow and she plays bridge with a bunch of her girlfriends and somebody’s son works on wall street and she goes, oh, i’m going to go find out what harry thinks i should do with my money. Harry is a traitor. Maybe he trades derivatives. Maybe he trades one kind of stock. Is harry well equipped to tell gladys what to do with her entire portfolio? Know. And so you have two leaves. The same sort of analogy. When you’re choosing your board members or choosing your investment committee members, how much depth do they have? Do they really understand all the asset classes? Have they put portfolios together? Are they on lee looking up the tax id? A lot of people think bankers, cpas, they’re also related to money, often cps air on lee looking at the tax side of it, and they tend to be super conservative. So is that a good match? Is that one? Person and then you offset them with maybe an entrepreneur who manages their own portfolio. So you really have to think about in assam real card questions? The person who works for bank of america could very well be in marketing, communications or hr and you know, you’re making the point of reemphasized okay, so back to the investment policy statement this i p s what? What needs to be in there? Well, you need to have an overview of what, what your mission is, what you’re planning on doing. You have to have a purpose, you have to have a time frame, you have to have risked tolerance. So how much downside are you willing to sustain and during what period of time? And this is critical in this environment that we’re in? Starting in two thousand? In my opinion, we started what’s called a secular bear market and from two thousand two thousand to the s and p loss, forty nine percent of its value. So if you had thirty, forty or fifty percent air portfolio exposed during those three years, you continued to see it fall. If your investment policy statement didn’t give you the flexibility to have that much volatility. You may be out of compliance. So you want to make sure that if you using a fifty fifty portfolio or sixty, forty, whatever your mixes and stocks and bonds that you take them amount of volatility that the market has had over the last x number of years and be sure that that’s in there and this the secular bear market, what does that mean exactly? Well, secular is a very long trend. Their cycles and their secular trends. So secular trend and from nineteen sixty centering on the edge of george in jail. Sorry, nineteen eighty right in front of the jail and about to pull you out. Okay, i’m pulling. I’m pulling quick. Come out out of the gauge for nineteen sixty six to nineteen eighty two the dow jones returned one point four percent. That entire period of time is called a secular bear market from nineteen, eighty two to nine to two thousand ten toe eighteen years straight up, it averaged seventeen point four percent. That was a secular bull market. Now, within either one of those, you had crashes like in nineteen eighty seven, where the dow jones dropped precipitously. During the sixty six to eighty two period you had periods when you lost fifty percent your money and if you were smart enough or lucky enough to get in at that point could’ve made eighty percent of the next couple of years. We’ve just come off a period zoho period, it was one point, seven percent, one point for it right before and so in what, in my opinion, we started another secular bear and we’re only partway through. So we’ve just had two years from march of o nine we’re coming up on the anniversary here in the next couple of days where the market has gone up almost one hundred percent, depending on what index use snp went all the way down to six fifty it’s around thirteen twenty five give or take so it’s almost doubled exactly the rustle of the wilshire five thousand, which is the great big index five thousand stocks that’s already doubled now. Before that, we lost forty percent from the top of o seven down to march phone nine so a year and a half that was the cycles that was a cyclical baer followed by a cyclical bull. Basically, you’re about break even if you’ve been invest over ten years in the s and p, you have a small return. So when you go back to that example, you have to consider this. What if we are in the middle of a secular bear market and we have another bear cycle coming? Is your i p s set up to allow for that kind of downside volatility? Do you have all your money? Invest in the market, which we run into over and over again, and people say, well, i don’t want to make xero in my checking account. Well, it’s, imprudent to have all of your money invested the market you need tohave, sameer cashflow available. We’re going to take a break and when we return, of course, cathy boyle staying with us, talking about the uniform, prudent management of institutional funds, act, stay with us, talking alternative radio, twenty four hours a day. Oppcoll oppcoll are you stuck in your business or career trying to take your business to the next level, and it keeps hitting a wall? This is sam liebowitz, the conscious consultant. I will help you get to the root cause of your abundance issues and help move you forward in your life. Call me now and let’s. Create the future you dream of. Two, one, two, seven, two, one, eight, one, eight, three, that’s to one to seven to one, eight one eight three. The conscious consultant helping conscious people. 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Their services include video production and editing, web design, graphic design photography, social media management and now introducing mobile marketing. Their motto is. We do whatever it takes to make our clients happy. Contact them today. Admission one one media dot com. Talking dot com. Welcome back to the show. I’m tony martignetti we’re talking about upmifa the uniform, prudent management of institutional funds act with kathy boyle. Kathy, i just wantto emphasize one thing in the investment policy statement which we alluded to earlier, and that is the requirement of supervision and monitoring. What? What is it, what’s the act say about that? Well, basically, it means that you must have some way to supervised what’s happening with your money, so if you’re allocating it to bank of america or consultant, who then puts it out with various managers, somebody has to look at those statement somebody has to say, how are we doing? And remember, there needs to be a benchmark tony what i tell people when i place plain english to regular individual people, the index is people dow jones. We hear about all the times thirty stocks the s and p is a more appropriate benchmark for your equities and maybe a russell two thousand if you have a lot of small caps, so the benchmark is like the speed limit sign. If you’re driving on a little rural road up where i live in westchester county and you’re going thirty five miles an hour, you could be going ten miles over ten miles under, but unless you see a speed limit sign that says twenty five miles an hour you don’t know and so that’s what you need to do. And so, if your portfolio is sixty percent bonds and thirty percent stocks in ten percent cash, you need to have a benchmark each quarter that you look at, and it should be a blend of the bonds for sixty percent and index an index of either the snp or the russell or some index you’ll agree on and then money market so that you know how you’re doing and you know how your manager’s air doing? You also need to know i’ve seen a board where they had a value manager, and they won one missouri proud of herself for realizing that the value manager net of fi didn’t produce anything. And i looked and i said, well, do you know the russell value index actually produced eleven percent? So never mind that he didn’t make any money for you net of your fee, but he underperformed his sector by eleven percent, ten percent so that’s critical and again that goes back to who you choose to be on your your committee or on your board and how savvy they’re going to be very wealthy people often have advisers like me to do all this for them, and they may have someone underneath him. They’re not going to get into the nitty gritty again, so even very successful people often don’t even they don’t pay attention does not make them savvy about the market just because they have a lot of money invested or i shouldn’t just say about the market about that’s, general, exactly, and the native gritty again of what you need to do. So you know, the statements come out once a quarter. Well, how are they doing? What kind of return of we’ve gotten? Whether you can do this on an annual basis as well, quarter to quarter makes a little easier make angels if something’s going bad, and in the remaining time we have cathy, we want to leave people with some tips for getting into compliance, at least using best efforts to do that on a couple of action items for for different players in the non-profit so what do your ideas for? Getting into compliance now that the law is effective. Well, i think the first place to start is if you have an endowment, you have to have this written spending policy and that’s pretty easy to come up with. I mean, you can look back on history of the organization’s, been around for any length of time, look back to what you’ve done and craft something and make sure you’re in compliance therewith, the donor’s writing letters out to the donors having conversations if the foundation endowment is underwater, make sure you’ve written permission so that they’re too easy things to dio the bigger picture. All organizations need investment policy statement, and the way the attorneys have been guiding us is that if you make best efforts to at least you’ve taken the steps, so your i p s isn’t perfect. It’s not one that i would want to charge you for, but at least you have something in writing and you’ve made some effort to put it together. You’re less likely to get fined, penalised, tilly’s, short term that’s the way we’re looking at it now, they may give you some more time and come back and say, we want something better? Whatever, we don’t really know what’s going to happen because we haven’t really seen a whole lot of finds in this area, but the investment policy statements, the biggest place to start and getting something in place now you khun hyre consultant to do it, you can ask couple boardmember sze yu can put together investment committee and have them do it for you, but delegated if you’re really underwater and you’re running the organization, we’re running as fast you can. You feel like one of those little durables on that little cage then delegated out? Also, if you do have a financial advisor or even just if if you have just a banking relationship, those could be places to look for help. You might have the banking relationship, but they that bank may be able to help you with your gps or thie other documentation. Very often, many of us have things online. We have something it’s very simple that i wouldn’t charge people for, but we can we could easily give that out if we were retained as a consultant for something else. So, you know, very often that’s a good place to look if you also i served on several boards, so i could be very valuable to them in giving this kind of advice and interviewing the managers and interviewing the consultant. So if you have somebody on your board who is a financial adviser, we’re going to be we shouldn’t be managing the money if we sit on the board so we can play a very valued conflict of interest absolutely was wondering why she says that, but we can easily play that role on a professional basis. I’m delighted to do that. That’s what i do for a living it’s very easy for me to do for organization i care about, and you make a very good point about best effort if you can’t. And i’d say the same thing about charity registration, you’re not going to get into compliance in just a few months, but start making the effort so that if there’s a question, you can show something? Yes, exactly. We’re working on it exactly. Okay, so let’s assign some some action items, too different players in the non-profit i think the right place to start is with the board. What? So for the tips to get started what? Do you think the board should be doing first? Well, i think if you don’t have an i p s, then you need to pick a deadline critical, we’ve said the i p s probably six, three times to be exact, that investment policy statement and then these other things on the spending list the asset allocation and if the things that you’re going to in terms of investing your money, you also want to sign that to either if you’re going to let’s say you don’t have investing committee and you want to have one put a deadline in place, maybe it’s june, maybe it’s july don’t let it go on forever because i find again with not-for-profits since they moved very slowly, since the board meets once a quarter everybody’s busy and there’s always something that’s urgent things get tabled. Make sure that this is assigned a priority. Maybe it’s the sea for the first quarter becomes a beef. The second quarter becomes an a plus for third quarter, so it gets done. How about for the cfo or the executive director? If there, if there isn’t a cfo, well, unfortunately they’re the ultimate responsibility, you know, they’re running the organization. So if thie executive director is in charge and there isn’t really someone else to assign this to, then the e d needs to put this on her or his plate okay. And again create a deadline. And if there is development staff, what should? What should those fundraisers to be doing? Well, the development staff can play a very good role. They can reach out to the donors. They can put some of the spending paul seat about that of the underwater in the underwater. Those question exactly. And they can help make the spending policy because there they are. They’re raising the money they know what’s coming in or not coming in. They know how hard it is to raise money so they can go back to the spending policy and help develop that we have to leave it there. My guest has been cathy boyle, president of shaping hill advisers. She’s, a frequent contributor to bloomberg and fox tv. Kathy, thank you very much for joining me on the show. Great to be here, tony. Thank you. And now you put off your horse? Yes. You put off your horses for several hours today. To come to tokyo thank you. Gonna be riding out that ring at four. Thirty next week, we’re going sashadichter in the studio. Sasha is in charge of business development for accufund fund a very savvy, unusual non-profit that invests what they call patient capital in enterprises that combat poverty. Sasha is also a popular blogger and speaker. We’re going to hear how accufund funds work and his personal body of work i can help you or not profit and your career hope you’ll listen next week. You can keep up with what’s coming up? Sign up for our insider email alerts on the facebook page while you’re there, please click like like us. Be a fan of the page that’s at facebook, dot com and tony martignetti non-profit radio you can subscribe to this show on itunes. You don’t have to listen friday one to two we hope you do, but if you can’t itunes, go to non-profit radio dot net that will take you to our itunes page, where you can subscribe download. Listen any time, anywhere on the device of your choice that’s at non-profit radio dot net, the creative producer of tony martignetti non-profit radio is claire meyerhoff, our line producer and the owner of talking alternative broadcasting. His sam liebowitz. Our social media is by regina walton of organic social media, and our theme music was composed by booker t and the mgs were grateful to them for that. This is tony martignetti non-profit radio. I hope you’ll be with me next friday, one p, m eastern here on talking alternative broadcasting always found at talking alternative dot com. Durney i didn’t think that shooting good ending things. You’re listening to the talking, alternate network, waiting to get into anything. Thank you, cubine. Are you suffering from aches and pains? 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