Although a standard of care is already in place for institutions,
via the Uniform Prudent Management of Institutional Funds Act (UPMIFA), the
coverage of the DOL fiduciary rule and related plan sponsor lawsuits in recent
years have brought “renewed awareness” within the industry to improve fiduciary
processes, according to Billy Lanter, fiduciary investment adviser at Lexington,
Ky.-based Unified Trust Co.
“No institution wants to be a headline, as it relates to
litigation, so the rule of a fiduciary is a much hotter topic today among
foundations and endowments,” he says.
Institutional clients can uphold the UPMIFA standard of care and
build donor trust by removing conflicts of interest, improving fund and asset
quality, reducing fees and assessing concentration risk, he adds.
Of course, doing so is a process rather than an overnight fix. “Fiduciary
education must be an ongoing commitment to the institutional culture, especially
with board and staff turnover,” Lanter says.
A few best practices include creating an appropriate investment
policy statement (IPS) that states the organization’s goals; regularly
reviewing and benchmarking all investment fees; and establishing a definition
of imprudent assets along with a process to dispose of them.
One of the most common mistakes institutions make in this
regard, according to Lanter, is using multiple money managers without an
effective or documented process to review investment management decisions.
“Delegating investment management decisions is fairly common,
but when using multiple managers, the fiduciary duty of the organization is to
ensure that each manager’s strategy is in concert with one another and
consistent with the Investment Policy Statement,” he says. “This can be a
rigorous process and institutions often don’t have a documented process to
monitor this holistic type of review because they are simply unaware of this
responsibility and how to manage it.”
He also suggests improving processes for selecting and
evaluating an investment manager. It’s not just about fees and performance, but
also about whether the manager can adhere to fiduciary best practices and
implement and review the IPS.
And in the end, it all comes back to donor trust. “As anyone who
has spent time soliciting donations will tell you, trust is at the core of any
major gift,” Lanter says. “As a donor, how do I know my gift will be managed in
a prudent manner, used to further the mission of the organization and is
exposed to reasonable fees?”
By Corie Hengst