THE ONLY CONSTANT IS CHANGE: IDEAS AND SOLUTIONS SO YOU ARE PREPARED

As the leader of a prominent not-for-profit organization, you play a crucial role in identifying ways to adapt to myriad challenges, including those that impact your organization’s finances and investments.

Change is constant with your investment program and often presents the biggest challenges.

While fluctuations in donor contributions and shifts in donor priorities are realities you are likely familiar with, market volatility and economic fluctuations introduce another layer of complexity—impacting investor sentiment, potentially affecting donor relations, and posing significant challenges to financial planning and investment strategies. Regulatory changes further compound these challenges, influencing investment decisions, risk management practices, and the ability to achieve economic and mission-driven objectives—especially when balanced with investment strategies that align with your organization’s evolving mission and values, which require flexibility and strategic decision-making. Additionally, staff, board, and Investment Committee member turnover can disrupt established processes.

Beyond these changes, the rise of mergers and acquisitions (M&A) can significantly affect not-for-profits as well. These situations often necessitate finding a new investment consultant who can offer stability, expertise, and customized solutions to manage transitions effectively. M&A activity can lead to changes among investment consultants and partners, such as personnel changes, rebranding, or shifts in ownership structure, adding additional layers of complexity to the situation.

While solid investment governance and strategy can mitigate some of these risks and challenges, others may require special attention.

HOW GOVERNANCE AND STRATEGY MAKE THE DIFFERENCE:

It is no secret that markets constantly change and are unpredictable. The biggest risk to any investor is overreacting during market downturns. The combination of stable governance and sound investment strategy is important for safeguarding assets during periods of volatility.

During these periods, when investment balances are changing rapidly, investor sentiment and discipline is tested the most. Governance and investment policy set processes and guidelines for maintaining discipline to a long-term investment strategy. A robust governance framework provides the foundation for disciplined decision-making, ensuring that the organization remains focused on its mission while navigating financial complexities. Strategic planning enables not-for-profits to anticipate and respond to changes proactively, aligning investment strategies with evolving organizational goals and values. By establishing clear processes and guidelines, not-for-profits can enhance transparency, accountability, and sustainability in their financial management practices. Such strategies should balance risk and return to mitigate intolerable levels of risk and maintain exposure to tolerable levels of risk.

The best defense to periods of volatility and uncertainty is thoughtfully and purposefully allocating funds to safe, liquid vehicles in advance of turbulence. There are various ways to do this: rainy-day-fund, operating pool, short-term pool, capital improvement fund, to name a few. Not-for-profits that rely heavily on spending from investments to support operations will institute flexible spending rules to ensure adequate funding when times are tough and possibly cap spending when times are good.

At Clearstead, we understand the intricacies of not-for-profit governance and strategy, drawing on extensive experience to tailor solutions that align with organizational objectives. By leveraging industry best-practice governance principles and strategic insights, Clearstead empowers not-for-profits to navigate change with confidence and resilience, driving long-term impact and sustainability.

THE ROLE OF INVESTMENT CONSULTANTS AND WHY NOT-FOR-PROFITS MAY NEED A NEW ONE:

Investment consultants play a pivotal role in supporting not-for-profits through periods of change, offering expertise, stability, and personalized guidance to optimize financial outcomes.  Your partnership with your advisor represents many things — continuity, institutional knowledge, cultural and personality fit, and, most importantly, reliability and trust. However, as mentioned earlier, change can affect these partners and lead to personnel turnover, shifts in ownership structure, among others. In such instances, the need for a new investment consultant becomes imperative to ensure seamless continuity in financial management and strategic decision-making.

In the last three years, there has been a record number of mergers and acquisitions of investment advisory firms (see chart below). Some of these will go smoothly and clients of the acquired firm will experience stability and improved capabilities and service. Others will not result in client-friendly synergies and could be a distraction to the consultant and your organization.

When an institution’s investment consultant does experience this type of change, it is common for the institution to conduct a review of the advisor – either formally (i.e., RFP) or informally. Selecting a new consultant requires careful consideration of various factors, including expertise, stability, and alignment with organizational values.

HOW CLEARSTEAD CAN HELP YOU ADAPT:

M&A activity represents a significant change for not-for-profits, necessitating a proactive approach to navigate its implications effectively. Changes in ownership, leadership, or service offerings resulting from M&A can prompt organizations to reassess their financial partnerships and seek new consultants who can provide stability and expertise.

Clearstead’s institutional consulting practice has been providing advice to not-for-profits since 1989. Collectively, our institutional professionals have attended thousands of investment committee meetings. While we do not have empirical data to support our claim, we know and observe every day that high-functioning investment committees and staff, with low turnover, have a greater chance of experiencing favorable investment results. Leadership continuity drives consistent cadence and process. Good committees identify, appoint, and empower solid people with diverse backgrounds; however, some turnover is inevitable. When it happens, institutions that rely on their investment consultant to help orient new people to the process may yield positive outcomes. At Clearstead, we leverage our institutional client portal, which houses all relevant policies, reports, and meeting minutes, to efficiently onboard new staff and committee members.

We pride ourselves on being a long-standing fiduciary to numerous not-for-profits across the country—working with over 230 prominent organizations, of which 90 are not-for-profits, whose assets range between approximately $5 million and $1 billion. Our client average annual retention rate is approximately 97%.[1] We understand the challenges these organizations face and strive to offer solutions that can help them achieve their objectives.

Here are two ways we can help you get started in building a strong future for your organization:

COMPLIMENTARY FIDUCIARY DIAGNOSTIC

Clearstead’s Fiduciary Diagnostic assesses your organization’s investment program:

• • Governance and policy
  • Enterprise risk tolerance and objectives
  • Alignment of asset allocation with the organization’s priorities
  • Investment managers and portfolio construction
  • Investment results
  • Total cost

We collect relevant information, conduct our analysis, and deliver a custom report within 2 – 3 weeks. We are available to meet with key stakeholders of your organization to review our findings. The diagnostic is conducted complementary.

To learn more and request a diagnostic, contact us here.

RFP TEMPLATE

If you’re not sure where to start with conducting a Request for Proposal (RFP) search for an investment consultant, we have an RFP template that includes key questions you should ask when evaluating a new partner for your organization.

If desired, we can walk you through the process of drafting and conducting the RFP.

Request the template by contacting us here.

NOT SURE WHICH OPTION IS BEST FOR YOU?

We would be happy to have a conversation with you about our offerings, discuss your organization’s current situation, and recommend what we think may be best to help you achieve your objectives.

Contact Alex Shannon, Director, Business Development:

info@clearstead.com
(330) 807-2733
5700 Darrow Road, Suite 106, Hudson, OH 44236

ABOUT CLEARSTEAD

Clearstead is a financial advisory firm that enables wealthy families and leading institutions to meet their financial objectives and achieve their aspirations, building stronger futures for their families, their communities, and themselves. With $44 billion in assets under advisement[2], Clearstead has institutional and private clients in 46 states.

Our investment consulting services team is comprised of 25 individuals who have expertise in investment advisory, fiduciary services, governance and oversight, discretionary management, financial modeling and risk management, and retirement plan consulting, among others.

————

[1] Average annual retention rate since 2015

[2] Approximate as of 4/1/2024; Includes employees and assets of Clearstead Advisory Solutions division, also includes Clearstead Trust and Avalon Trust, which are not registered by the SEC