What to Expect from Your Investment Consultant: Reports and Fees
Reporting is the means of knowing what is happening in an investment portfolio. Reports should illustrate whether assets are growing or shrinking, whether returns are “good” or “bad,” and where funds have gone. By providing this information, reports should facilitate fiduciary oversight.
There are several types of reports that investment consultants should prepare for nonprofits:
- Accounting reports – These reports support the month-end/quarter-end close process and should be delivered within a reasonable time following the end of a period.
- Flash reports – Flash reports provide a summary snapshot of preliminary investment results and are published shortly after period end.
- Investment Committee reports – Reports for investment committees should focus on returns, benchmarks, and asset allocations. These reports should allow committees to verify whether portfolios are being managed in line with the investment philosophy and investment policy.
- Donor reports – These reports provide summary information on donor-directed endowments and planned gifts. They can serve as useful donor engagement tools.
- Audit support – Audit support may come in several forms and allows auditors to substantiate the data within the organization’s accounting records.
Investment consultants often use powerful reporting systems that can make a great deal of information easily accessible and provide a degree of customization in reporting. Nonprofits can benefit from these reporting systems to stay well-informed on their investment portfolios.
Fees are typically an area of focus for nonprofits, but organizations often struggle to analyze and compare fees across different consultants. A key reason for this difficulty is the existence of different types of fee arrangements, which are summarized below:
- Asset-based fees – This is the most common type of fee structure. Asset-based fees are expressed as a percentage of assets and often include multiple tiers. As the levels of assets in a relationship grow, the fee as a percentage of assets typically declines.
- Flat fees – Consultants may charge a particular annual dollar amount for a defined set of services.
- Project-based fees – A project-based fee may be used for an engagement other than ongoing management of assets, such as an investment program audit.
It is important for nonprofits to have a clear understanding of not only the investment consultant’s fees but also the costs of the investment products and custody/trading. Consultants should keep nonprofits apprised of fees through some combination of invoices, accounting reports, and cost analysis. It is also important for the organization’s accounting team to check fee calculations and verify fee reporting from the consultant against custodial statements.
Investment consultants can provide a significant amount of value to a nonprofit. While many consultants can construct and oversee a portfolio, your nonprofit should look for a provider who can also build a fiduciary framework, provide solid reporting, and be an asset to your development team. With the proper fit, your nonprofit will be well-positioned to thrive as a steward of the assets entrusted to you.
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About the Author
Winters Richwine is Chief Operating Officer and a Principal of Cornerstone Management. In this role, he develops and implements firm initiatives regarding process and efficiency and supports the portfolio management and charitable trust tax teams.Sign up for e-news and alerts