The challenges of uncertainty in a fluid investment climate illustrate the importance of a carefully thought-out investment plan and process.

All financial advisors develop such a sound financial plan for their private clients, employing an appropriate asset-allocation strategy that incorporates the clients’ investment goals and objectives, time horizons and tolerance for risk.

When the client is a nonprofit organization, unique challenges come into play regarding governance and allocation; here, a clearly defined investment policy statement is critical. Yet, in fact, many nonprofits lack such a plan.

In the course of our advisory practice, we’ve worked closely with many trustees and board members at nonprofit organizations, along with their investment committee members and executive staff members. Our purpose: to ensure that all are meeting their responsibilities as plan fiduciaries.

What does the term fiduciary mean? A fiduciary is someone acting in a professional capacity of trust. Such a professional is bound by many strictures, including the “Prudent Investor” standard. Failure to meet these standards can lead to legal liability.


Given the serious responsibilities a fiduciary has, how does the nonprofit organization as a whole ensure that it will be well served when granting protection to the fiduciary? The answer is a formal investment policy statement that outlines the organization’s mission while specifying its goals and objectives.

The statement should define the organization’s guidelines, parameters and limitations, along with the scope of the responsibilities the plan fiduciaries carry.

On a more granular level, the document should detail permissible investment parameters for all asset classes. With cash-flow and budgetary needs in mind, the statement should include restrictions regarding liquidity while specifying minimum and maximum allocations.

Furthermore, fees and costs should be addressed as part of a plan of oversight over investment advisors and money managers. A well-crafted statement will establish a communications schedule for the frequency of meetings and reporting while incorporating benchmarking methodology. Finally, even the best statement ought to include the process by which it can be modified or amended.

The above-stated features are important guides to help and protect plan fiduciaries. A well-crafted investment policy statement should be detailed and specific enough that all parties understand the rules of engagement, but flexible enough that trustees and investment professionals can navigate the complex and fluid nature of capital markets.


Reviewing the statement periodically ensures that it remains appropriate and reflective of the organization’s mission and objectives.

We are fortunate to work with many terrific foundations and endowments. An important function that we serve is to help these clients draft or modify an appropriate investment policy statement. As their advisors, we want to know as much as possible about their goals and objectives, along with their larger philosophies. Are they interested in socially responsible/impact investments? Do they have a bias toward active or passive investment strategies? What are their specific fundraising requirements or needs? We also need to be current on the laws, rules and regulations that could affect the nonprofit as well as its donors and prospective donors.

Clearly, navigating the nonprofit world requires a keen understanding of many complex issues. As advisors, we want to put our clients in the best possible position to be good stewards and fiduciaries in what has become a difficult, compliance-oriented environment. A good investment policy statement is the best way to keep decision makers from making poor judgment calls in terms of market distress and to be good long-term investors overall.

Evan Steinberg and Todd Forman are private wealth advisors with the Wealth Management division of Morgan Stanley in New York, N.Y. The views expressed herein are those of the authors and may not necessarily reflect the views of Morgan Stanley Smith Barney LLC, member SIPC, Morgan Stanley Private Wealth Advisors engage Worth to feature this article. Steinberg or Forman may only transact business in states where they are registered or excluded or exempted from registration. The strategies and/or investments referenced may not be suitable for all investors. Morgan Stanley Smith Barney LLC offers insurance products in conjunction with its licensed insurance agency affiliates.