How well does your organization understand its fiduciary obligations?

In the wake of the market meltdown of 2008, the Madoff scandals, and double-digit losses in endowment values that have caused many not-for-profit organizations to cut programs, sell off assets and eliminate jobs, federal and state governments and donors are beginning to apply scrutiny to the governance and investment practices of these institutions. 

If your staff and investment committee are not fully versed in federal and state laws that govern their actions, they may be inadvertently putting your organization at legal and reputational risk.

How can you quickly gauge their knowledge? Start by assessing their knowledge of legal statutes that govern investment and fiduciary practices. Feel free to copy the following questions and present it to the as a quiz. (Answers are at the bottom of the page). 

1.  Which act provides governs endowment investing practices in your state?


2.  True or False: UPMIFA allows spending of assets from ‘underwater’ funds.


3. True or False: The income generated by a snack bar in your institution is always taxable as Unrelated Business Income Tax (UBIT).


4. The model UPMIFA legislation has an optional provision that requires organization to justify as prudent any spending rate above ___%?


5. True or False: The Pension Protection Act of 2006 requires all supporting organizations to distribute at least 5% of their assets to the supported charity each year.


6. True or False: UPMIFA has specific restrictions on investments in hedge funds, private equity funds, and other alternative investments.


7.  True or False: UPMIFA allows donor restrictions on certain restricted endowment funds to be removed without the donors’ consent.


8. True or False: All hedge funds generate UBIT.


9. Investment and income distribution decisions for charitable trusts administered by your organization are governed by the __________.


10. True or False: UPMIFA prohibits full-time brokers or investment advisors on your investment committee from earning investment fees for the services they provide.

If anyone taking this test answers any of these questions incorrectly, they may be making decisions that are putting your organization at risk. 

To help staff members and committee members understand these rules, Briskin Consulting offers several different training programs to help your staff and board members gain the knowledge they need to carry out their fiduciary responsibilities with greater confidence. 

1.  Getting up to speed with UPMIFA. This course provides an overview of the Uniform Prudent Management of Institutional Funds Act, which establishes fiduciary guidelines for managing endowment assets. The Act as a whole will be covered, as well as any specific modifications your state may have made to the Act.


2.  Should You Be Worried about UBIT? This course covers one of the most confusing aspects of financial management, the Unrelated Business Income Tax. Your team will learn what UBIT is—and isn’t—and will gain techniques for evaluating potential UBIT situations. Special attention will be paid to the UBIT ramifications of investing in alternative investments.


3.  Fiduciary 101. This general course provides an overview of the general fiduciary obligations of endowment managers and development teams, including summaries of the main provisions of UPMIFA and the Pension Protection Act of 2006. 

Why Choose Jeff Briskin?

Jeff Briskin has more than 15 years of experience helping financial services companies deliver exceptional value-added service to institutional clients. He started Focus on Fiduciary, the industry's first and only quarterly publication delivering insights on governance, investment management, and regulatory changes to not for profit institutions. He has also developed training programs to help institutional salespeople, client service managers and financial advisors understand IRS, federal and state regulations governing the behavior of endowment and foundation managers and investment committees. A selection of his articles on various fiduciary topics can be found in the thought leadership area of this site.

Jeff will personally conduct these courses, combining user-friendly presentation of information with interactive exercises, case studies, and plenty of time for discussions and Q&A. All participants will be given a copy of the presentation and a PDF-based summary of the information provided for future reference.

These sessions can be conducted on site or remotely through a webinar. Linkedin members receive a 10% discount for the entire cost of the session.

To learn more about these programs, contact Jeff Briskin today at Jeff Briskin or call him at 508-934-6252.

 

Quiz Answers

 

1. Endowment practices are governed by each state’s implementation of either the legacy 1972 Uniform Management of Institutional Funds Act (UMIFA), or its recent replacement, the Uniform Prudent Management of Institutional Funds Act.


2. True. UPMIFA allows spending of funds from underwater funds, as long as consideration of this spending is done in a prudent manner.*


3. False. If that snack bar is managed and staffed by members of your organization (as opposed to leased to an outside company), and income is used to help the organization fulfill its mission, such income is not generally classifiable as UBIT.


4. 7%.*


5.  False. IRS-compliant Type I and Type II supporting organizations have no minimum distribution requirements. Type III supporting organizations that cannot adequately prove their “supporting relationship” to the supported organization may be subject to IRS provisions governing private foundations, and then subject to 5% annual distributions.


6. False. UPMIFA clearly permits nearly all types of investments, including alternative investments, as long as the investor exercises the proper level of due diligence and risk evaluation to determine whether the investment is prudent.*


7.  True. In certain cases, the restrictions on older, and lower-value endowments may be lifted without the consent of donors, provided that the organization notifies the state’s attorney general that such provisions are being lifted.*


8.  False. Whether a hedge fund generates UBIT or not depends on a number of factors, including its use of leveraged securities. Also, hedge fund registered outside the U.S. (called “offshore funds”) generally do not generate UBIT for the U.S.-based investors.


9.  Each state’s implementation of Uniform Principal and Income Act (UPIA). This act applies only to trusts, not endowment funds.


10. False. UPMIFA has no provisions prohibiting board members from earning investment fees from their services they provide, as long as the fees themselves are reasonable and prudent.*