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).
- Which act provides governs endowment investing
practices in your state?
- True or False: UPMIFA allows spending of
assets from ‘underwater’ funds.
- True or False: The income generated by a snack
bar in your institution is always taxable as Unrelated Business Income Tax
(UBIT).
- The model UPMIFA legislation has an optional
provision that requires organization to justify as prudent any spending rate
above ___%?
- 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.
- True or False: UPMIFA has specific restrictions
on investments in hedge funds, private equity funds, and other alternative
investments.
- True or False: UPMIFA allows donor restrictions
on certain restricted endowment funds to be removed without the donors’ consent.
- True or False: All hedge funds generate UBIT.
- Investment and income distribution decisions for
charitable trusts administered by your organization are governed by the
__________.
- 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.
- 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.
- 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.
- 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
- 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.
- True. UPMIFA allows spending of funds from
underwater funds, as long as consideration of this spending is done in a
prudent manner.*
- 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.
- 7%.*
- 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.
- 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.*
- 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.*
- 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.
- Each state’s implementation of Uniform Principal
and Income Act (UPIA). This act applies only to trusts, not endowment funds.
- 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.*
For more information on these courses, contact Jeff Briskin today.
*The UPMIFA-related answers are based on the the model UPMIFA legislation finalized by the National Conference of Commissioners on Uniform State Laws (NCCUSL) in 2006. Each state is permitted to eliminate or modify any of its provisions, or add state-specific provisions in its own version. Not for profit organizations should always refer to their state's version of UPMIFA.