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Fiduciary Best PracticesA Framework for Associations and Nonprofits

Sponsored by ASAE Business Services, Inc.

Presenters

Carlsen Griffith, CPA

Director of Financial Management, National League of Cities

Walter Kelly, CPA, CFE

Chair, Investment Advisory Committee, National Leagues of Cities

Partner-in-Charge of Clifton Gunderson's Public Sector Practice

Blaine F. Aikin, AIFA, CFA, CFP®

Chief Executive Officer, Fiduciary 360

Moderator

Robert R. Patterson, AIF®

Senior Consultant, Capital Advisory Group

Tuesday, October 20, 2009

2:00 – 3:00pm (Eastern Time)

Today’s Presenters

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Robert Patterson, AIF®, has 30 years of investment management experience, and specializes in the needs of associations and nonprofits. He is currently a senior consultant with Capital Advisory Group of Richmond, Virginia.

Previous experience includes business development responsibilities for a large, privately held bank and trust company in Washington, DC, as well as working with the Union Bank of Switzerland.

Carlsen Griffith, CPA, Mr. Griffith is the Director of Financial Management for the National League of Cities, a position he’s held for more than 15 years. In his role, Carlsen is responsible for coordinating the organization’s investment activities, which includes managing an investment advisor and five investment managers. Prior experience includes serving as the controller of Delphi International Group in Washington, DC, and the manager of finance and administration for Telocator.

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Today’s Presenters

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Walter Kelly, CPA, CFE, is the Partner-in-Charge of Clifton Gunderson’s Public Sector Practice. A graduate of Indiana University with a major in Accounting, Walt has over 39 years of experience, with the last 33 years devoted to providing public sector attest and consulting services.

Walt currently chairs the National League of Cities (NLC) Investment Advisory Committee and is a past NLC Board member, Advisory Council member and several other NLC committees during his two decades of service to the NLC.

Blaine Aikin, AIFA, CFA, CFP®, is the CEO of Fiduciary 360 (Fi360), and the author of numerous articles about fiduciary responsibility and investment management, including a monthly Fiduciary Corner column in InvestmentNews magazine. He is also a founding member and a Steering Group member of the Committee for the Fiduciary Standard. Blaine is a former Director of Product Development and Management for PNC Advisors and, prior to that, was a principal and Chief Investment Officer of Allegiance Financial Advisors.

Learning Objectives

1. Understand the role and responsibilities of a fiduciary

for your organization.

2. Review how one association developed an effective

investment governance structure.

3. Define the Global Fiduciary Standard of Excellence

(GFSE) as it relates to associations.

4. Determine how to assess your organization’s fiduciary

activities for conformity to the GFSE.

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Polling Question #1

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Is your organization in conformance with best

fiduciary practices and have you minimized

your exposure to fiduciary laws?

Yes

No

Don’t Know

GFSE Investment Governance Model

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Investment Manager

Custodian

Investment Adviser

Investment Steward

Investment Committee/CEO

or CFO

Investment Consultant

Bank/broker-Dealer

Fund or Portfolio Manager

Organization officials who are

responsible for managing the overall

investment decision-making process of

the portfolio

Regulated professionals who are

responsible for managing the investment

process by providing comprehensive and

continuous advice

Regulated Professionals who are

responsible for executing investment

decisions; buying/selling securities,

according to an investment policy mandate

Bank legally responsible for ensuring that

financial assets are kept safe and provides

reporting

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Investment Fiduciary Concerns

Performance

• Maintaining equity/principal

• Covering spending plus costs and inflation

Legal/Headline Risks

• Documenting compliance

• Preserving reputation in community

Time Constraints

• Limiting time commitment of association executives and board members

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Understanding Fiduciary Liabilities

� Fiduciary responsibilities can be shared but

not abdicated.

� Liability exposure exists where there are

unfulfilled responsibilities.

� Fiduciaries can reduce liability by identifying

and filling gaps in their practices.

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Model

Developing an Effective Investment

Governance Structure

(National League of Cities)

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Polling Question #2

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Do you understand how your service providers

are being compensated, and do you feel

comfortable with the level of disclosure

around potential conflicts of interest?

Yes

No

Unsure

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Model: National League of Cities

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Challenge: After spending 10 years working with

a full service broker, the investment committee

became increasingly skeptical due to a lack of

transparency around broker compensation.

Model: National League of Cities

Guiding Principles:

The National League of Cities developed guiding

principles in selecting a new advisor, which

included:

� Increase transparency and independence

� Increase flexibility

� Preserve performance of shorter term reserve

fund (80% fixed income) and enhance longer

term building fund (60% equities/40% fixed

income)

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Model: National League of Cities

Process & Solution:

1. Selected an independent advisor. Separated custodial, investment

advisor, and investment manager functions for increased

accountability and transparency (1999).

2. Revised and refined an investment policy, approved by Finance

Committee (1999).

3. Created an Investment Advisory Committee to provide continuity,

responsiveness, and financial expertise (2002).

4. Have investment advisor help vet investment managers and

continually evaluate performance (ongoing).

5. Assessed and revised Investment Policies to conform to the

Global Fiduciary Standard of Excellence (2008).13

Model: National League of Cities

Time & Expense Savings

• Less time spent preparing internal updates with comparisons against indices

• Fewer unnecessary trades

• Reduced manager fees

• Reduced fee from custodian

• Reduced active trading

Added Peace of Mind

• Advisor helped complete the GFSE checklist

• Increased awareness around opportunities to improve

• Presented opportunities to celebrate the designation with board and investment committee

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Benefits:

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Model: National League of Cities

Our Advice to You:

� Ask your current advisor the tough questions that

concern your organization.

� Designate an investment advisory committee of

key organizational stakeholders.

� Conduct a search that leads you to work with

someone who is objective, understands your

needs, and will work professionally with you

through the process.

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Model: National League of Cities

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Corporate Governance Issues:

� Provide a Safe Harbor for Board policy implementation

� Respond to requirement for more comprehensive

disclosures - UPIA,UPMIFA,MPERS

� Communicate more clearly to members

� Establish a more Institutionalized process for the

development, understanding and revalidation of

policies and procedures

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Questions?

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Question Break

Polling Question #3

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Before today, how familiar were you with the

Global Fiduciary Standard of Excellence?

Very

Somewhat

Not at all

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What is the Global Fiduciary Standard of Excellence?

The Global Fiduciary Standard of Excellence

(GFSE) is the model for benchmarking

investment stewardship and fiduciary

conduct. Excellence is established by 22

practices that provide the framework of a

disciplined investment process.

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The GFSE: A Brief History

1926 – 1942 International

Federation of the Standards Association

(ISO 1946)

1999

Center for Fiduciary Studies Established*

2006

CEFEX adopts an ISO-Type Global Standard of Excellence with 22

best practices; consultants become

accredited as an AIFA®, AIF®

20*Predecessor to Fiduciary360

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GFSE: Current Legislation of Importance to Associations

� Uniform Prudent Investment of Institutional

Funds Act

� Strong emphasis on fiduciary principals

� Presumption of imprudence for spending rate greater than

7% per year

� Regulatory Reform initiatives now being

deliberated in Congress

� Extension of fiduciary standard to all who provide advice

� “Harmonization” of broker-dealer and adviser regulation

� Full and fair disclosure

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From Precepts to Practices

Standard of

Practices

Practices

Precepts

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A body of knowledge required for a person/org to meet expectations

Applications of the precepts, founded in law & research

Principles founded in law

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Global Fiduciary Precepts

1. Know standards, laws, and trust provisions.

2. Diversify assets to specific risk/return profile of client.

3. Prepare investment policy statement.

4. Use ‘prudent experts’ (money managers) and document due

diligence.

5. Control and account for investment expenses.

6. Monitor the activities of ‘prudent experts’.

7. Avoid conflicts of interest and prohibited transactions.

23Source: Fiduciary360

Objectives of the Practice

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1.

• Define prudent processes for investment fiduciaries that are comprehensive, but not cumbersome.

2.

• Provide a checklist approach to guide any investment fiduciary in the pursuit of fiduciary excellence.

3.

• Enable any organization to assess its fiduciary activities to determine conformity to the Global Fiduciary Standard of Excellence.

Source: Fiduciary360

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Components of a Practice

Source: Fiduciary 360

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Handbook for Investment Stewards

Source: Fiduciary 360

http://www.fi360.com/main/pdf/handbook_steward.pdf

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Fiduciary Quality Management System

Source: Fiduciary360

Benefits of Conforming to the GFSE

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Improves

compliance

and reduces

liability

Improves confidence

in the Board,

Investment

Committee, and staff

Ensures funding of

short-term goals and

may improve

investment

performance

Encourages

member

participation

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Next Steps for your Organization

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� Complete a self-assessment for your organization, and

discuss the findings with your executive team and

investment committee.

� Contact your current investment advisor to discuss

opportunities to improve your fiduciary practices based

on your organization’s self-assessment.

� Implement recommended improvements to meet the

GFSE’s 22 best practices.

Additional Resources

� Uniform Law Commission, Uniform Prudent Investment

of Institutional Funds Act (www.upmifa.org)

� Investment Fiduciary Leadership Council

(www.IFLCouncil.org)

� Center for Fiduciary Excellence (www.cefex.org)

� Global Fiduciary Standards of Excellence checklist

(www.Fi360.com)

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This presentation is being made for educational purposes only. The information contained herein should

not be construed as investment advice or as an offering to provide investment advisory services.

Comments pertaining to fiduciary law should not be construed as the rendering of legal advice. We

recommend that you confer with counsel for questions relating to legal interpretations, including any

assessment of your present investment governance practices.

A copy of our written disclosure statement discussing our investment advisory services and fees is available

for review upon request.

CapGroup has agreed to provide the association and nonprofit industry with a discount from CapGroup’s

standard fee schedule for services provided under the Fiduciary Investor Program. In addition, CapGroup

will share its investment advisory fee with ASAE Business Services, Inc. on a fully disclosed basis. Such fee

sharing will not increase the costs to organizations participating in the Fiduciary Investor Program for

associations and nonprofits. ASAE Business Services, Inc. cannot provide a qualitative assessment of

CapGroup’s services, nor has ASAE Business Services, Inc. assessed the suitability of CapGroup’s services

for any individual association or nonprofit.

Disclosures

Questions?

Thank you to our presenters…

Carlsen Griffith, CPA

Director of Financial Management, National League of Cities

griffith@nlc.org

Walter Kelly, CPA

Partner-in-Charge of Clifton Gunderson's Public Sector Practice

Chair, Investment Advisory Committee, National Leagues of Cities

walter.kelly@cliftoncpa.com

Blaine F. Aikin, AIFA, CFA, CFP®

Chief Executive Officer, Fiduciary 360

blaine@fi360.com

…and to our moderator

Robert R. Patterson, AIF®

Senior Consultant, Capital Advisory Group

bpatterson@thecapgroup.com

…and to our sponsors

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