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Is it really not necessary, potentially embarrassing, or too hard?

Posted by J. Richard Lynch, AIFA®, President, fi360, Inc. on November 23, 2015

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Most all of us remember growing up and fighting with our parents (usually mom) when they insisted that we do something we really didn’t want to do and they would often say it was “good for us.”  We didn’t want to do it most probably because from our perspective it was 1) not necessary, 2) potentially embarrassing, or 3) too hard.  When our parents held their ground and we did as they asked, we usually found we were glad to have done so.  A recent CEFEX certification followed a similar path.

CEFEX, the Centre for Fiduciary Excellence, certifies various organizations including investment stewards (endowments, foundations, retirement plan sponsors, and trustees) to a fiduciary standard as defined by fi360’s Prudent Practices.  These Practices were derived from legislation, case law, and regulatory opinion letters.  Last year a steward engaged a CEFEX analyst to review its investment management process to determine where improvements could be made.  They were a reluctant client, doing this only at the insistence of a donor upon whom they relied for significant annual funding.

After his initial review it was clear to the analyst that this steward was far from being ready to be certified as much needed to be done to bring them into alignment with the Practices.  At first, the steward resisted really engaging the analyst most likely because they thought overhauling their investment process was 1) not necessary, 2) potentially embarrassing, or 3) too hard.  This is not uncommon for any organization dealing with an uninvited auditor.  At the end of the day, however, they were certainly glad they did.

It took more than a year to address and correct the shortfalls in their investment management process.  They were working with several investments firms and multiple custodians and it became clear that consolidation of service providers would significantly improve the process and management’s control.  With the analyst guiding them through an RFP process they selected a CEFEX-certified advisor that provided recordkeeping services as well.  This certified firm implemented their process in place of what the foundation had been doing previously and this greatly accelerated moving them towards alignment with the Practices.

They were recently certified by CEFEX and it was very gratifying to see an organization turn things around so dramatically.  At the same time they were able to reduce their annual investment-related expenses by approximately $200,000.  Needless to say, they were very pleased with the results and grateful to the donor who recognized the value of CEFEX Certification.

How about you?  Have you assessed (or asked someone external to your firm to assess) your investment management process?  Did you know there is a standard against which you can measure it (the Practices referenced above)?  Maybe you figure you’re in good shape (and maybe you are).  Maybe you know you’re not, but have hesitated to go down this path because it’s 1) not necessary, 2) potentially embarrassing, or 3) too hard.  What would mom or dad want you to do?

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