Financial advisor for a synagogue

[Elis1980]

Good evening everyone.

I have been forcibly recruited onto the board of my family's synagogue. I say "forcibly recruited" because the median age on that board starts with an 8, and there are... shall we say... "openings" on a regular basis. The fact that my great-great-uncle was was part of the founding congregation 100+ years ago does not give me much leeway to decline this fabulous honor.

The synagogue has a surprisingly large cash balance (low 7 figures). As far as I can tell, its due to years of dues accumulation and some recent bequests, and mostly goes to maintain the graveyard, pay for maintenance, compensate the rabbi (non-resident rabbi, only comes in for weddings, funerals, and high holy days, etc.)

This year, the board is looking for options to invest the cash. One of my board colleagues used to be on the board of a bank before he retired (that was in the 1990s). He made a few calls and we recently received a presentation from a Vice President from a regional bank's wealth management division. The proposal he gave us is for a 1% management fee. After some digging in the fine print, I realized this did not include the mutual funds' embedded management fees or load fees. As far as I can tell, this works out to 2-2.5% of assets under management per year, which I understand from reading this forum to be highway robbery.

My board is very conservative and is uncomfortable challenging the accepted wisdom and probably wouldn't know where to start, but they have asked me to assess alternatives. From doing some deep reading in these forums, I understand that a "three fund portfolio" -- weighed heavily towards principal protection -- would probably be most appropriate. That being said, neither I, nor any members of our board, have any appetite or ability to manage it ourselves. I am also leery about the "politics", i.e. if we go with this guy, we'll get robbed, but if things go sour, this guy gets blamed. If we go in another direction, especially if I recommend it, and things go sour, then I get blamed. Actually, come to think of it, if that happens, I might be kicked off the board, which wouldn't be a bad outcome...

But in all seriousness, is there a more reasonably priced "Bogle-friendly" approach for this institution? I tried looking into Vanguard's Personal Advisory Services, which sounds like a decent fit, but I think that's only for individuals.

[arcticpineapplecorp.]

not sure who's taking clients but:

Jim Lange Financial group (Pittsburgh area/Squirrel Hill) might be able to help (he's a CPA and attorney). Not sure how much he charges (1% in the industry is fairly standard) but they use DFA (so lower fee funds) and Buckingham Asset Management (Larry Swedroe has been on Jim's radio show last year). source: https://paytaxeslater.com/

Allan Roth: www.daretobedull.com (hourly planner)

Rick Ferri https://rickferri.com/ (hourly advice for do it yourself investors)

Appella Wealth (merged with former Vestory, Tom Cock and Don MacDonald). You can still register for Retiremeet (free for virtual) to get an idea of their philosophy etc (https://retiremeet.com/)

www.Merriman.com

maybe Mark Zorill (https://planvisionmn.com/)

that should be a good start

[HomeStretch]

I don’t have a brokerage/advisor recommendation.

Before selecting a brokerage/advisor, the Board should consider first developing an Investment Policy that will provide guidelines on, among other things, how much of the cash reserves can be invested, what types of investments are allowed, frequency of review of investment performance, etc.

‘How much is available to invest’ is tied into the synagogue’s projections of revenues, operating expenses and capital expenditures. So the financial planning also needs to be up-to-date.

[NewMoneyMustBeSmart]

Given the conservative board, find a discount brokerage like Schwab or similar to manage it for a lower fee. Or hire a reputable Registered Investment Advisor ("RIA") to manage the money according your IPS with low fees.

Most of these 1% fees are for ~$1M. Over $1M-5M they drop down to 0.5% or less.

[Duckie]

The synagogue has a surprisingly large cash balance (low 7 figures).

This year, the board is looking for options to invest the cash.

My board is very conservative

Does your synagogue have any written rules concerning how the money is allowed to be invested? My church (which has nowhere near your high balance) does and it is very conservative at 70% cash (CDs, money markets, savings accounts), 20% treasury bonds, and 10% equities.

One of my board colleagues used to be on the board of a bank before he retired (that was in the 1990s). He made a few calls and we recently received a presentation from a Vice President from a regional bank's wealth management division. The proposal he gave us is for a 1% management fee. After some digging in the fine print, I realized this did not include the mutual funds' embedded management fees or load fees. As far as I can tell, this works out to 2-2.5% of assets under management per year, which I understand from reading this forum to be highway robbery.

No, just no!

From doing some deep reading in these forums, I understand that a "three fund portfolio" -- weighed heavily towards principal protection -- would probably be most appropriate. That being said, neither I, nor any members of our board, have any appetite or ability to manage it ourselves.

You could purchase a balanced fund. Vanguard LifeStrategy Income Fund (VASIX) has 20% stocks and 80% bonds. The Target Retirement Income Fund (VTINX) has 30% stocks and 70% bonds. Or if you want to avoid international you could buy individual funds like 20% Total Stock (VTSAX), 40% Total Bond (VBTLX), and 40% Short-Term TIPS (VTAPX).

[neurosphere]

What are all the funds currently invested in?

They may want to simply keep it all in a Treasury money market fund or other similar investment with no risk to principal. Even a three fund portfolio with 20% equities could result in a 10% drop and some will say "what happened to that $150,000!?!?"

And as recent history has shown, even very short term bond funds had outsized or unexpected loss of principal.

The suggestion for an investment policy statement approved by the board is a good one and perhaps an advisor can help set them come up with one?

I'm on the investment committee of a non-profit that has $50,000,000 in assets and which has found an investment advisor charging only 0.1% assets under management. I know that your assets are much lower, but paying 1% is still VERY high, especially for conservative investments. For example, if one is invested in almost all bonds, they may be expected to keep up with inflation or just above. Suppose long term inflation is 3% and the bonds earn 1% above that for a total of 4%. A 1% AUM fee represents a full 25% of the total return and 100% of the real return.

[bsteiner]

If you don't want to do the conventional 60/40 with Vanguard, Fidelity or Schwab funds, you could pay Vanguard 0.3% to "manage" it for you. That way you can say you have someone else doing it.

[Makefile]

Does your synagogue have any written rules concerning how the money is allowed to be invested? My church (which has nowhere near your high balance) does and it is very conservative at 70% cash (CDs, money markets, savings accounts), 20% treasury bonds, and 10% equities.

Adding to that, it's arguably more tax-efficient for a non-profit organization's donors to do the investing and donate their appreciated securities, rather than the non-profit organization to do the investing on donated cash. It's obviously different for large funds like college endowments, and perhaps even the organization here if the sum represents many years of expenses.

[Elis1980]

What are all the funds currently invested in?

The funds are sitting in a checking account.

[Makefile]

What are all the funds currently invested in?

The funds are sitting in a checking account.

Hrm, perhaps the first priority is to figure out the FDIC insurance situation before digging deeper?

[Stinky]

What are all the funds currently invested in?

They may want to simply keep it all in a Treasury money market fund or other similar investment with no risk to principal. Even a three fund portfolio with 20% equities could result in a 10% drop and some will say "what happened to that $150,000!?!?"

And as recent history has shown, even very short term bond funds had outsized or unexpected loss of principal.

The suggestion for an investment policy statement approved by the board is a good one and perhaps an advisor can help set them come up with one?

These are all excellent points / suggestions.

How is the money invested now? If it’s sitting in a checking account, the synagogue could add 3-4% to its yield by just moving into a money market fund.

My church, which has a balance less than half of OP’s, is in a federal money market fund. Such a fund would align very well with a “very conservative” board.

A starting point for anything more aggressive than a MMF needs to be an investment policy statement. Developing one will indicate how tolerant the board is of a potential market value loss.

[nedsaid]

There is the old Talmudic wisdom that resources should be split three ways: money, inventory, and land. Something like that. Does this imply 1/3 Bonds, 1/3 Stocks, and 1/3 REITs? That is probably way too aggressive for your house of worship but what I am saying that there are probably within your rich tradition writings that would address questions you are asking here.

You would probably want an Advisor with an appreciation for Jewish culture, it seems that the funds would be invested in a manner consistent with your religious principles. Just wonder if you want an Advisor from your broader religious community that would be very attuned to the sensitivities and preferences of people in your faith tradition.

[grilli]

Given the board dynamics and the nature of the organization, I agree with the suggestion to put all the money in a money market fund. That is as conservative as it gets, but also provides a big improvement over the checking account option.

[chris319]

They may want to simply keep it all in a Treasury money market fund or other similar investment with no risk to principal. Even a three fund portfolio with 20% equities could result in a 10% drop and some will say "what happened to that $150,000!?!?"

^^^This.^^^

If a three-fund portfolio dropped 10% ($150,000), would you or the advisor be legally liable for allegedly mismanaging the funds? They could come after you for taking imprudent risks with the funds. Even if they didn't prevail at trial they could still make trouble for you. We live in a litigious society now so don't dismiss that eventuality.

Stop and think what an advisor is going to do for you besides suck up his/her fee, i.e. what is he/she going to do to earn it? It's a synagogue, not a working person growing his portfolio for retirement.

If I were in charge, I would decree that there be NO risk to principal. That rules out a three-fund portfolio or a 60/40 or whatever portfolio. Right now the money is sitting in a checking account and for the sake of simplicity let's assume that it is drawing no interest. That means it won't keep up with inflation.

I would look for some place to park the money with a) no risk to principal, and b) pays interest high enough to keep ahead of inflation. Don't be greedy. Once you park the money I don't see the need to pay an ongoing management fee. I'd start by inquiring at the bank to see what they can do for you, maybe some kind of money-market fund. A CD or savings account probably won't pay very much.

I assume they already have someone to keep the books? The account would grow through donations from the congregation rather than capital appreciation which involves market risk.

[placeholder]

It sounds like you might be able to designate part of the holdings as longer range needs and buy treasuries including inflation protected ones laddered in a way that each year will have a new pot of money available without having to sell any of the bonds at loss if rates go up.

[ResearchMed]

There is the old Talmudic wisdom that resources should be split three ways: money, inventory, and land. Something like that. Does this imply 1/3 Bonds, 1/3 Stocks, and 1/3 REITs? That is probably way too aggressive for your house of worship but what I am saying that there are probably within your rich tradition writings that would address questions you are asking here.

You would probably want an Advisor with an appreciation for Jewish culture, it seems that the funds would be invested in a manner consistent with your religious principles. Just wonder if you want an Advisor from your broader religious community that would be very attuned to the sensitivities and preferences of people in your faith tradition.

I have no idea if their money "should" be invested this way, but IF it were to be, if they own the synagogue and the land, that would presumably count toward "land".

But yes, to the extent that there is or might be religious issues to deal with when investing this money, some sort of direction would be helpful. Whether the rabbi could suffice...??
It would also need to be determined what this money is for, including what time frame, etc.

RM

[livesoft]

I am on the finance committee of a non-profit. The non-profit has an Investing Policy Statement now. The non-profit has some fixed annuities purchased before I was on the committee and invests the rest in a target risk fund at Vanguard, namely a LifeStrategy fund. Vanguard is happy to have the non-profit as a client. There are no add-on management fees at all. The CEO of the non-profit doesn't have to worry about investing.

[Impatience]

Don’t know if you should put that money into stock. No matter how bogleish the allocation.

Seems like a question of treasury management, not personal finance.

I recommend moving from a checking account to some combination of CDs, money market, or us treasuries. You want liquid assets that will earn a market rate of interest and not fluctuate in value.

[Watty]

I don't know how your synagogue would be organized and if it is independent or part of a larger group of synagogues that have some sort of structure on the regional or national level.

If it is part of a larger regional or national organization structure then they may have agreements with advisors or financial resources that they use which would be useful. A risk of that is that they could be using a bad or expensive financial advisor so there would be pressure to also use them. If nothing else they may be able to give you some pointers on problems to avoid.

They may also have things like a yearly conference which would have sessions on how to manage the finances for a synagogue.

There might also be other large synagogues in your area that you could connect with to ask how they manage their finances.

[bsteiner]

There is the old Talmudic wisdom that resources should be split three ways: money, inventory, and land. Something like that. Does this imply 1/3 Bonds, 1/3 Stocks, and 1/3 REITs? That is probably way too aggressive for your house of worship but what I am saying that there are probably within your rich tradition writings that would address questions you are asking here.

You would probably want an Advisor with an appreciation for Jewish culture, it seems that the funds would be invested in a manner consistent with your religious principles. Just wonder if you want an Advisor from your broader religious community that would be very attuned to the sensitivities and preferences of people in your faith tradition.

The Talmudic wisdom to diversify is good.

If you had to classify it along the stocks and bonds spectrum, I think real estate is somewhere in between stocks and bonds but closer to stocks.

Charitable endowments typically invest 60/40, ignoring the exotic investments of the Yale endowment which a small endowment wouldn’t do.

I’m on the board of a foundation with about $5 million. It’s invested 60/40 in index funds. There was some discussion of 70/30 because our grantees aren’t dependent on our grants but the board nevertheless decided 60/40. We couldn’t decide between the S&P 500 and the total U.S. stock market so we did half of each. The board opted against international. We rebalance once a year by withdrawing the 5% we give away from whichever place is above the target. We deviated once, earlier this year, by doing this year’s selling now and putting into a Treasury bill the 5% we’ll give away later this year.

I don’t know what advice the synagogue would want.

[BarbBrooklyn]

Stay far away from "financial advisors". Salesmen in banker's suits.

Your shul's by-laws probably have specific language regarding financial matters (mine does). No investments that are not guaranteed. So, FDIC-insured or government issue.

[HomeStretch]

Given that your Board is conservative, perhaps investing the funds in high yield savings accounts, CDs and Treasuries is a good first step. It should be done sooner rather than later as the checking account balance is above the FDIC guarantee level.

Does your Board have in place a D&O/liability policy?

Review also the controls over the cash to see if they are strong - i.e., limit the # of people that can access the accounts, set up signing authority levels for checks, etc.

[ClevrChico]

When I was on a board with about 1/10th your assets, we put them into CD's and never had any drama. (If you're on a board, you'll understand the benefit of one less thing to cause drama. Who is going to argue about a nice, safe CD at a local brick and mortar bank? ) That might be something to consider for a portion/all of your funds.

I also like the idea of paying Vanguard .3%. Or, pay a fiduciary an hourly rate. Definitely avoid the typical insurance salesman/FA.

My two cents from years of being free labor for a non-profit.

[JayB]

Before making any decisions about how to invest the funds, I would want to see a spreadsheet, with projected inflows (from dues etc.) and expenses by year for the next 20 years or so. Then, for important and relatively expensive goals, I would consider investing in zero-coupon Treasurys (STRIPS) that mature in the years that those expenses are projected to occur. With the rest, I'd keep the funds in Treasury bills/notes/bonds, perhaps in a rolling ladder. The objective would be capital preservation with some planned liquidity each year. It looks like the synagogue has no pressing needs that will be unmet with existing and projected resources, so there's no need to get into stock market risk. In a sense, the synagogue has already "won the game" financially, so no need to get into the equities -- or other "risky" assets game.

[dbr]

Money for an organization like this should not be invested, not in stocks, not in bonds, and not with an investment advisor. Especially the investments should not be with a friend of a board member and not at 2+%.

CDs, savings accounts, maybe at an extreme T bills, etc. are fine. Sitting in a checking account is not very effective and too much money at too easy access, but much worse could be the case.

Note: Have you considered your personal liability for any financial losses that occur due to investment decisions on the part of the board?

I would wonder if the board might spend some time understanding what this money is for.

[Elle_N]

I cannot tell whether the board has established that there's X amount of money sitting in a bank account that will not be needed for at least ten years, and it is this X amount of money for which the board needs advice. Before responding, perhaps consider the following:

Almost assuredly this synagogue is a 501(c)(3); donors have been deducting their contributions through the years; the synagogue may have been filing an annual IRS Form 990; and so on, like the great multitude of religious culture organizations nationwide. The OP should confirm this.

Organizations qualifying under IRC 501(c)(3) often invest in stocks. Doing so is often, though not always, the wise course. When is it not the wise course? In my opinion this depends on the organization's reserve study and annual budget. If the OP does not know what a reserve study is, or a reserve study has never been done (which is hard to believe), then I advise getting an introduction to this. The reserve study will dictate short term and long term financial needs. IRS rulings, for one, will dictate how reserve funds must be segregated from operating funds so that there are minimal repercussions tax-wise. A small introduction: https://www.rdanorthwest.com/reserve-st ... rve-study/ . The synagogue's bookkeeper or accountant might have much more to say on how much money is not expected to be needed for at least ten years (preferably 15 or 20?).

Front and center on my mind is that there appears to be a building and meaningful infrastructure involved. A reserve study is essential and should be driving much of the asset allocation (if any beyond CDs and money market funds/accounts) here.

[bsteiner]

...
Almost assuredly this synagogue is a 501(c)(3); donors have been deducting their contributions through the years; the synagogue may have been filing an annual IRS Form 990; and so on, like the great multitude of religious culture organizations nationwide. The OP should confirm this.

Organizations qualifying under IRC 501(c)(3) often invest in stocks. Doing so is often, though not always, the wise course. ...

Yes, endowments should be invested in a reasonable way.

Churches (which for this purpose includes synagogues) don't have to file returns. While the instructions to the forms are not authority, see page 3 of the instructions: https://www.irs.gov/pub/irs-pdf/i990.pdf.

[Elle_N]

...
Almost assuredly this synagogue is a 501(c)(3); donors have been deducting their contributions through the years; the synagogue may have been filing an annual IRS Form 990; and so on, like the great multitude of religious culture organizations nationwide. The OP should confirm this.

Organizations qualifying under IRC 501(c)(3) often invest in stocks. Doing so is often, though not always, the wise course. ...

Yes, endowments should be invested in a reasonable way.

Whether this is an endowment fund of which the OP is speaking is the elephant in the room for me. I know endowment funds are common among synagogues and churches and I believe need to be seen more, and invested more, like the endowment funds for, say, universities.

[bsteiner]

...
Almost assuredly this synagogue is a 501(c)(3); donors have been deducting their contributions through the years; the synagogue may have been filing an annual IRS Form 990; and so on, like the great multitude of religious culture organizations nationwide. The OP should confirm this.

Organizations qualifying under IRC 501(c)(3) often invest in stocks. Doing so is often, though not always, the wise course. ...

Yes, endowments should be invested in a reasonable way.

Whether this is an endowment fund of which the OP is speaking is the elephant in the room for me. I know endowment funds are common among synagogues and churches and I believe need to be seen more, and invested more, like the endowment funds for, say, universities.

I assumed it was since the original poster said this:

...
The synagogue has a surprisingly large cash balance (low 7 figures). As far as I can tell, its due to years of dues accumulation and some recent bequests, and mostly goes to maintain the graveyard, pay for maintenance, compensate the rabbi (non-resident rabbi, only comes in for weddings, funerals, and high holy days, etc.)
...

For an endowment of this size, it's not practical to invest it like the Yale endowment. But other than the possible internal politics of a membership organization it shouldn't be hard to invest it in a reasonable way for an endowment.

[nedsaid]

Money for an organization like this should not be invested, not in stocks, not in bonds, and not with an investment advisor. Especially the investments should not be with a friend of a board member and not at 2+%.

CDs, savings accounts, maybe at an extreme T bills, etc. are fine. Sitting in a checking account is not very effective and too much money at too easy access, but much worse could be the case.

Note: Have you considered your personal liability for any financial losses that occur due to investment decisions on the part of the board?

I would wonder if the board might spend some time understanding what this money is for.

This would generally be my advice. It would depend upon whether or not an organization would consider this fund to be an endowment fund. All depends on the time horizon.

As far as the liability issues, I would probably employ some sort of Advisory service to do this, that is if you wanted the funds to be invested like an endowment, to help insulate the Board from potential liability. Of course there are drawbacks to this as well.

A big issue is that someone who is connected to the Synagogue who is also in the investment business could get involved and ultimately get the funds invested in an unsuitable manner. It is amazing the damage that someone who is intelligent, articulate, and charismatic can do. A person with charisma can literally sell ice to Eskimos. So you would want a completely arms-length relationship, not somebody's brother-in-law.

Not sure who would do this for a Synagogue for a reasonable fee, I think 1% Assets Under Management is too much. Not sure who among the large providers like Fidelity, Schwab, Vanguard, T Rowe Price would want to handle something like this. The monies we are talking about are a lot for you and me but not a lot for a large investment organization.

[Elle_N]

I assumed it was [an endowment fund] since the original poster said this:

...
The synagogue has a surprisingly large cash balance (low 7 figures). As far as I can tell, its due to years of dues accumulation and some recent bequests, and mostly goes to maintain the graveyard, pay for maintenance, compensate the rabbi (non-resident rabbi, only comes in for weddings, funerals, and high holy days, etc.)
...

For an endowment of this size, it's not practical to invest it like the Yale endowment. But other than the possible internal politics of a membership organization it shouldn't be hard to invest it in a reasonable way for an endowment.

I think you're probably right, especially since I would not think Thee Board, of a long-established congregation with it appears a thriving membership, would be calling the detailed shots on reserve planning and annual budgeting. Whereas I could see Thee Board (as opposed to an underling 'finance committee,' say) calling the shots on an endowment fund.

On the third hand, I cannot tell if there's truly an "endowment fund" set up, or if the Board for all practical purposes sees all this "dues accumulation" (the OP's words) as an "endowment fund."

Either way, I think a number of folks here were maybe thinking these funds might be needed for shorter term needs and so should only be invested in very conservative instruments, like CDs, treasuries and money markets.

If this is an endowment fund, the 60/40 you mentioned (and not "exotic investments") makes sense to me. The only reason I hesitate is because for all I know the building here is owned outright by the synagogue; represents several million dollars of assets; might be aged; is not cheap to maintain; has its maintenance paid from the funds of which the OP speaks; and may call for a more conservative allocation.

[nedsaid]

I had wondered if there was a Jewish affinity organization that could do this. For example, Lutherans have Thrivent. There are funds that invest according to a faith's ethical and moral values: Amana for Muslims, Ave Maria for Catholics, Timothy Fund for Evangelical Christians. Of course, these faith groups have other options but I was surprised I found very little for the Jewish community. I found the Jewish Values Investment Funds, an article said they were the first Jewish values funds to register with the SEC. So not a lot out there.

Again, I would look at the large providers and see if one of them could provide the needed Advisory services. I am thinking about Vanguard, Fidelity, T Rowe Price, American Funds, Schwab. The big thing is keeping the Advisory fees relatively low.

If the Board wants to stay ultra conservative, you could ladder CDs at a Bank. You could also look into the CDARS program where through a single bank you can buy CDs through multiple banks thus staying within the FDIC limits. Don't know which banks participate in CDARS which stands for Certificate of Deposit Account Registry Service. This might be your safest bet.

[junior]

Conservative organizations must just go with a CD ladder. That presumably wouldn't require an advisor.

[Stinky]

We can “argue” all day long whether the synagogue should be invested in CDs/treasuries or have some allocation to equities or more risky investments.

Such “arguing” will not advance the cause.

The synagogue needs to develop an investment policy statement. Such a statement will help to determine what part of the assets should be invested with safety first, and which (if any) of the assets can be invested more aggressively.

Once that is formulated, the asset mix will be apparent.

[HomeStretch]

OP, you mentioned ‘bequests’, in part, have contributed to the high cash balance. If it hasn’t already been done, there should be tracking of bequests and any restrictions thereon which are usually documented in the bequest paperwork. Such bequests funds may have temporary or permanent restrictions on the use of principal and income.

Edit - I personally would not serve on a Board that did not have D&O insurance, an investment policy, a budget/projections and strong controls over cash.

[RNJ]

I am on the finance committee of a non-profit. The non-profit has an Investing Policy Statement now. The non-profit has some fixed annuities purchased before I was on the committee and invests the rest in a target risk fund at Vanguard, namely a LifeStrategy fund. Vanguard is happy to have the non-profit as a client. There are no add-on management fees at all. The CEO of the non-profit doesn't have to worry about investing.

Same here - board and finance committee of a nonprofit. With some encouragement from the good folks on Bogleheads, I wrote investment and spending policies (I'm not a finance guy), and the organization is in VG LifeStrategy Moderate Growth. Targeted risk, no rebalancing, liquid, transparent, defensible to stakeholders, easy to benchmark. Saved org a a lot of money in fees.

[celia]

I was the treasurer for a genealogy society. The average age of members (and board) was in the 70s and through casual conversation, very few of them knew anything about investing. There was always a shortage of candidates for board positions and I think half of the members only came because of the free refreshments and social time.

At the board level, the first problem was coming up with something future board members could understand as we all had 2-year terms and new presidents and treasurers need to be updated each year at the investment custodian and in non-profit reporting. The second problem was that most of the board didn’t trust on-line banking.

We had a generous bequest one year that had been put in a CD at a bank near the previous treasurer’s home. But the board was unaware that the penalty for early withdrawal was something like 5% on a CD earning less than 1%. After I explained that to them and suggested we move it when it matured to multiple CDs (different holding terms and rates) at a no-fee brokerage house, we then had to find a brick and mortar place near us. Luckily there was a Fidelity office about 5 miles away that they finally agreed I could use. Online, you can search for all the available high rates, even at banks you never heard of. So, right before a board meeting, I would go online to see the best terms and CD provider and bring that to the board meeting to get approval.

This has been going for about 10 years now and they are still with Fidelity. The current treasurer and an accountant who is also on the board are very knowledgable financially. So everything seems to be still going fine.

I also had the burden up front of re-building the budget so the board could easily see our income and expenses, which the 10-term treasurer before me, could never do. You just have to know how to use Excel properly.

[chris319]

This is starting to sound less like a synagogue and more like General Motors.

Maybe Warren Buffett could buy some shares?

[Elric]

Some thoughts, based on research I've done and initial thoughts as a non-profit board I'm on is working through similar issues (although we wish we had your saved funds) and having worked through operating and capital reserves planning as an HOA treasurer.

If you don't already have some fundamentals in place, how to invest is like step 3, and selecting an advisor, if any, step 4. If the synagogue hasn't already, it should determine:

• Operating expenses, including variations in cash flow throughout the year

• How much should be set aside as operating reserves (aka emergency funds). This is often done in terms of a number of months of operating expenses, and for non-profits often is some number between 2 months and 24 (see references for guides on determining this) It would be useful to have a policy for the types of expenses that would be paid out of operating reserves, and how those are authorized.

• Capital reserves: What funds will be needed to repair or replace large capital items over time. Want to estimate funding needs by year and have funding plan so that sufficient funds will be available as needed. One thing to consider doing is to have a capital reserves study done using a professional reserves planning company to lay this out. The result would be a capital reserves plan that
  • Identifies the needs by specific items, expected year, and $ amount (e.g., the roof is estimated to need replacement in 5 years and this is estimated to cost $20,000).
  • Provides a plan for funding the needs
  • Specifies a policy for what types of expenses are and are not paid out of capital reserves and how these are authorized.

• THEN whatever does not need to be set aside for operating or capital reserves can be managed as a quasi-endowment. As another poster mentioned, if bequests came with restrictions, these bequests must be separately accounted for and the restrictions adhered to.

• Operating reserves may be needed in the near term, and should be in very liquid, cash-like investments.

• Capital reserves should be in low risk investments, but a portion may not be needed for a decade or more, so higher yield longer-term investments may be appropriate.

• The remaining quasi-endowment has the most flexibility, and to maximize returns, since the operating and capital reserves are already taken care of, can be in a riskier set of assets, including allocations to stock mutual funds or ETFs. As others have already said, an investment policy should be developed for these assets.

Once those steps are complete, THEN it is time to decide on how the "quasi-endowment" funds should be managed: hiring an advisor, self-directing, or using a robo-advisor. I have no experience with them, but Infinite Giving provides a robo-advisor service for non-profits, with a fee of 0.65% AUM. They also make it convenient to accept donations of stock directly. If you do go with an advisor, they can help in refining the Investment Policy Statement for the board.

More info:

• Simple Investing for Non-Profits, New York Times article

• A Guide to Investing for Non-Profit Organizations, Round Table Wealth Mangement

• Non-Profit Funding: A Closer Look at Quasi-Endowments, article by BMF (financial advisors, auditing, accounting, etc.)

• Five steps to starting an endowment: even smaller nonprofits can, Scott E. Stewart, Global View Capital Management

Near term, while you figure this out, DO, as others have said, get most of these funds into a higher yielding account. You'll find a number of banks often discussed on Bogleheads (e.g.,. Marcus, Ally) don't do business accounts. Live Oak Bank is one bank that does. My HOA just put our capital reserves funds with them, after they were in a brick and mortar bank account paying essentially 0% interest. They currently pay 3.5% for business checking, 4.6% for a 1 year CD. 3.5% for 1 million dollars would provide your synagogue with an additional $35,000 a year. Free money it currently is just throwing away.

[helloeveryone]

Good evening everyone.

I have been forcibly recruited onto the board of my family's synagogue. I say "forcibly recruited" because the median age on that board starts with an 8, and there are... shall we say... "openings" on a regular basis. The fact that my great-great-uncle was was part of the founding congregation 100+ years ago does not give me much leeway to decline this fabulous honor.

The synagogue has a surprisingly large cash balance (low 7 figures). As far as I can tell, its due to years of dues accumulation and some recent bequests, and mostly goes to maintain the graveyard, pay for maintenance, compensate the rabbi (non-resident rabbi, only comes in for weddings, funerals, and high holy days, etc.)

This year, the board is looking for options to invest the cash. One of my board colleagues used to be on the board of a bank before he retired (that was in the 1990s). He made a few calls and we recently received a presentation from a Vice President from a regional bank's wealth management division. The proposal he gave us is for a 1% management fee. After some digging in the fine print, I realized this did not include the mutual funds' embedded management fees or load fees. As far as I can tell, this works out to 2-2.5% of assets under management per year, which I understand from reading this forum to be highway robbery.

My board is very conservative and is uncomfortable challenging the accepted wisdom and probably wouldn't know where to start, but they have asked me to assess alternatives. From doing some deep reading in these forums, I understand that a "three fund portfolio" -- weighed heavily towards principal protection -- would probably be most appropriate. That being said, neither I, nor any members of our board, have any appetite or ability to manage it ourselves. I am also leery about the "politics", i.e. if we go with this guy, we'll get robbed, but if things go sour, this guy gets blamed. If we go in another direction, especially if I recommend it, and things go sour, then I get blamed. Actually, come to think of it, if that happens, I might be kicked off the board, which wouldn't be a bad outcome...

But in all seriousness, is there a more reasonably priced "Bogle-friendly" approach for this institution? I tried looking into Vanguard's Personal Advisory Services, which sounds like a decent fit, but I think that's only for individuals.

They need a written investment policy statement. Perhaps they should place “X” amount in a Money Market Fund, for example - 2 years expenses, and place the rest in the Vanguard Wellesley Fund, not use a financial advisor at all, and stick with their IPS. Their guidelines might allow for a 4% annual withdrawal rate from invested amount.

https://investor.vanguard.com/investmen ... file/vwinx

Edited to add - the poster above’s response is way more useful than mine. Wellesley fund can be considered several steps into the above poster’s recommendations.

[InMyDreams]

This is starting to sound less like a synagogue and more like General Motors.

Maybe Warren Buffett could buy some shares?

Yes. but - in the year after my father sold his condo, the condo board decided that they needed to invest the HOA assets (6 figures) in something that would give better return - and put their money into some sort of high yield investment. Which had something to do with another part of the world and the money just disappeared.

Similarly, the church that I belonged to years ago didn't have a well-defined plan for keeping its funds invested. Nothing bad happened, but there were efforts to put it to ...different... uses.

Both of those could have been better handled and jeopardy avoided with a well-defined investment policy.

[dbr]

Maybe the missing ingredient is not the investing policy but the spending policy. It might be an unfair conclusion, but one wonders if the organization knows what they have this money for.

My only experience with an organization was a quasi-public board that kept an operating reserve of about one year spending and put it in a redeemable CD. The operation tended to be at the whim of certain governmental hierarchy for budgeting.

[nedsaid]

There is a case that one could make against endowment funds and that it is up to each generation to carry the torch. What can happen is sort of an entropy and drift. Wealthy people can start their own foundation with the idea that causes that they believe in could be funded into perpetuity but what happens is a drift, a generation or two later that same foundation is funding things which the original donors would have opposed. One reason that if I ever started such a foundation or a charitable gift fund, that it would have the stipulation that it would be dissolved at a certain point after my death.

Non-profit organizations can do really stupid things that leave more savvy people just aghast. One of the reasons is the varying degrees of interest, competence, and sense of mission than others. There are folks who join a Board and just want to self deal. There are folks with no sense of the value of a dollar. There are folks who do not understand business. Sometimes the Boards are very good and other times less so. Depends upon who is willing to take on responsibilities.

Perhaps the best thing the Synagogue can do is to make it a policy to keep a prudent reserve and then to spend the rest on current needs. The current generation will do what is needed to keep the flame going so to speak and at some point the next generation will have to take up the torch and keep the light going. The next generation will have to decide that the Synagogue is important enough to make a sacrifice of their own personal resources to keep it going. The generation beyond that would have to do the very same thing. And so on.

I do like the idea of endowments. I like the idea of giving to things that will have an impact long after I am gone. The problem is in the implementation. Another thing that I have thought about is that each generation has its own unique challenges to face, it seems unfair for donors to restrict funds in such a way that the next generation is hamstrung. So there are a lot of things to consider.

[Elis1980]

Thank you all for the valuable advice. I am preparing a for a discussion at our next board meeting, which will touch on:

• Why this endowment even exists
• Formulating an Investment Policy Statement
• Full transparency on the financial advisor's fees
• Discussion on Vanguard's LifeStrategy Conservative Growth, which might be ideal

I may bring some bottles of Red Bull, because I fear that my fellow board members may fall asleep especially as it is timed concurrent with an afternoon nap, and after a particularly droning set of services...

[galawdawg]

If your state has adopted the Uniform Prudent Management of Institutional Funds Act (I believe all except Pennsylvania have), it would be wise to have an attorney who is well-versed with that area of law advise you and your board on its provisions. I would suggest that should be the first step in the process, before any further actions on financial management and investment of these funds are considered. Assuming the UPMIFA applies to the synagogue and some, or all, of the funds you mention, the requirements of the law will provide a solid framework to guide your discussions and inform your decisions.

As a practical matter, some of those legal considerations may prevent you from having to be the "heavy" or bad guy when reviewing various investment approaches. Let the lawyer explain what is, and is not, appropriate under the law. While there may be one or more lawyers in your congregation/assembly, I'd recommend receiving that advice and guidance from outside counsel.

Hope that is helpful!

[Doctor Rhythm]

Just because this forum like to debate about it (and it might be relevant here), I’ll toss in an inquiry as to whether your congregation would want to restrict investments based on ESG or other ethical/religious considerations.

[Stinky]

Thank you all for the valuable advice. I am preparing a for a discussion at our next board meeting, which will touch on:

• Why this endowment even exists
• Formulating an Investment Policy Statement
• Full transparency on the financial advisor's fees
• Discussion on Vanguard's LifeStrategy Conservative Growth, which might be ideal

I may bring some bottles of Red Bull, because I fear that my fellow board members may fall asleep especially as it is timed concurrent with an afternoon nap, and after a particularly droning set of services...

If you can get through the first three points, you’ll have done an excellent job.

I’ll bet that you get bogged down on the first point. And that’s fine. Developing the answer to that question is a necessary step before any other productive discussion can occur.

Please report on what happens at the next Board meeting.

[bsteiner]

There is a case that one could make against endowment funds and that it is up to each generation to carry the torch. What can happen is sort of an entropy and drift. Wealthy people can start their own foundation with the idea that causes that they believe in could be funded into perpetuity but what happens is a drift, a generation or two later that same foundation is funding things which the original donors would have opposed. One reason that if I ever started such a foundation or a charitable gift fund, that it would have the stipulation that it would be dissolved at a certain point after my death.

Non-profit organizations can do really stupid things that leave more savvy people just aghast. One of the reasons is the varying degrees of interest, competence, and sense of mission than others. There are folks who join a Board and just want to self deal. There are folks with no sense of the value of a dollar. There are folks who do not understand business. Sometimes the Boards are very good and other times less so. Depends upon who is willing to take on responsibilities.

Perhaps the best thing the Synagogue can do is to make it a policy to keep a prudent reserve and then to spend the rest on current needs. The current generation will do what is needed to keep the flame going so to speak and at some point the next generation will have to take up the torch and keep the light going. The next generation will have to decide that the Synagogue is important enough to make a sacrifice of their own personal resources to keep it going. The generation beyond that would have to do the very same thing. And so on.

I do like the idea of endowments. I like the idea of giving to things that will have an impact long after I am gone. The problem is in the implementation. Another thing that I have thought about is that each generation has its own unique challenges to face, it seems unfair for donors to restrict funds in such a way that the next generation is hamstrung. So there are a lot of things to consider.

Some people have indeed mandated that their foundations end after a specified number of years, both out of concern for drift and also, as you pointed out, on the ground that future generations can fund future needs.

Nevertheless, endowment funds are common. If a charity spends 5% of it each year, which private foundations generally have to, and public charities generally do, that's more than the current income, so unless there are future contributions, the endowment will gradually decline in real terms.

Thank you all for the valuable advice. I am preparing a for a discussion at our next board meeting, which will touch on:
...
Full transparency on the financial advisor's fees

Discussion on Vanguard's LifeStrategy Conservative Growth, which might be ideal
...

Why a "financial advisor?" What advice do they need.

Note that the Life Strategy Conservative Growth is 40/60, whereas the classic allocation for an endowment is 60/40. Is there a reason this one should be 40/60?

[Elle_N]

I’ll bet that you get bogged down on the first point [Why this endowment even exists].

I am betting the same. Especially since the OP went from describing this money as being the result of:

a surprisingly large cash balance (low 7 figures). As far as I can tell, its due to years of dues accumulation and some recent bequests, and mostly goes to maintain the graveyard, pay for maintenance, compensate the rabbi (non-resident rabbi, only comes in for weddings, funerals, and high holy days, etc.)

to now declaring it is an "endowment." By definition, the main purpose of an "endowment" is to generate returns that will be used for long term support of an institution's operations, while simultaneously growing the endowment even more.

If the board declares that this "large cash balance" (or a portion of it) is now an "endowment," then perhaps around a third of the IPS just wrote itself.

[dogagility]

I’ll bet that you get bogged down on the first point [Why this endowment even exists].

I am betting the same. Especially since the OP went from describing this money as being the result of:

a surprisingly large cash balance (low 7 figures). As far as I can tell, its due to years of dues accumulation and some recent bequests, and mostly goes to maintain the graveyard, pay for maintenance, compensate the rabbi (non-resident rabbi, only comes in for weddings, funerals, and high holy days, etc.)

to now declaring it is an "endowment." By definition, the main purpose of an "endowment" is to generate returns that will be used for long term support of an institution's operations, while simultaneously growing the endowment even more.

If the board declares that this "large cash balance" (or a portion of it) is now an "endowment," then perhaps around a third of the IPS just wrote itself.

I like the way you think, Elle_N.