What to Ask Before You Hire (or Replace) Your Investment Advisor: A Board Member's Guide

Why Does Choosing the Right Investment Advisor Matter for Nonprofits?

Hiring an investment advisor is one of the most consequential decisions a nonprofit board makes, yet it is often done casually. A board member knows someone. The organization's bank offers investment management. A broker calls at the right time. The relationship begins without a formal process, clear expectations, or a framework for accountability.

The cost of a poor advisor relationship is rarely dramatic. It is incremental: higher fees that compound over decades, a portfolio that drifts without direction, reporting so generic that the board cannot tell whether the strategy is working, and a lack of proactive guidance when market conditions or the organization's needs change. Over 10 years, these quiet costs can amount to hundreds of thousands of dollars in lost return and missed opportunities.

Whether you are hiring your first advisor, replacing an existing one, or simply evaluating whether your current relationship is serving the organization, the questions below are what I encourage every board to ask.

Should a Nonprofit Require a Fiduciary Investment Advisor?

Not all financial advisors are held to the same legal standard. The distinction that matters most is between a fiduciary standard and a suitability standard.

A fiduciary is legally required to act in your organization's best interest. They must disclose conflicts of interest, avoid self-dealing, and place your needs above their own. Registered Investment Advisors (RIAs) are held to this standard.

A suitability standard, which applies to many broker-dealers and their registered representatives, only requires that a recommendation be "suitable" for the client at the time it is made. A suitable recommendation can still carry higher fees, generate commissions for the broker, or be inferior to available alternatives, as long as it is not clearly inappropriate.

For a nonprofit managing charitable assets, the fiduciary standard is the right baseline. Ask any prospective advisor directly: "Are you a fiduciary at all times with respect to our account?" If the answer is anything other than an unqualified yes, keep looking. I hold myself to the fiduciary standard with every institutional client I serve, because nonprofit boards deserve an advisor whose legal obligation matches the organization's mission.

How Much Should a Nonprofit Pay for Investment Management?

Fee transparency is an area where many nonprofit-advisor relationships fall short. You need to understand not just what the advisor charges, but the total cost of the investment program, including underlying fund fees, trading costs, and any platform or custody charges.

Common fee structures for nonprofit investment management:

• Advisory fee: Typically 0.25% to 1.00% of assets under management per year, depending on portfolio size. Larger portfolios should command lower rates. If you are paying more than 0.75% on a portfolio above $5 million, you should benchmark that against competitors.
• Underlying fund expenses: If the advisor uses mutual funds or ETFs, each fund has its own expense ratio (typically 0.03% to 0.75%). Ask for a weighted average fund expense for the entire portfolio. Advisors using proprietary or affiliated funds may have higher expenses and a conflict of interest.
• Transaction costs: Most modern custodians charge zero commissions on stock and ETF trades, but some advisors still charge per-trade fees or embed costs in bond markups. Ask whether any trading costs are passed through.
• All-in cost: Add the advisory fee plus the weighted average fund expense plus any transaction costs. For a diversified portfolio of index funds or low-cost active funds with professional advisory services, total all-in costs should range from 0.50% to 1.25% depending on complexity and size.

Ask every prospective advisor for a written fee schedule and a sample all-in cost calculation for a portfolio your size. If they hesitate or cannot provide it clearly, that tells you something important about the relationship before it even starts.

How Should a Nonprofit Run an RFP for an Investment Advisor?

A formal RFP (Request for Proposal) is the right way to select an advisor. It creates a level playing field, generates comparable information from each candidate, and gives the board documentation for its fiduciary file.

Your RFP should request:

• Firm background, ownership structure, and registration status (RIA vs. broker-dealer)
• Team members who will work on your account, their qualifications, and their tenure
• Number and type of nonprofit clients currently served, with references
• Investment philosophy and approach to nonprofit portfolio management
• Sample investment policy statement for an organization similar to yours
• Complete fee schedule, including all layers of cost
• Sample quarterly report and performance presentation
• Description of services beyond portfolio management (board education, policy drafting, spending policy guidance)
• Custodian relationships and how client assets are held
• Any conflicts of interest, including proprietary products, revenue sharing, or soft-dollar arrangements

Send the RFP to three to five firms. Review written responses first, then invite the top two or three candidates for in-person presentations to the finance committee or full board. Having candidates present to the board, not just to staff, ensures that board members can evaluate chemistry and communication style directly.

What Are Red Flags When Evaluating a Nonprofit Investment Advisor?

In my experience working with nonprofits that have been poorly served by previous advisors, certain patterns come up repeatedly:

• Reluctance to disclose fees. If an advisor cannot or will not give you a clear, written breakdown of every layer of cost, they may be earning revenue you cannot see.
• Proprietary or affiliated products. An advisor who primarily recommends funds managed by their own firm or an affiliate has a financial incentive that conflicts with your interest in low-cost, best-in-class options.
• Performance claims without benchmarks. "We returned 12% last year" is meaningless without context. What was the benchmark? What was the risk profile? Ask for net-of-fee returns compared to a blended benchmark that matches your target allocation.
• One-size-fits-all portfolios. If the proposed allocation for your $3 million nonprofit endowment is identical to what they recommend for a $3 million individual retirement portfolio, they are not tailoring the strategy to your organization's specific needs.
• No nonprofit-specific experience. Managing nonprofit assets requires understanding UPMIFA, spending policies, underwater endowment rules, gift acceptance, and board governance. A general-purpose financial advisor without nonprofit experience will miss these nuances.
• Infrequent contact. An advisor who shows up once a year with a generic report is not providing enough oversight. Quarterly reporting and at least semi-annual in-person meetings (or presentations to the board) should be standard.

What Should a Nonprofit Expect in Quarterly Investment Reporting?

Quarterly reporting is where the advisory relationship delivers ongoing value, or reveals that it is not. A good report tells the board exactly where the portfolio stands and whether it is on track to meet the organization's objectives.

At minimum, every quarterly report should include:

• Beginning and ending market values, with net contributions and withdrawals
• Total return for the quarter, year-to-date, and since inception, all net of fees
• Comparison to a policy benchmark (a blended index that mirrors your target allocation)
• Current asset allocation vs. policy targets, with any rebalancing actions taken
• Market commentary relevant to your portfolio (not generic newsletter content)
• Spending policy status: how much has been distributed year-to-date vs. the annual target
• Any changes made to holdings and the rationale

The report should be clear enough that a board member with no investment background can understand whether the portfolio is performing as expected. If your current advisor's reports require a finance degree to interpret, they are not doing their job.

How Do You Evaluate Whether Your Current Investment Advisor Is Right?

If your organization already has an advisor, you do not necessarily need to replace them. But you should evaluate the relationship periodically, ideally every three to five years or whenever there is a leadership transition on the board.

Questions for the board to discuss:

• Can we clearly state our advisor's fee, including all underlying costs?
• Has the advisor proactively updated our investment policy statement in the past three years?
• Does the advisor present to the board at least annually?
• Have we seen portfolio performance relative to a meaningful benchmark?
• Has the advisor raised any issues or recommendations proactively, or do they only respond when we ask?
• Does the advisor serve other nonprofits, and do they understand our specific governance needs?

If you answer "no" to more than two of these, it may be time for an RFP. Not because your advisor is necessarily bad, but because you owe it to the organization to know what else is available. I have worked with nonprofits that ran a competitive process and ultimately stayed with their existing advisor, but with better terms, clearer expectations, and improved reporting. The process itself has value even when the outcome is to stay.

What Should a Nonprofit Expect From the Right Advisory Relationship?

The right advisor for your nonprofit is not the one with the best recent performance or the most impressive credentials. It is the one who treats your organization's assets as a sacred trust, communicates clearly with your board, and provides the institutional memory that bridges leadership transitions.

When I work with nonprofit and institutional clients, I see the advisor role as three jobs in one: investment manager, governance partner, and board educator. The investment management is the table stakes. The governance and education are what make the relationship durable and valuable through the inevitable board turnover, market cycles, and organizational changes that every nonprofit faces.