Over the last couple of years, the word fiduciary has almost become a household word. There have been multiple articles written about who a fiduciary is and what it entails. Yet, fiduciaries, especially of nonprofit organizations, are often unaware of their fiduciary status and what the risks of this unawareness can lead to. In the video above, Vitaly is sharing a recent conversation with an executive director who has been inadvertently exposing herself to an unnecessary fiduciary liability.
Key highlights:
An investment fiduciary is a person who is providing investment advice or managing the assets of another person and stands in the relationship of trust, confidence, and/or legal responsibility.
Three groups of investment fiduciaries: investment steward, investment advisor, and investment manager.
An investment steward is a person who has the legal responsibility for managing investment decisions.
A nonporit executive director is entrusted with assets and exercises the ultimate discretion in decision-making, which includes the discretion over how to invest the money upon the board's approval. Thus, the nonprofit executive director absolutely is a fiduciary.
Members of the board who are also considered investment stewards of organization’s assets
Fiduciaries owe duty of care, loyalty, and obedience to the investors and beneficiaries. They must also act knowledgeably and with diligence and prudence.
Delegating fiduciary responsibility to other professionals and subject matter experts is one way ot meet to fulfill fiduciary duties
Fiduciary responsibility can never be abdicated and the executive director as well as the board members are still responsible for overseeing and monitoring actions of other professionals.
If you are an executive director, a board member, a member of an investment committee, or act in a similar capacity and exercise discretion in decision-making – then you are 100% a fiduciary. As such, you must follow a prudent process, is obligated to act in the best interests of the beneficiaries, and are being held accountable for your actions.
Remember, ignorance isn’t a viable defense. If you are not sure whether you are a fiduciary or not, and what exactly your fiduciary duties are, talk to a fiduciary expert who knows all the ins and outs of fiduciary processes. The fiduciary expert not only will educate you on this topic but will help to put fiduciary best practices in place.
If you have any questions, please feel free to schedule a free call.