 Welcome to the nonprofit show. We are so glad you're here, maybe starting your day, your afternoon, your evening. These opportunities are available to you just about 24 seven. So today we are thrilled to have Phil Wara with us today, CIPM, we're gonna learn what those acronyms stand for. He's also COO and nonprofit investment advisor at ECIO. Phil's gonna talk to us today about learning the keys to nonprofit investing and helping you figure out if you have them. So stay with us. Before we dive deep in this conversation, Phil, we want to remind our viewers and our listeners who we are. So hello to you, Julia Patrick. Julia Patrick is the CEO at the American Nonprofit Academy. And I'm Jared Ransom, your nonprofit nerd and CEO of the Raven Group, honored to serve alongside day in and day out. Thank you to our amazing sponsors that allow us these opportunities to talk about any and all things as it relates to nonprofits, including investing with Phil today. 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So wherever you like to consume your entertainment or even binge watch and listen, you can add us to that queue right along with Netflix and Hulu and Prime and all the good stuff. So again, today's guest, really excited to have you with us. Again, Phil Wara, CIPM and also COO and investment advisor at ECIO. Welcome to you, Phil. Great, thank you for having me. Yeah, so tell us, tell me. CIPM, what the heck does that mean? Well, that is from the CFA Institute. They have a designation for certificate in investment performance measurement. So it's another financial designation. Makes all the sense in the world now, thank you. You know, talk to us about ECIO because this is a really interesting take and how you formed your company on working with nonprofits and their investments. Can you share with us kind of your origin story and what you all do at ECIO? Yeah, absolutely. So the team of us advisors here, so our only clientele is nonprofits. Also, it's important to know you don't really get to that without having a passion for that. So we're also all on boards and nonprofits ourselves in our local communities. And before we launched ECIO, we actually managed money for very large nonprofits. What you would assume, hundreds of millions of dollars of investment assets. And that's fine. And there's a lot of need for that. But what we saw along the way is if you're a smaller nonprofit, if you have half a million, maybe $3 million, or kind of wherever you are in that range, there wasn't a lot of great options that you were allowed to get dedicated services for organizations like yours. It's much different than private wealth investing, nonprofits at boards and staff, diverse opinions, a unique set of challenges. And our whole business model was to help organizations across the country and really gearing toward those small ones. But we gave to the large institutions and bringing all those services and thoughts and ideas down to the smaller market so we could hopefully drive their missions further. Wow, and ECIO is based in where? So we are a headquartered in Madison, Wisconsin. Although as of this week, we now have clients in 25 different states. So we're coast to coast and around the country, so. Awesome, really cool. Well, let's dig into it because I know that Jared and I are gonna have a lot of questions. And the first one is, I mean, as you said for yourself, working with multi-million dollar organizations that, yeah, they have that additional part of their business. But why should nonprofits even begin to have the thought that they could be investing and that they have plans? Yeah, Julia, like you said at the beginning, just a little bit before is the idea of if we're day to day and we're just trying to make payroll or just trying to make sure our mission succeeds, that's one spot to start. But really what having that investment plan does, at least in our mind and what we see because we see the growth of our organizations is really to really unlock the ability to plan for the future. How do we make sure our funding is secure? How do we maybe become less reliant on day to day funding or year or annual funding needs? And that ability to plan for the future really helps these organizations grow in the long term. You know, for those of you that might have joined us in the green room chatter, I have two trains of thoughts, right? When it comes to this and I'm gonna share it because I do think it's important. But first of all, when we look at this, Phil, and we've all served on many boards or we've had the opportunity to sit around boards, staff, whatever that looks like. One, I don't think there's a lot of experience in this space, right? At the board table, in the board room and even in the leadership conversations. So I think this is often like, this isn't our zone of genius, so we're not gonna talk about it. The other train of thought I have for this, and I think this one like supersedes the other, is we have really perpetuated this taboo for having money as a nonprofit, right? How dare you have an abundance of financial resources and to be tax exempt, right? And so that's what I'm seeing more of. And I love that you're bringing this to the table because Julia, did we not see so many organizations not make it through the pandemic, but then we saw so many that were ready, right? For things like this, absolutely sore. So what are you seeing? And I'm curious if you can speak to me on those two train of thoughts that I have one lack of knowledge to its taboo. Yeah, so really the lack of knowledge one on the first part, that's kind of easy for us because we're the receivership of those. They come to us and they say, here's where we're starting from, right? And it is not in their DNA, typically for nonprofit executives, maybe they started on the fundraising background and then they work their way up through their passion. Now they're leading the organization and investments are kind of an arm reach away. So a lot of times board members are the ones that take it to us. Maybe they're our first point of contact as well. So we do see that a lot of what we do comes around education, making sure everyone's knowledgeable and feels comfortable with what is going on. But the other big part that we see though is that by not thinking through investment plans is that Julia, to your comment earlier as well in the green room is that bequests happen, right? You go out there and you search for bequests and sometimes if you're new, maybe those are kind of your whale out there. You hope they come, you haven't experienced it yet but we've been on the part where they say, oh my gosh, we now have X amount of dollars, someone left us this chunk of an estate. What do we do? And now that's kind of scramble mode for the organization. How do we have an investment plan, investment committee? What do we need to do to get started to be good stewards of these assets? It's such an interesting thing because we, again, we were talking about this yesterday on the nonprofit show and we all know about this amazing transference of wealth in America. And I think there are those, like you go to the mailbox and you get a letter from an estate attorney or somebody calls and it's like, what? I mean, it's a good problem to have but it's not a smart problem to have. So let's kind of get you to help us understand that what are some of these investment options that we could be looking at and do we have to have that money in the bank or is it something that we need to be working on in advance to know what we would be doing to paint that picture for us? Yeah. And this will go to your second one, the taboo around accumulating assets. Is so when we think through investment options, there's a, I think there's a stigma where you say it's only long-term endowments or we have to hold it, we can't spend it or maybe we can only spend a little bit of it and it's just long-term endowment investing and we may not be able to touch it. And really, that is kind of unfortunate because most of our clients have maybe multiple portfolios and we think everything through time horizon. So time horizon is key whenever we think through this. So it can be anything from excess cash. Common instances would be long-term grants. Maybe you're pre-funded on long-term grant and you're just sitting on that money. Excess operating cash was another, just common one that may not be right for investments but given where interest rates are, there is a lot of opportunity cost from just having money in a checking account. Also, capital campaigns are one, they can accumulate there. It's a longer-term capital campaign event. And then also there's just board restricted funds that can look anywhere from a rainy day fund, to that part of saying, if we do hit an economic downturn, how do we support the organization? How do we be good stewards of our mission is a big part of it. If you're in association and you go through a business downturn, you may have a hard time collecting those annual dues or whatever your mission is or if you're a food pantry, we see that increase go up. Now your expenses because the need is and the demand is there. So how do you plan for those unexpected turns? I think having a solid investment plan gives confidence that you can succeed when those times hit. Yeah. Phil, what about a policy? Do we need an investment policy to go along with this plan? Yeah. So an investment policy statement is a big part of what happens. Obviously we all know that staff turns over but boards by nature turn over. Maybe every few years, three years or maybe somewhere more lifers on the organization. But the idea of an investment policy statement is really the key to creating that enduring investment program. How do we make sure what is set up now continues forward. You want it to be broad enough where it doesn't need to be edited but also kind of really defines your mission or maybe how you're to spend the money or the purpose of these different investment pools as well. Interesting. That's a really good question, Jared because we talk about policy documentation with so many of our guests in different areas. And it seems like we talk about this when there hasn't been a policy and then there's a problem, right? And so I love that that, you know that kind of has been brought up. So let's lead into this next question. Where do we even start if we're not doing this? And we're, you know, maybe we don't even think we are a good candidate for this but we're willing to start looking at this in terms of our leadership and future thinking. Where do we even start? Yeah, so I think, you know really creating that for the organization and cultivating kind of that forward thinking whether it's through board members if you have board members that are able to help participate in that conversation that's a lot of times where that comes from and just leaders themselves at the organization. And if that's not your strong suit then, you know, there is a lot of, you know like us especially the advisor out there that can really help with the education because education is by far the biggest part that you're gonna wanna lead into before you select an advisor or figure out where you wanna go educating on what this means for our organization. How does this impact us? How do we think about, you know where this can lead into the future? There's just kind of a much more broader set before you even get into any of the details for the education around, you know what does an investment program mean for our organization? You know one, a little bit to the point too of accumulating funds and policy statement you know organizations are even thinking through how to solve their problems. So wage increases is a large constraint right now on nonprofit organizations. So one of them that we just recently went through and wrote their policy and putting money to work for the first time their spending is the help promote and offset wage increases so that they can get continued wages to their staffing through distributions from their long-term investment program. So that's the purpose of that fund as well. And I think donors love it as well. They wanna make sure that staffing at that organization is compensated and that they'll stay there and do a great work. So, you know, it can be as creative as that as well for how to think through what these mean for organizations. Bill, who's involved in these conversations? I know you answered my question earlier and you said often, you know it comes from a board member to really spearhead the conversation. Is this an executive team like staff decision? Is this all board decision? Who's involved in really, you know being the catalyst to get this started but then maintaining? Yeah, so really the best thing that we would see from our part is that it takes both sides. If it's only the board you'll lose some of the day-to-day focus. That date, you know, they're not running the business. They're much more higher level and that day-to-day drive gets lost a little bit. And I think the board or the staff is maybe a little bit too much, you know, day-to-day and or maybe they don't have the investment background to really kind of help the forward thinking idea. So what we see is a good participation at least one or two staff members plus maybe depending on how large your board is a subset of that. It can be an existing finance committee. Maybe you have a special investment committee. We also see just the executive committee manage it. But if you have probably a greater than 10-person board you probably want some cargo to help manage these decisions. So I've got to ask this question because I've been on two boards that had both scenarios. One was the executive committee dealt on this. And then one that we had an investment committee and that it was not all board members. It was chaired by a board member and it had a co-chair board member. But then there were other people in the community on that committee. And I got to be honest. I always felt like a little like, ooh, they're not on the board, you know. Yeah. What does that look like? I mean, is that something that we see or is that a good idea? Not what? Yeah, we would absolutely promote that in that investment committee group. You know, I think it's a great way of saying it's always hard, I think sometimes to loop someone in on being a board member. Maybe what that commitment is or depending on wherever that organization is in their point as far as board members. But we do see investment committees have non-voting members that are investment professionals that can at least weigh in and hopefully provide a great opinion on what's going on and making sure that the organization's making, you know, good decisions. Hero fire moment. I have the curve ball question, but it goes along with where it starts. Are we taking financial assets that we currently have maybe like skimming off kind of like all all of the line items and budgets and or are we making this a campaign perhaps where we're talking to some major donors, some loyal dedicated long-term donors to say, we have an intention to create this investment plan and policy and strategy. Would you be part of, you know, of us setting this up? Have you seen like a fundraising campaign to really get this started? Yeah. So, and we do see both. So a lot of times organizations will come to us with an existing pool of assets that may not be donor directed and those go just into a board designated fund. And I think it's important to distinguish between donated or endowment, you know, as far as a donor directed versus board because you wouldn't wanna commingle those. You want the options with your cash that you would have on hand with what donors may give for a long-term purpose. So, you know, that other one, when you have a donor and you approach them, you know, having these things in mind first, I think goes a long way. Having an investment policy statement, a well-defined purpose, how you are to spend the money, what that can mean for the organization. You know, I think now donors are expecting that those are online, as well as we even get to the question all the way down to us, well, how much is your advisor charging? What sort of fees? What sort of investments are they? Environmental social governance is a big, you know, piece of it. So it comes all the way down to the investor level and having these pieces in place before you embark on a large campaign, I think, makes a lot of sense. Getting to the stewardship piece and also, you know, hopefully you are engaging your board members as well to be good stewards and promote the organization. What do you see about, I've been noticing a couple organizations in our community and these are not new organizations. They're more, you know, long-term, multi-decade, you know, in existence and organizational service. Making a statement saying that like one half of 1% of every donation is actually gonna take, it's gonna be moved into an endowment and that's just across the board. Like so that everything that comes in has that ability and when you look, you know, and you talk to a donor, one half of 1% doesn't seem like very much. What are your thoughts on that? Yeah, you know, I think there is some donors, you know, when organizations think through when they're accepting funds in, you know, there's funds for operations, there's funds for endowments and I think some organizations may try to make that a little bit more simple where we'll say we'll use X amount of dollars for current operations and then the remaining can think through to a much longer-term focus. So we do see that organizations and really that broader picture though, things through, you know, that time horizon question. So we really try to focus even as simply as saying, what are your short-term needs? Zero to six months, maybe six months to two years and then if you can say anything over two years, that helps kind of bucket how you may think of these different pools of assets and I think that's what, you know, when they say X amount of percent or whatever may go into an endowment, that's kind of what they're thinking in the back, their minds, how they get to their long-term goals for these different buckets. Yeah, I have a chicken and the egg question. Which comes first? Engaging in someone like you with ECIO or like establishing a plan and a policy to say, okay, now we're looking for an investment firm or we're looking for an investment partner, where should we start this conversation, you know, as we look at bringing this to the table? Yeah, no, that's a great question. So we do get that a lot, Jared, from nonprofits that find us. And to be honest, the biggest part there is the makeup of your staff or board, you know, some nonprofits have a much more operating focus and they're used to investments or they may have a board member that can help kind of champion that effort. And if that's the case, you know, maybe you can start and get the kind of groundwork laid out first, but most cases it's not and you do need help. And this idea of starting a policy statement and where to start talking through investments or risk and asset allocation is fairly daunting. So I think then we're probably a good partner to start at the beginning. So a lot of nonprofits find us at the very beginning stages, some of it, they've already been more of like a board-managed approach and then at some point then they come over to us. Okay, and then what about financial transparency? That's a big one in our sector, right? So should we also, when it comes to the stewardship of the investment, should we also be sharing the transparency of the investments with our stakeholders? Yeah, yeah, absolutely. That's the big issue that we see nonprofits get in is that they may not know exactly how their investments are allocated or what they're invested in. It becomes an issue if you need liquidity, if you need money out, it becomes an issue if there is, you know, if you're invested in something that it is not in the best interest of the organization. So that transparency is a big part of what we think through of being a good steward of the organization's assets is in, you know, really investments do not have to be complex. I think there's a too big of a part that you have to have too many holdings and you have to kind of be everywhere. And usually that just leads to more chaos, more noise and confusion, which is not a recipe for success. Being everywhere means you're really nowhere. Yeah, no, we actually just wrote a piece about over-engineering because we inherit a lot of portfolios and, you know, it's a conversation just to kind of digest everything and then think through how do we get on solid footing because the worst thing you can do as an investor is get out at the wrong time, right? You don't wanna be in a position where you invest in a portfolio and a downturn happens and you take the money out and then that, you know, it's kind of a source bot and we wanna make sure that doesn't happen. Sure, yeah. You know, I really learned a lot from you and I think that this conversation has sparked a lot of questions and I'm sure they're gonna continue to come in over the next several days, but I gotta ask this question. You know, we operate on the metric that there are 1.8 million registered non-profits in America. How many of those do you think are even talking about this? Yeah, no, that's a great one. So from what we know of, there's probably nearly 200,000 that are have investable assets that are under like $220 million in investable assets. So there's hundreds of thousands in that area, right? So small, so small. I mean, it sounds like a lot of money but that's a shockingly small number to me. I was surprised. Wow. So you're like ringing the bell. We need to be talking about this. Yeah, I mean, everyone knows of the larger ones and the big endowments and foundations, but there are a lot of organizations that do have small pools and there's a great transformation of wealth happening. There were gaining inheritance or inherited dollars in and those donated dollars and then a lot of them, some of them came in good standing through the COVID and the PPP funds that they received and how do we think through this into the future? I think is a big stance that a lot of non-profits face right now, how do we plan and make best use of these assets? Phil, do we have to have a certain amount of money to get started or is it like here's 10,000, 20,000 let's start there or do we need to have more zeros? That was gonna be my question, Jarrett. I took it. I know, good. Yeah, I mean, what is the reality of starting small and growing big? Yeah, so really, if you're under probably a few $100,000, to be honest, the one thing that you will wanna look out for is the fee. What would an advisor charge and what is being a good steward mean? For those, you don't wanna be overcharged that doesn't get anywhere as far as a fee perspective. And right now, at least, there are places that if you have a board member that can help with just some basic, any organization can create an investment account and you can do that and you can do that on your own if you're very small. And really, if that's not in your cards as an organization, then I think it is okay to get the planning done ahead of time because then you are ready for when you get to that point of view. But yeah, I mean, I think the reality is if you have 10 or $30,000, most likely your board if they can handle it is probably better off helping the organization manage that on their own as fees may come into question. Yeah, great. I think that's good advice. And I think there's so many banks out there that work with nonprofits and savings and loans that probably have some internal things that can help guide and navigate this. Wow, I've really, really enjoyed this conversation. I didn't think I would because I thought I'd be like, oh, it's too complex and we're gonna lose viewers and it's not gonna be something that's manageable for so many. But I think this has really been a good conversation to start with. And I really appreciate your cadence and your perspective on how different sized organizations can be involved. And clearly, Jarrett, the big hair and fire moment for me is not enough of our nonprofits in this country or anywhere close to addressing this. No, not close at all. And Phil, this has been amazing as I witness to everyone. This is not my area of expertise. So this is definitely where I kind of like sit back at the table and say, let me know what you decide, right? And then I'll have to implement. So Phil Wara, thank you for joining us today. For those watching and listening, Phil serves as the COO and investment advisor at ACIO. And I believe you serve nationwide. Is that correct? Yes, we do. Absolutely. I love that. Check the website. It's git, E-C-I-O dot com. That's G-E-T-E-C-I-O dot com. Check out Phil, the company there. They can help you no matter where you are, urban, rural, no matter where you are. So Phil, thank you for shining your light on this and for bringing this really to the forefront. Yeah, it's my pleasure. Thank you for having me. It's been a lot of fun. And I think, again, every episode, Jared Ransom, the nonprofit nerd. We learn something. We get introduced to something. There are always those hair and fire moments, somewhat shocking, but helping us to understand how we can, in the sector, get better and be smarter stewards with our resources. Again, I'm Julia Patrick, CEO of the American Nonprofit Academy. I've been joined today by the nonprofit nerd herself, Jared R. Ransom, CEO of the Raven Group. We have amazing supporters. And they include Blue Morang, Fundraising Academy at National University, nonprofit thought leader, your part-time controller, American Nonprofit Academy, nonprofit tech talk, nonprofit nerd, and staffing boutique. These are the folks that join us day in and day out. And really, it's worth noting. They put no pressure on us for any of our editorial content or direction. And so we look around at the landscape of our beloved sector and we try and figure out what is it we need to be talking about? Where do people have questions? People stop Jared and I and ask us, hey, can you address this on the show? And this is one of those times where we really need to be leaning into this concept. So, Phil, thank you very, very much for joining us. As we like to end every episode of the nonprofit show, we want to remind everyone, including ourselves, to stay well so you can do well. We'll see you back here tomorrow. Phil, thank you so much.