Alternatives to high-cost asset management for a 501c3?

June 10, 2021 8:23 AM

I'm newly involved with a 501c3 that has their assets with an asset management company that's charging them 1.25%, while their needs are very basic. They're open to having me present lower-cost alternatives at the next meeting. I had/have some alternatives in mind, but would love help finding better ones -- or suggestions for other places to post this question (but not Bogleheads).

I'll call the 501c3 'DoGooder.' They have $500K-1m in investable assets. They don't need anything in the least fancy -- what they get now from their asset manager is fine: simply rebalancing of a 70/30 equity/bonds split (with a US/Ex-US/Emerging markets split for the equity portion), with Vanguard index funds or similar as the underlying investments. Even better if it could be socially conscious. BUT DoGooder wants to be entirely hands-off -- they're not comfortable having to buy or sell even under the direction of an advisor (except maybe once at initial set-up, I hope).

Alternatives I had/have in mind:
- Vanguard's Personal Advisor, at .3%. Unfortunately, it's only for individuals, not for 501c3s unless they have at least $5m.
- Similar offering from Fidelity. Also for individuals, not orgs.
- An allocation fund (e.g., a Vanguard LifeStrategy fund), with a fee-only advisor hired hourly for occasional hand-holding/guidance as needed. I think this is a good alternative, but would like others.
- A lower-cost asset manager or fee-only advisor who also executes trades. Fidelity can refer some that might be .75% instead of 1.25%. I don't know otherwise how to find one that serves 501c3s as opposed to just individuals, with low fees reflecting the very simple management needed here. Ideas?
- Vanguard's OCIO offering. I think it's for those with at least $2m, though I haven't confirmed that, nor the cost, nor whether it would do what DoGooder needs.
- Something else?

A little more background on DoGooder's money:
- They came into these assets within the past few years, in an event they don't expect will repeat itself.
- Their annual budget is in the lowish 5 figures, so most of their assets are for long-term investment.

(Also, I tried posting this question to Bogleheads, but it was removed because it's for an organization, not personal investing. Is there a better place to post it?)

posted by daisyace to Work & Money (12 answers total)

Do they need management at all? My slightly-smaller 501(c)3 has a Fidelity account where we put our investment funds in their "Balanced" fund (which shoots for around 70/30). We don't have to rebalance, because the fund does the balancing. The expense ratio on the fund is 0.52%, not amazing, but fine.

You could also establish an investment policy where the treasurer or someone literally rebalances the account every month or quarter or something - selling $50k worth of VTSAX and using that to buy $50k worth of VBLTX doesn't exactly require financial wizardry.
posted by mskyle at 8:33 AM on June 10, 2021 [3 favorites]

By "newly involved with" do you mean you've joined the board of directors? The nonprofit needs an established investment policy, which then guides the kind of decision-making in your question: "The board of directors of a nonprofit has a fiduciary responsibility to protect the assets of the nonprofit and ensure that the nonprofit's operations and activities use the assets to further the nonprofit’s mission."
posted by Iris Gambol at 8:39 AM on June 10, 2021 [1 favorite]

(Sorry I missed that you want a totally hands-off solution!)
posted by mskyle at 8:52 AM on June 10, 2021

You might want to look at Friends Fiduciary, which uses the Quaker principles of peace, social justice and the environment to guide their investments. I believe they work with not-for-profit companies. Some of their activist investing projects may align with your organizations goals.

I'm not familiar with their fee structure, however.
posted by typetive at 8:54 AM on June 10, 2021 [1 favorite]

Best answer: For Friends Fiduciary
Fees:

* The Quaker Growth & Income Fund estimated expense ratio for 2021 is based on budgeted investment fees and administrative expenses totaling 0.79% (79 basis points). The Fund’s total expense ratio for the past five years has averaged 0.76% (76 basis points).
* The Quaker Green Fund operates with a flat annualized fee of 0.90% (90 basis points).
* The Quaker Index Fund operates with a tiered fee schedule of 0.30% (30 basis points) on the first $5 million, 0.25% (25 bps) on the next $5 million, and 0.20% (20 bps) on balances above $10 million.
* The Short Term Investment Fund operates with a flat annualized fee of 0.34% (34 basis points).
posted by blob at 9:01 AM on June 10, 2021 [1 favorite]

Best answer: I would consider a roboadvisor. Set an investment policy and let the automation rebalance to maintain it. I'd expect to pay about 0.25% of assets for that service, maybe less for a non-profit.

Way back in 2013 Wealthfront advertised free management for 501c3s. I suspect that program is over now but it suggests they support 501c3 accounts. There are many other roboadvisors. Vanguard's is called "Vanguard Digital Advisor" and I wasn't able to find what the minimum would be for a 501c3.
posted by Nelson at 9:43 AM on June 10, 2021

Dimensional Fund Advisors LP does a lot of nonprofits. Not sure what their limits are.
posted by slkinsey at 10:17 AM on June 10, 2021

I tend to agree with mskyle. If they like their current allocation strategy, it ought to be relatively straightforward to find a fund that comes close to mimicking it and rebalances automatically. In the long run, this will save them a lot of money. Nonprofits in their position--relatively unsophisticated, having enough assets to be worth hustling but not enough to be well-protected--are catnip for the low-level hucksters of the investment world, as you have already discovered with that 1.25% (!) management fee. Pick a strategy, find the cheapest possible implementation of it, and leave the money there.
posted by praemunire at 10:46 AM on June 10, 2021 [1 favorite]

I personally think you should go with a solution like mskyle suggested, as 'totally hands off' is a perfect situation for embezzlement or fraud.

No money, no mission. It's that important.
posted by The_Vegetables at 10:48 AM on June 10, 2021 [1 favorite]

On reflection I'm back to add that "totally hands off" is not realistic, long-term. The board (or whatever) still needs to make decisions about the investment strategy from time to time. Maybe not every year but probably at least every five years - once in a while the board has sit down and say, "is this investment strategy still appropriate for our short- and long-term goals," and that's not something an outside investment professional can do for you (although they can certainly help with it).
posted by mskyle at 12:53 PM on June 10, 2021

Response by poster: Thanks all. As one alternative to present at the meeting, I'm going to try to find a good roboadvisor that takes 501c3s (which Vanguard's doesn't). For another alternative, I'll look into whether Friends Fiduciary and/or Dimensional Fund Advisors would be a better value and fit than who they're with now. And I'll keep an allocation fund as another alternative -- the Vanguard ones I mentioned in my question have lower expense ratios than Fidelity's.

I also agree with the more general/philosophical points made here, but I'm not in the position to urge that those happen -- just casually volunteering with the org. Thanks again!
posted by daisyace at 10:46 AM on June 11, 2021

Response by poster: An update: I've looked into several roboadvisors without finding any for which 501c3s are eligible. (Vanguard's, Fidelity's, Schwab's, Weathfront, and Betterment all say no.) If anyone knows of a reputable one that does take 501c3s, I'd love to know.

I'm also struggling with the front-running idea of an allocation fund, because DoGooder would want to supplement that with a fee-only advisor they could pay hourly for occasional check-ins, and the ones I've called ALSO don't handle 501c3s on an hourly basis.

So far, it's looking like paying .75 or more may be as good as they can do, whether for a Friends Fiduciary fund, an asset manager that Fidelity refers, or a Garrett Planning Network one that I talked with the other day. That's still far more than I'd hoped to see DoGooder pay for the very basic management they need. So any and all additional ideas welcome!
posted by daisyace at 9:52 AM on June 21, 2021