Episcopal Church Foundation Vestry Papers - for leading congregations

Church leaders who oversee church money have a fiduciary responsibility. The money is not their own – it belongs to the church – so there are certain standards to follow. That is, you can be as carefree as you want with your own money, but not with someone else’s money!

Most church leaders know about their fiduciary responsibility – it is the same principle that applies when acting as a trustee or executor, or when serving on a corporate board or finance committee. But what’s different at a church – or any nonprofit organization – is an added duty to consider the church’s mission.

Let’s review fiduciary responsibilities generally and explain how to carry them out at a church.

Fiduciary: A fiduciary is a person, group, or entity responsible for managing and protecting the assets of others. In a church, a vestry manages and protects church assets, including investments, cash reserves, real estate, and other property. For convenience, efficiency or expertise, a vestry may delegate some responsibilities to a finance committee, or an endowment or investment committee. These groups, and their individual members, are fiduciaries with special legal and ethical obligations to act in the best interests of the church. These obligations include three main fiduciary duties, explained here from the perspective of an investment committee.

Duty of Care: The duty of care requires an investment committee to exercise reasonable care when making investment decisions. Committee members must use their knowledge and expertise to make informed and well-reasoned investment decisions that align with the organization’s mission and goals.

The applicable legal standard is not onerous – it just requires committee members to act like a “prudent person” familiar with such matters would act in a similar situation. More specifically:

• An investment committee must conduct due diligence before making any investment decisions. It must research, analyze, and assess potential investments – or the investment managers, advisors or consultants who would recommend or select investments – to ensure a match with church goals and alignment with the church’s investment policy.

• An investment committee must regularly monitor the church’s investments to ensure the investments – and the entire portfolio – are performing as expected and remain appropriate for the church’s needs.

• An investment committee must document its investment policies in writing to guide both current and future committee members and other church leaders. It must also document all endowment gifts to ensure there is a clear record of the intent of the donor.

• Investment committee members must thoroughly review and understand the organization’s investment policies and guidelines and have good knowledge of financial markets and investment strategies.

• An investment committee must maintain accurate records of all meetings and investment decisions, including the rationale for those decisions and any related documentation.

Duty of Loyalty: The duty of loyalty requires an investment committee to act in the best interests of the organization it represents when making investment decisions. This duty requires members to put the interests of the organization ahead of their own personal interests and to avoid any conflict of interest – or the appearance of a conflict – that could influence their decisions. Again, the applicable legal standard is not onerous – committee members must act in good faith, with a sincere intention to do what is right. More specifically:

• Investment committee members must conduct themselves with the utmost integrity and make investment decisions that align with organizational goals and objectives, not their own.

• Investment committee members must disclose any conflict of interest that could potentially impact their ability to make unbiased decisions. The vestry may also wish to include a written conflict of interest policy in its charter to the investment committee, and the investment committee may wish to include such a policy in its investment policy statement.

Duty of Obedience: A church or other nonprofit must operate in accordance with its stated mission and purpose and must use its resources to further those goals. It receives favorable legal treatment and must comply with all applicable laws and regulations relating to its nonprofit governance structure and tax-exempt status to help maintain public trust and confidence in the nonprofit sector. In particular:

• An investment committee should understand the source of all funds it oversees as well as any restrictions on the use of those assets to ensure that all assets are used for charitable purposes and in accordance with the intent of any donor.

• An investment committee must follow the standards set out in the Uniform Prudent Management of Institutional Funds Act (UPMIFA), as adopted in their state. This applies to the investment of all institutional funds and the spending of donor-restricted funds.

• When making investment decisions, an investment committee may consider how an investment relates to the organization’s mission, among other factors.

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Are you looking to ensure that you and other committee members, vestry or board members are fulfilling these duties at your church or organization? Contact ECF’s Endowment Management team for specific insight and guidance at endowment@ecf.org.