advice on parish financial council

[joesxm3]

I am in the process of getting sucked into being on the advisory parish financial council. I would be one of five members.

This is a small parish and the total assets minus property is less than $100,000. It seems to me that it is more like balancing a check book than investing assets.

There seems to be a lot of work needed to understand the current record keeping and correcting things to standard business practices, but that is not part of today's question.

If left to my own inclination, as we here feel, I would think this is best structured as a checking account fed from some sort of interest bearing account. Currently there is about $70,000 split between two companies, one that seems like a normal brokerage account and the other that might be some sort of managed account. With less total assets than we would typically hole in or cash emergency fund it seems that little if any should be in equities and only in a broad index fund if at all.

Getting to my question. The priest, who is the final authority (council is only advisory) does not seem to know much about finances. He feels we should be dealing with a financial advisor "with expertise in this area" that he would call up to liquidate holdings when needed to cover expenses.

I feel that 1) we should not have very much in equities that need to be liquidated and 2) we would be paying 1% or 2% to someone for basically doing nothing.

The one reason I can see for hiring an advisor is to provide some continuity rather than assuming that the current financial council will continue. This might be similar to engaging an advisor with the intention of having support for the spouse after the financially minded spouse dies.

Is it normal for organizations like a church to just waste money on an advisor in order to have structure or the appearance of an independent third party?

 

[Onthefarm]

Hi- I'm chair of the board of a small 501c3 charity with assets under $30K. We have two accounts at the local credit union: 1) a checking account to pay our bills and convey our grants and 2) a money market savings account currently earning about 380 bp annual interest. We don't pay for a financial advisor. If you had an extraordinary expense and had to sell some real property, I'd hire a fee-only certified financial planner (CFP) to run through your board's plan A and plan B to pay the extraordinary expense. Then you could look the priest in the eye and explain your financial diligence with use of the CFP's expertise. Unless your parish has some unusual risk exposure, I think paying a CFP on as as needed basis is more frugal than using a financial advisor (who may not be a fiduciary) with a recurring fee based on assets under management. Best of luck!

 

[COcheesehead]

My wife in these situations would tell me “you are hesitating for a reason”.

 

[jazz4cash]

Is there an archdiocese that would have some guidance or resources? They probably favor hiring a “professional”.

 

[latexman]

Some want plausible deniability in case the SHTF. That’s where the advisor/scape goat comes in.

 

[pb4uski]

... Is it normal for organizations like a church to just waste money on an advisor in order to have structure or the appearance of an independent third party?

I don't think so, but I don't have any experience with parish finances.

With $100k, actually even more, there is no need to have a financial advisor and it would be a waste.

For our lake association we have a local checking account and a brokerage account at Schwab and the two accounts are linked so I can transfer money back and forth as needed. At Schwab, we have a 5-rung Treasury bill ladder and a rung maures each month and also a money market fund that holds any additional funds. We could easily simplify it to just a sincle ultra short term government bond fund if we wanted to.

Perhaps others can weigh in but my experience as Treasurer of a condo association and of a lake association is that money was invested very conservatively so to avoid any losses. The by-laws of both organizations restricted investments to FDIC insured accounts or full faith and credit US government obligations... so no stocks.

I would not want to have to report to parishoners that we lost $20,000 of their $100,000 because the stock market had a bad year.

Both organizations had brokerage accounts and excess funds were invested in US Treasuries. Last year, the lake association had a yield of 4.2%.

 

[joesxm3]

pb4uski,

What you describe is how I envision it should be structured as well.

Part of the problem is that the priest seems reluctant to do online transfers and said that he wants to have a check and deposit slip for all transactions.

The local bank, which seems necessary to do the weekly collection deposit, does not seem to offer any sort of decent money market fund. He has been approached by someone from Fidelity. So she may come to explain and maybe we can set up a non-managed account linked to the local bank.

I will probably have to meet with the priest to hash out things. I am to used to things being done quickly and correctly to easily fit in with a group that meets every three months and a messy situation. The rules do say "must meet at least every three months".

 

[treeofpain]

Until my recent retirement, I spent the last 24 years as a minister focusing on operational and financial management at large churches. I have never engaged a financial advisor for the churches I have served.

It is good to have a relationship with a brokerage firm that can accept gifts of stock, which we would typically sell immediately and transfer the proceeds to our church operating account. Many times a brokerage will do this at no charge or for a small fee for a church.

But for the day-to-day stuff, there's really no need. Most churches are pretty conservative, so any invested funds beyond normal cash flow needs are often placed in money markets or T bills, where they don't lose money and where the funds are available if needed.

 

[treeofpain]

pb4uski,

Part of the problem is that the priest seems reluctant to do online transfers and said that he wants to have a check and deposit slip for all transactions.

As long as you have proper documentation of transactions, more than one person authorizing them, and an annual audit of the books (normal controls) - ACH transfers are actually better. More secure, a check can't get lost or stolen, and frankly less hassle.

 

[athena53]

My background: Episcopalian, many terms on church vestries (governing boards). A few years ago our former Business Manager died and left us her house and we got about $160K for it. (We agreed we didn't want to keep it and be landlords.) We kept $60K in reserve for emergencies (have mostly used it for repairs beyond what we budgeted) and invested the $100K in an intermediate-term investment-grade bond fund. It sounded pretty solid- till interest rates increased and the value of our holdings dropped to $93,000. We now invest only in CDs. Positive investment income is good! The church my late husband used to attend decided to invest about that much in an equities mutual fund. (A Finance Committee member was a budding "financial advisor" so I think I know who handled the transaction.) Then the dot-com bust happened.

Anyway, here are my thoughts:

1. You need an investment policy. It should be pretty conservative- T-bills, CDs from reputable institutions, money market accounts. If you get a bequest of $1 million you can revise it.

2. I agree with having an affiliation with a brokerage so people can donate appreciated stock and you have access to CDs and other conservative investments at a low cost. Our CDs are with Edward Jones- not my decision but at least we're making money again.

3. No, you do not need an advisor. The brokerage account should be for "spare funds", not what you need from day to day to pay the bills, and the Parish Council can periodically meet and agree on when to move money to/from the brokerage account and what CD maturities to select when one matures.

4. It's a tough issue that the priest likes everything on paper. This system will at least provide that for the collections.

5. Do you think it would be helpful to have a way to make donations on-line, either through a web site or Venmo or Paypal? Our Diocese provides the Web setup and absorbs the fees, sending checks to us periodically.

6. Build in protections and separation of duties. I'd trust our current Treasurer with my own money, she's that honest and transparent- but I personally know of a few churches that have had trusted employees or volunteers embezzle the funds. It's hard to recover emotionally from that. And some priests just aren't that astute financially. At one church when our priest left she found a pile of receipts from a seminar she'd attended out of state a few years before- had been approved, perfectly legitimate, but she forgot to ask for reimbursement and it was a pretty large sum. A previous priest at my current church joined a church mission trip to Haiti and wrote a check for his airfare out of his Priest's Discretionary account. This account is funded by donations and allows the priest to help where and when needed on a confidential basis but it's audited. This was not a permissible use. A few of us contributed to "bail him out".

 

[joesxm3]

athena53,

Thank you for the spot on advice.

Out priest was told by another priest how they get big QCD checks. So I can use the in-kind contribution angle to help push Fidelity. I will contact them to see if they facilitate that type of thing.

Your two horror stories are good also. I ran the situation through Grok-AI which had the conclusion that our financial situation is too precarious to do anything more than running a checking account with a MM or T-bill interest earning account. I hope I can get him to dump the bond funds and etfs before something goes sideways.

 

[Original Wally]

RE: Athena -
I was Finance Manager for a large PUBLIC utility. OUR mantra was SLY - SAFETY, then Liquidity and finally Yield. NEVER wanted to stand up in public and say I lost $X million of public money.

Investment grade bonds are OK - IF they meet the "liquidity" part - that you plan to hold them to maturity. Then temp drops due to interest rate changes can be ignored. That is why a good LADDER of bonds is important - "Some" are always close to or at maturity.

Our Church (Methodist} uses a brokerage firm, but is NOT actively "trading" - all in MMKT and T-bill ladders
Our HOA is similar - the HOA holds just north of $4 million.

 

[DJRR]

I am the treasurer for a medium sized church - about $2.5M in assets and $1.5M in annual income including a daycare. We have 3 accounts:

1. A checking account that all donations are entered in and used to pay all monthly expenses. Account must be balanced each month.
2. A money market fund that holds all dedicated donations. Money donated for specific purpose has to be segregated to avoid spending it for general expenses. This also includes a small "reserve" account. Account balance has to match dedicated funds each month. As a general rule all donations are spent on the church, ministries, or donations to the community. We do not hoard money, but put it to use.
3. An investment account to receive in kind stock donations. This also holds our endowment account, which is used to fund new outreach ministries. Stocks are sold immediately and only current investment is a money market. No advisor needed. The endowment board will make other conservative investments when we have a balance above $50k.

We have a professional bookkeeper and an office manager, but no need for a financial advisor.

 

[joesxm3]

DJRR. Thanks. Helpful to hear from people actually doing this stuff.

 

[athena53]

Out priest was told by another priest how they get big QCD checks. So I can use the in-kind contribution angle to help push Fidelity. I will contact them to see if they facilitate that type of thing.

It's not just QCDs which you can do only after a certain age (71?). I've frequently donated appreciated stock from an after-tax account. Example: stock is worth $10,000 but the basis is $4,000 so I have an unrealized gain of $6,000. If I sell it and give $10,000 to a nonprofit I still owe taxes on the $6,000 gain. If I move the stock over to the nonprofit's brokerage account (this is key- you can't sell the stock and then move the proceeds) and the brokerage sells it, you get a deduction of $10,000 and owe nothing on the gain. The nonprofit's brokerage then sells the stock and sends them a check.

We periodically publicize this in our newsletter (always with the caveat that you should consult a tax advisor with any questions). I'm not sure if any other parishioners do this but I've done it for years.

 

[Gumby]

I managed our church endowment funds for over ten years. The one thing I can add is to make sure that the person who manages the investments does not have the power to take the money out of the investment account. Once, the pastor questioned whether that was really necessary since they trusted me. I said "well you shouldn't trust me; you shouldn't trust anyone. We need structural guardrails in place to make it impossible for me to steal the money." Subsequently, another church in town did not have such guardrails and the guy managing the money stole all of it.

 

[MichaelB]

I managed our church endowment funds for over ten years. The one thing I can add is to make sure that the person who manages the investments does not have the power to take the money out of the investment account. Once, the pastor questioned whether that was really necessary since they trusted me. I said "well you shouldn't trust me;' you shouldn't trust anyone. We need structural guardrails in place to make it impossible for me to steal the money." Subsequently, another church in town did not have such guardrails and the guy managing the money stole all of it.

Right, and no exceptions ever.

 

[SnowballCamper]

Maybe some paid advice to facilitate setting up guardrails, and establishing an investment policy statement. Then no ongoing fees afterward.

 

[pb4uski]

... invested the $100K in an intermediate-term investment-grade bond fund. It sounded pretty solid- till interest rates increased and the value of our holdings dropped to $93,000. ...

The problem there is that it as an interpediate-term invetment-grade bond fund. If you had intermediate-term investment-grade individual bonds that were held to maturity then you would not have had any losses. Ditto for a target-maturity investment-grade corporate bond ETF.

Now all of that said, even corporate bonds are a bit further out on the risk spectrum that is prudent for most non-profits unless you have a large endowment.

 

[joesxm3]

It's not just QCDs which you can do only after a certain age (71?). I've frequently donated appreciated stock from an after-tax account. Example: stock is worth $10,000 but the basis is $4,000 so I have an unrealized gain of $6,000. If I sell it and give $10,000 to a nonprofit I still owe taxes on the $6,000 gain. If I move the stock over to the nonprofit's brokerage account (this is key- you can't sell the stock and then move the proceeds) and the brokerage sells it, you get a deduction of $10,000 and owe nothing on the gain. The nonprofit's brokerage then sells the stock and sends them a check.

We periodically publicize this in our newsletter (always with the caveat that you should consult a tax advisor with any questions). I'm not sure if any other parishioners do this but I've done it for years.

I do that, except I donate to my Fidelity Charitable Gift Fund. I had a lot of PLTR stock with huge gain and wanted to de-risk so I donated a lot of it.

One thing I recently found out that there is a five year expiration limit on carried over charitable stock donations. You can only deduct up to 30% AGI and have to carry over the excess. Plus, i think, if you donate next year those count before the carry over is used.

 

[joesxm3]

I managed our church endowment funds for over ten years. The one thing I can add is to make sure that the person who manages the investments does not have the power to take the money out of the investment account. Once, the pastor questioned whether that was really necessary since they trusted me. I said "well you shouldn't trust me; you shouldn't trust anyone. We need structural guardrails in place to make it impossible for me to steal the money." Subsequently, another church in town did not have such guardrails and the guy managing the money stole all of it.

According to canon law, the priest is the final authority for managing the money. I will have to clarify how we keep an eye on him. He did say that he writes out the checks and that the priest from the other parish who is the "administrator" comes up to sign the checks, Not sure if two signatures are required.

The "pastor" retired a couple years ago and our parish was bounced around. We currently have no "pastor", which apparently prevents filling an open trustee position.

But definitely good advice on having air-tight procedures to prevent fraud.

 

[Original Wally]

I managed our church endowment funds for over ten years. The one thing I can add is to make sure that the person who manages the investments does not have the power to take the money out of the investment account. Once, the pastor questioned whether that was really necessary since they trusted me. I said "well you shouldn't trust me; you shouldn't trust anyone. We need structural guardrails in place to make it impossible for me to steal the money." Subsequently, another church in town did not have such guardrails and the guy managing the money stole all of it.

So true. As the finance guy at w*rk i told the treasurer to keep the controls in place. "If you give me the opportunity I WILL burn you: $40million and a 48 hour head start - I will disappear." I was kidding (?) but had to make the point.