If advisers are thinking about developing a niche of advising nonprofit organizations, the first thing one veteran adviser suggests is to take an interest in the objectives of the group.
"Have an interest in or be aligned with the mission of the organization if you're hoping to work with them," said Patrick Clark, founder of Neshaminy Creek Advisors, which is based outside of Philadelphia. "If you're not a fan of pets, don't try to prospect with the local animal shelter."
Speaking Tuesday in St. Louis at XY Planning Network's annual conference, Mr. Clark shared some tips from his 25 years of providing financial advice to nonprofit organizations. Half of his business is working with nonprofit organizations, he said, and within that niche, he has specialized in working with fire departments.
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Because nonprofits will usually have some kind of
financial planning arrangement in place, Mr. Clark said prospecting advisers should prepare for a "slow burn."
"I've had some nonprofit clients that I worked on for three years before getting the business," he said. "Sometimes it only takes about six months after the initial contact, but it usually takes longer if it's an all-volunteer organization."
Mr. Clark said all of his nonprofit clients are located in the Philadelphia area. He directed advisers to Guidestar.org as a resource for nonprofit organizations. Guidestar warehouses basic contact information for groups as well as details about total assets.
Breaking through with a nonprofit typically requires persistent networking to build connections and developing a reputation to effectively penetrate the nonprofit space.
"If you get a nonprofit client, go to their events," Mr. Clark said. "If you're a golfer, go to their golf outing fundraiser. If you do a good job with nonprofits, word spreads quickly."
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One challenge of securing a financial planning relationship with a nonprofit is that they are usually run by volunteer boards, and those boards typically follow strict rules about when and how to search for a new financial adviser.
In some cases, boards are required by the group's bylaws to put out a request for proposals from financial advisers every five to seven years. This is when an adviser who has become familiar with the organization potentially can get a foot in the door.
Once in the door, Mr. Clark said there are some basic priorities to consider.
The first is watching out for potential conflicts of interest, such as serving on the board while also acting as the adviser to the nonprofit's assets, or participating in a search for an adviser while also prospecting to get the advisory business from the nonprofit.
Next on the list, Mr. Clark said, is ensuring that the nonprofit establishes an investment policy, a spending policy and a contribution policy.
Having a spending policy avoids situations where the board might cover expenses with assets that are dedicated for other uses just because its income has been disrupted in some way.
"You should get a line of credit to cover budget shortfalls," Mr. Clark said. "That way when the money does come in, you're forced to repay it."
He added that it's also important to ensure that all the assets in the portfolio are dedicated for specific uses and to avoid the use of "rainy day funds" that are easily drained.
When it comes to contributions, Mr. Clark said a clear policy will help nonprofits avoid problems related to trying manage donations like real estate and other types of illiquid assets.
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