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Best Practices for Managing Your Investment Expenses

Wednesday, March 30, 2016
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By Jason Palmer, PFM Asset Management LLC

In an effort to maximize the long-term impact of donor giving, boards should keep a watchful eye on investment expenses paid to investment advisors and managers within their endowment fund(s). Here are some best practices that we believe may help your foundation retain more of its endowment dollars:

1. Advisor Fee Benchmarking

It is good practice to obtain fee quotes every two or three years from a small group of investment advisors with varying levels of assets under management, expertise, and service offerings. This should help boards to stay up-to-date with current rates.

2. Underlying Investment Manager Fee Benchmarking

Boards should consider a biannual review of their investment manager’s fees versus a peer group of similar investment strategies. At a minimum, your advisor should provide a report that summarizes investment manager expenses to help better clarify the fee structures currently in place. This approach is designed to allow boards to determine whether fees will decline as assets grow.

3. Fee Arrangements between Advisors and Investment Managers

Know whether or not your advisor has any ownership stakes or fee-sharing agreements in place with any of the managers in your endowment portfolio(s). If so, ask your advisor how their firm avoids the potential conflict of interest.

Adopting these best practices may help to ensure that the fees paid are commensurate with the services you receive and the long-term excess returns (those above your benchmark) that the endowment portfolio(s) earns. It’s important to take time to evaluate investment expenses, as these monies will enable your foundation to continue to have a long-lasting impact in the lives of individuals and their respective communities.

About PFM Asset Management, LLC (www.pfm.com)

PFM Asset Management (PFMAM) is an independent investment advisory firm registered with the SEC under the Investment Advisers Act of 1940.  A copy of our Form ADV, Parts 2A & B is available upon request. PFMAM manages and advises on over $101.7 billion in total assets (as of 12/31/15) and partners with non-profit, public, and other institutional organizations. The firm’s professionals have been providing comprehensive discretionary and non-discretionary investment advisory services for over 35 years.

For more information please contact Jason Palmer by phone at 312-523-2421 or by email at palmerj@pfm.com.

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