Investment Committee Best Practices for Nonprofits

In today’s complex financial world, your nonprofit organization may feel more pressure to manage its assets thoughtfully and transparently.  

As fiduciaries, nonprofit board members must manage endowments, reserve funds, or long-term investments. It should make sure that its financial decisions match the organization’s mission and values.  

The primary path to help achieve this is by establishing a dedicated nonprofit investment committee. 

Why form an investment committee?

An investment committee serves as another board committee that’s tasked with overseeing the organization’s investment strategy, overview, and monitoring.  

The investment committee is different than, but can be a subset of, the finance committee. The finance committee usually deals with budgeting and financial reports.  

The investment committee focuses on managing assets across various time horizons. This separation of duties enhances nonprofit fiduciary responsibility and oversight and ensures that investment decisions receive the attention and expertise they require. 

An investment committee can provide the structure and accountability needed to safeguard resources and support mission-driven goals. This is especially necessary if you have significant financial assets or aspirations to grow your endowment or investment portfolio. 

Key roles and responsibilities

The investment committee is charged with developing and periodically reviewing the organization’s Investment Policy Statement (IPS). This document outlines your investment objectives, risk tolerance, asset allocation guidelines, and performance benchmarks. It also outlines specific roles and responsibilities between the Investment Committee and the financial advisor the Investment Committee chooses as a partner. It serves as a roadmap for decision-making and a tool for evaluating investment outcomes.

Beyond the IPS, the committee is responsible for: 

• Monitoring investment performance and ensuring alignment with strategic goals. 

• Selecting and evaluating investment managers or financial advisors. 

• Reviewing fees, reporting, and compliance with ethical standards. 

• Ensuring that investments reflect the organization’s values, including faith-based restrictions, and environmental, social, governance (ESG), or socially responsible investments (SRI).  

Investment committee composition and structure 

An effective investment committee balances financial expertise with mission alignment. Members with finance, accounting, or investment management backgrounds are helpful. However, it is also important that all members understand the nonprofit’s mission and values. 

Investment committee best practices suggest a committee size of three to seven members to maintain efficiency and diverse perspectives. It is not unusual to invite non-board members to join an investment committee if they lend a particularly helpful point of view or skill. Term limits and succession planning help ensure continuity and fresh thinking. You can hire external advisors or consultants for their expertise. However, the committee should keep the power to make decisions. 

Governance and operations 

Strong governance is essential for the investment committee’s success. This includes: 

• Holding regular, quarterly meetings with clear agendas and documented minutes. 

• Reporting to the full board on investment performance and strategic updates. 

• Maintaining transparency through detailed reporting and open communication. 

• Implementing conflict of interest policies to safeguard impartiality. 

The committee should create rules for reviewing and updating the IPS. This is important when market changes or organizational priorities shift. 

Best practices for success 

To maximize effectiveness, the investment committee should: 

• Develop a clear charter that defines its scope, authority, and responsibilities. 

• Provide ongoing education and training for members, especially those without financial backgrounds. 

• Conduct regular performance reviews of investment managers and portfolios. 

• Collaborate with other board committees, such as finance and audit, to ensure cohesive nonprofit financial oversight. 

Collaborating with a financial advisory firm can help the committee improve its skills. They typically provide access to market insights, risk analysis tools, and fiduciary guidance. A firm with experience in nonprofit investment strategy can provide even more value, beyond supporting the committee. 

Common pitfalls to avoid 

While investment committees offer many benefits, they can falter without proper structure and support. Common pitfalls include: 

• Overreliance on a single member or advisor, which can lead to biased decision-making. 

• Lack of clarity in roles or authority, resulting in confusion or inaction. 

• Infrequent meetings or poor documentation, which undermine accountability. 

• Failure to adapt to market trends or regulatory changes, exposing the organization to unnecessary risk. 

Avoiding these missteps requires proactive planning, clear communication, and a commitment to continuous improvement. It may be helpful to model a similar and familiar structure such as nonprofit board governance.  

How Mercer Advisors can help 

Partnering with a financial advisory firm can be a game-changer for nonprofit investment committees. At Mercer Advisors, our Endowments & Foundations team brings specialized knowledge, analytical tools, and fiduciary expertise that complement your committee’s mission-driven focus. 

We can add value in these key areas: 

• Assisting with the development and refinement of the IPS and spending policy. 

• Providing performance reporting and benchmarking against industry standards. 

• Offering insights into market trends, asset allocation strategies, and risk management. 

• Supporting committee training, including governance best practices. 

By working collaboratively, together we can build resilient investment strategies and an investment portfolio that support long-term sustainability and impact. 

Get started 

Establishing an investment committee is essential for nonprofit boards seeking to fulfill their fiduciary duty as well as enhance financial stewardship and mission alignment. With the right structure, rules, and support, your committee can help protect assets and achieve organizational goals.

If you’re considering this step, now is the time to act. Whether you are starting a committee or improving one, our Endowments & Foundations team is here to help. Let’s work together to create a framework that empowers your organization to thrive — today and for years to come. Contact us here.