(Formerly Standard 7)
PGTS Standard
10. The organization is in compliance with denominational investment policies. (NADWP S 85) [PGP, PGTS]
Standard #10 concerns the fiduciary investment of revocable or irrevocable trust funds and applies to all accredited organizations that serve as trustees. All these investment policies are in the NAD Working Policy (red book) S 40-16 and S 85. Although standard #10 and NAD WP S40 16 are specifically addressing trusts, these same principles apply to powers of attorney when the organization serves as attorney-in-fact and guardianship when the organization is the legal guardian. So please know that when trustees are referred to in this article, Attorneys-in-fact and guardians are also included.
Fiduciary investment responsibility is a good reason for every organization to review any files carrying current, or possible future, organizational obligations to act as a fiduciary on behalf of a donor. NAD PGTS Standard #37 requires a file review periodically, at least every five years. In addition to denominational investment policies, investments must comply with all laws of the relevant jurisdiction.
PRUDENT INVESTOR ACT
The Uniform Prudent Investor Act (UPIA), adopted in 1992, set guidelines for trustees to follow when investing trust assets. The UPIA succeeded the Prudent Man Rule written initially in 1830 and updated in 1959. This Prudent Man Rule outlined three considerations.
- The needs of the beneficiary
- The need to preserve the estate
- The need for income
These considerations are still important today and guide several of the 47 NAD PGTS Standards. The UPIA made four main changes to the previous Prudent Man Rule considerations.
- A trust account’s entire investment portfolio is considered when determining the prudence of an individual investment. Under the Uniform Prudent Investor Act standard, a fiduciary would not be held liable for individual investment losses so long as the investment was consistent with the overall portfolio objectives.
- Diversification is explicitly required as a duty for prudent fiduciary investing.
- No category or type of investment is deemed inherently imprudent. Instead, suitability to the portfolio’s needs is considered. As a result, investment junior lien loans, investments in limited partnerships, derivatives, futures, and similar investment vehicles are now possible. However, speculation and outright risk-taking are not sanctioned by the rule and remain subject to potential liability.
- A fiduciary is permitted to delegate investment management and other functions to third parties.
The Uniform Prudent Investor Act’s most important change was that the standard of prudence would henceforth be applied to any investment in the context of the total portfolio, rather than to individual investments.1
In summary of the UPIA trustees are;
- Held responsible for the overall performance of the trust asset portfolio.
- Responsible for ensuring diversification of investments in trust portfolios.
- Able to invest in many asset categories, but speculation is not allowed.
- Allowed to delegate investment management to a third-party advisor.
When Seventh-day Adventist Planned Giving & Trust Services personnel act as a fiduciary, we must comply with our trustors’ wishes and comply with all SDA investment working policies (S 40-16, S 85), and all investment laws of our country and states or provinces. In the U.S., 44 states have adopted the UPIA, and four others have adopted portions of the UPIA. You will need to check with your attorney to be clear as to what investment legal guidelines apply to the area your organization services.