Why Should an Association Have an Investment Policy?

The board of directors has a duty to properly watch over the investment of Association monies.  Due to changes in board members, management companies and other professionals as well as the complexities surrounding legal requirements, it is in the best interest of each and every association to adopt a well thought out investment policy.  The revised GAP 24 report published by CAI titled “A Complete Guide to Reserve Funding & Reserve Investment Strategies” gives two sample investment policies.  Investment advisors will have other suggestions and samples for boards to consider.

According to GAP 24, the association should address the following topics when formulating an overall investment policy statement:

• General policy
• Goals and objectives
• Investment strategy
• Investment securities’ selection criteria
• Review and control procedures

This formal policy statement should be written and adopted for current and futures board’s use.  Of course, amendments can be made in the future, but only after careful consideration of all ramifications.

Many governing documents delineate what investments are suitable for association funds.  Some do not. However, prudence should prevail.  The board should consider the association’s current and future needs and weigh the risks associated with various investments.  The board should carefully review their governing documents, budget, reserve study and most current financial statements.  They might discuss their needs with their professionals – manager, insurance agent, reserve study preparer, attorney, investment advisor and accountant.

This FAQ is not written to advise boards as to what investments are proper for their association, but rather to emphasize the importance of committing to writing an investment policy that has been developed with the needs of the Association in mind.  Each Association is unique.  A written policy is a MUST.  It can be a “safety net” for the investment acrobatics of some aggressive board members (“Gee, Sam, we would like to invest in commodity futures but our investment policy does not allow it”, or “We would love to have your son control the investment of our funds from his home computer, but…”).  It also can be the “spring” to get otherwise reticent board members from taking no action at all (“I know you would like to keep all the funds in 30 day CD’s because they are safe, but our investment policy allows investments up to 3 years, including T-bills, when our reserve study shows that funds will not be needed for over 5 years”).

Take control of your investments.  Map out a strategy, commit it to writing, and move ahead.  This, as board members, is your responsibility.