Board Member as a Financial Advisor

Hello All,

We have a new board member that wants to be the financial advisor for our HOA. Our property management has been taking care of our reserve funds through their financial department.
We have several CD's, the board always makes the final decision to roll over or change banks when they mature. For the most part we have always follow our property management advise.
We have done very good so far.

This new board member has been e-mailing new proposals of cash flows and banks. Our property manager has been recommending the board that it is best to use banks that they have
good relationship and feel very good about it.

I believe that we should follow the advise of our property manager. My only concern is that Boards of Directors should consider the fact that they could lose the personal indemnity that comes
from relying on professional advice if they choose to undertake their own study.

I love to have your advise on this subject.

Thank you very much

I see nothing wrong with a board member who has expertise on a certain subject presenting that info to the board for consideration. If a landscaper was on the board, I would expect the board would listen to his/her suggestions on those kind of issues. (best trees, good plants, etc) The entire board, however, still should look at all the info and make the best decision. Input from the PM should be considered, but not followed blindly. A Finance Committee would constantly be reviewing all financial issues.

Not being anywhere close to an expert on this subject, my question would be "how does it look?" A previous person posted that a board member offering advice in their areas of expertise is one thing. From your post, it sounds like your board member wants to actually manage your money, which to me, implies that he/she would be getting commissions/fees from managing the association's money.

How does look to your owners/members? To me, as an owner, it would look pretty bad. It may not be strictly "illegal", but it looks bad. Do you want to start having people questioning the integrity/ethics of board members? To me, it looks like a conflict of interest.

I agree with the "If it ain't broke, don't fix it!"

TracieS

Tracie,

Thank you for your input. I don't believe that this board member is seeking any fees/commissions. He just wants to take over the roll of the property management financial department as how to
manage our association monies.

I believe that he has some knowledge however, to me it is not enough to manage our accounts. The board has always review any recommendations from our PM.

Thank you very much,

Gordon

Gordon,

The PM should not be making any financial decisions without a vote of the board. Therefore, as a board member, this person should have the opportuity to voice his opinions regarding investment options. I don't see how the relationship between the bank and the PM needs to enter into any financial decision the board needs to make. When looking for financial institutions to deposit monies, the board should be concerned with FDIC insurance and interest rates. What relationship the bank has with the PM is meaningless. The bank isn't going to offer a better interest rate! It appears to me the PM may only be dealing with banks he/she has a relationship with and may be overlooking other financial institutions that may be offering better interest rates. In this market it's hard to find a bank offering more than 1%; which makes it even more critical for the BOD to NOT limit their choices.

I doubt that personal indemnity would enter into this. You need only worry about that if the board "knowingly" makes a bad decision. Courts generally use the business judgment rule when determining if a BOD has failed to honor their fiduciary resp. to the assn. IMO, your belief that the board should always follow the advice of the PM is misguided at best. What if the PM gives the board bad financial advice???

Gordon, hope all is well and thank you for the additional information.

Helpful in gaining some idea of who you are dealing with.

"He keeps claiming that he has personal knowledge on on the finance subject."

For my money this would be a bright red flag. He is a self proclaimed expert.

From your OP you have had good results with the system using your PM and the Board is keping tabs on these investments.

In today's world your options are quite limited with perhaps CDs and savings accounts or MM accounts the only reasonable options. Would you put your money in anything more risky today? Not me.

On our property myself and the Treasurer handle the investments of our assets other than are operating accounts which the PM controls to a point. We use sites such as Bankrate and search for whatever vehicle offers us the best returns. We open accounts, move money and handle this without any input from the PM. This works for them and us. They have no access to these funds.

I will stick with my previous advice and vote against giving the authority or control of your assets to this member. Any possible reward would not be worth the potential risk in my view.

Good luck and Best Wishes.....

Donna:

Thanks. Today comparing your investment options especially when it comes to assets found in an HOA or condo association you need very basic math skills.

Which option gives you the highest rate of return. Today the returns are so low you don't find many major differences in the options offered by most banks. A sign of these troubled times.

We have used MM accounts, CDs and savings accounts to our best advantage.

Personally, I don't believe ANY of the so called experts. ALL have something to sell and have no stake in your future. Mr. Madoff is taking the fall for not only his family members but some of the folks who knowingly invested in a scheme that paid them better than normal returns and then turned a blind eye to any problems. Along with investment firms who funneled money into Madoff investments and collected fees without any concern for the investors.

Never turn the control of your money over to someone else and NEVER invest in something YOU don't understand. When you break these rules you put yourself at risk. Too many people are unwilling to handle their own affairs.

Jim Cramer in my view is a clown. He is a self promoting, full of himself fool. As you suggested check his record on investments he has pushed and how they have done. What people forget is that he has a product to sell and no price to pay for failure afterall it's YOUR money and future he is playing with.

I would not turn my assets over to anyone. In today's world anything is possible and the mistake you make might cost you your future.

As Board members you can allow others to suggest and perhaps take on a portion of the operation but you should always check and verify every detail and result.

Can't afford to fall asleep at the wheel. Especially today!