RESPONSE TO REQUEST FOR INFORMATION FOR INVESTMENT MANAGEMENT SERVICES

Transcription

1 RESPONSE TO REQUEST FOR INFORMATION FOR INVESTMENT MANAGEMENT SERVICES Institutional Investments & Philanthropic Solutions Prepared for Local Church Ministries United Church of Christ Presented by Bank of America Merrill Lynch Global Institutional Consulting: The Vanerian Group Global Institutional Consulting Ira D. Hamman, Financial Advisor Merrill Lynch Global Wealth Management AUGUST 2012

2 Disclosure: Information contained in this Capabilities Overview (Overview) is the sole property of Bank of America Merrill Lynch. It is considered proprietary and confidential, and shall not be disseminated to a third-party without the written approval of Bank of America Merrill Lynch. The responses contained in this Overview, and any associated fee proposals, are subject to review by Bank of America Merrill Lynch of all legal documentation and ancillary information. Bank of America Merrill Lynch is a marketing name for Institutional Investments & Philanthropic Solutions (II&PS). II&PS is part of U.S. Trust, Bank of America Private Wealth Management ( U.S. Trust ). U.S. Trust operates through Bank of America, N.A. and other subsidiaries of Bank of America Corporation ( BAC ). Bank of America, N.A., Member FDIC. Banking and fiduciary activities are performed by wholly owned banking affiliates of BAC, including Bank of America, N.A. Investment products and services may be available through a relationship managed by U.S. Trust, Bank of America Private Wealth Management, or through a relationship with Merrill Lynch, Pierce, Fenner & Smith Incorporated ( MLPF&S ). Certain U.S. Trust associates are registered representatives with MLPF&S and may assist you with investment products and services provided through MLPF&S and other nonbank investment affiliates. MLPF&S is a registered broker-dealer, member SIPC and a wholly owned subsidiary of Bank of America Corporation ( BAC ). U.S. Trust, Bank of America Private Wealth Management operates through Bank of America, N.A., and other subsidiaries of BAC. Investment Products: Are Not FDIC Insured Are Not Bank Guaranteed May Lose Value Bank of America Merrill Lynch and U.S. Trust make available investment products sponsored, managed, distributed or provided by companies that are affiliates of BAC or in which BAC has a substantial economic interest, including BofA Global Capital Management Bank of America Corporation. All rights reserved. 1

3 Investment Process Building a relationship with a client begins with a process of discovery and ends with an agreement on an investment policy and asset allocation that can guide the management of our client s portfolio. Developing a tailored investment strategy is an iterative, fiduciary process that is customized to our clients specific situations and sophistications. We begin gathering information about the client during the proposal process, accessing public databases and relying on client input to learn about the organization. We will know whether the client is an endowment, a foundation or a charitable trust. The client may have requested that we address specific needs or concerns in our proposal. But this preliminary information, often gathered at arm s length, is far from enough to assess the client s true investment needs. Developing a tailored investment strategy is an iterative process that is likely to involve multiple conversations with and presentations to the client. Moreover, the flow of the process can depend greatly on the client s specific situation and sophistication. In general, however, the process can follow the nine steps outlined below: Working with a new client is a logical, disciplined process: Phase 1: Develop a clear understanding of the client s mission Time Horizon, spending goal, capital preservation versus. capital growth Phase 2: Assess structure and governance issues Trust versus corporate structure, and portfolio size Phase 3: Begin Drafting an Investment Policy Statement Phase 4: Identify the client s true risk tolerance Phase 5: Identify the client s unique goals and needs Socially responsible investments, mission-related investing, sensitivity to Unrelated Business Taxable Income (UBTI) Phase 6: Develop an appropriate asset allocation Phase 7: Test proposed asset allocations Phase 8: Review and refine asset allocation recommendation with client Phase 9: Review investment strategy annually 2

4 No two clients are the same. Since the Local Church Ministries - United Church of Christ has an existing investment policy we will work with the Finance Committee to review this policy and develop an investment portfolio(s) specifically designed to help meet your needs. The illustration below summarizes our comprehensive approach to working with nonprofit relationships to develop their investment policy statement and implement a structured investment portfolio that is designed to increase their likelihood of meeting their key objectives. Institutional Investments & Philanthropic Solutions Investment Policy Development and Implementation Process Analyzing your needs Fundraising and service issues Organization specific challenges Community commitments Fiduciary and Governance concerns Current and future Spending goals Capital preservation Mission fulfillment Meeting your obligations Governance and fiduciary assistance Distribution calculation and fulfillment Disbursements to split interest trust beneficiaries Sub-fund accounting and reporting Local Church Ministries United Church of Christ Implementing your strategy Defining objectives Analyzing spending policy Recommending asset allocation Refining investment policy Investment manager due diligence Manager selection and portfolio optimization Managing nonfinancial assets Ongoing portfolio monitoring Bank of America Merrill Lynch believes a well-drafted investment policy statement should be written in such a way as to guide fiduciaries but not overly restrict their activities. Investment policy statements require periodic reviews to keep them up-to-date with current industry best-practices. The review of an investment policy begins through discussions with members of your staff and committee. Our approach is designed to discover the Finance Committee s goals and objectives for the Local Church Ministries United Church of Christ s assets and any restrictions or limitations. A second meeting is held to discuss preliminary results of the analysis. Additional information is gathered and clarification of goals and objectives important to the development of the investment policy, take place at the second meeting. The Vanerian Group and Ira Hamman, your dedicated relationship team, would then present the final analytical results and recommendations at a third meeting. The review and enhancement of your current guidelines could likely be accomplished in two meetings. 3

5 The policies we develop address: Purpose and objectives Time horizon of the investment program Risk tolerance Performance expectations Asset allocation constraints Rebalancing of strategic allocation Roles of the various asset classes Duties and responsibilities of the investment managers Monitoring procedures Specific guidelines applicable to individual investment mandates Our experience and insights from working with other nonprofit clients similar to the Local Church Ministries United Church of Christ helps us uncover and fully understand investment objectives and then put the resources of the firm to work to maximize the opportunity of accomplishing these investment goals. 4

6 BANK OF AMERICA MERRILL LYNCH OPEN ARCHITECTURE Bank of America Merrill Lynch has long been a leader in providing access to a broad array of professionally managed investment products and services. Our global presence, combined with the depth and breadth of our resources, translates into access to a wide universe of investment managers and their products and services. Bank of America Merrill Lynch leverages our industry knowledge and screens thousands of separate account managers, exchange-traded funds, and mutual funds. We offer high quality investment management products and services to support conservative investment strategies or those that are more aggressive. Our investment management services include: Solutions built on a flexible open architecture platform Alignment of investment policy and assets based on the mission and unique objectives and commitments of the client A fiduciary investment process grounded in spending analysis, driven by specific cash flow and risk requirements Rigorous due diligence and monitoring Qualitative and quantitative evaluation of investment managers Ongoing oversight and management review Thorough documentation to help fulfill the client s fiduciary responsibilities Assembled platform of best-in-class managers Wide array of carefully screened investment managers and strategies Various investment platforms to help clients meet their specific needs and goals Consultative, tailored investment management Dedicated and comprehensive portfolio management Asset Allocation and diversification Advanced risk analytics Qualified accounts augmented for diversification with the addition of alternative investments Along with Bank of America Merrill Lynch s investment management services, we also offer a wide array of administration services. These services include: Ongoing consultation with your Financial Advisor Team Dedicated fiduciary administration team Custody of assets and recordkeeping of all transactions Philanthropic and investment consulting Investment policy review, as needed Comprehensive monthly statements Distributions from the endowment or portfolio as directed by your organization Unitized accounting, as needed, through Endowment Advantage Annual valuations and charitable deduction calculations, as needed Ability to accept a variety of non-cash donations, including closely held stock and real estate Gift processing and acknowledgment 5

7 Fiduciary Oversight Unlike many providers of investment advisory services, Institutional Investments and Philanthropic Solutions (II&PS) stands in a fiduciary relationship with our clients. As noted, Bank of America, N.A. is required by law to observe the highest standard of care. That means: Investment decisions are driven by the client s objectives and the asset allocation designed to help the client meet those objectives We must continuously ensure to our regulators that our decisions comply with our fiduciary responsibility. This fiduciary standard necessarily permeates everything we do for our clients. It drives an additional layer of due diligence analysis before managers and strategies are qualified for the fiduciary platform. It is the reason for our annual Reg.9 internal review process, which is designed to ensure that we follow fiduciary investment guidelines for each client. It results in the absolute integration of trust and administrative functions. And, most significantly, it is the basis of a definition of investment success that truly reflects the best interests of the nonprofit client; the ability to fulfill the organization s mission, now and in the future. Loyalty Prudence Disclosure Monitoring Diversification Exclude self-interest of third parties Ensure expenses are reasonable Engage only in legal and appropriate transactions Act with care, skill, and diligence of a prudent person Develop and document processes for decision making Hire third parties where internal expertise is lacking Carefully select service providers Provide complete and correct information to investment committee and board Disclosure material information without being asked Regularly review service providers including performance and fees Follow up on participant complaints Follow terms of Investment Policy Statement Ensure investments are adequately diversified to minimize risk of large losses Select adequate number of investments/asset classes to achieve diversification Fiduciary Oversight Bank of America N.A. may act as a fiduciary when serving in the investment advisor role for a client. In fact, fiduciary and governance expertise are the cornerstones of our practice. With a commitment to transparency and a culture of accountability, we help to safeguard the assets of nonprofit organizations so that they can carry out their missions. In an environment of heightened scrutiny and increased sensitivity towards governance and oversight, you can be assured that we understand the demands placed on a director or fiduciary at a nonprofit institution. You must demonstrate due diligence and the care and caution of a prudent investor. Our well defined methodology is customized to help you meet those obligations, and to minimize potential liability while providing transparency throughout the entire process. 6

8 Our team of professionals works to: Help you carry out your mission and identify any issues you may face in meeting your fiduciary obligations to board members and your community; Partner with you to create an investment policy statement (IPS) or align to an existing one - in compliance with state and federal regulations - and follow through the investment due diligence process; Help to ensure the investment policy statement is consistent with the goals of your organization and constituents, complements your mission and reflects its financial priorities and best practices Monitor the ongoing performance of your assets through regular meetings, comprehensive quarterly reports and periodic portfolio reviews. Subject investment portfolios to annual review through an automated system that ensures that portfolios are being managed consistently with the investment policy statement, as well as other regulatory guidelines. Bank of America N.A. partners with you to fulfill your fiduciary obligations and achieve your organization s mission with greater efficiency, effectiveness, and confidence. 7

9 Relationship Team Biographies The Vanerian Group and Ira Hamman will have primary management responsibility for this relationship with support provided by Bank of America Merrill Lynch, Bank of America Merrill Lynch Institutional Investments & Philanthropic Solutions and Managed Solutions Group. You will also be assigned to a dedicated Philanthropic Service Officer and Administrator that will handle planned giving administration and oversight for your account. The Vanerian Group and Ira Hamman Marie A. Vanerian, CIMA, AIF, Senior Vice President - Investments, Institutional Consultant Marie began her career at Merrill Lynch in 1977 after earning her degree in economics at Michigan State University. She is a Senior Vice President of the firm. In 2001, Marie was granted the Certified Investment Management Analyst (CIMA) designation by completing a program offered through Wharton Business School, in conjunction with Investment Management Consultants Association (IMCA). It carries substantial weight with discriminating clients who demand financial expertise, and the most appropriate strategies in evaluating and managing their investments. Marie has recently been awarded the Accredited Investment Fiduciary (AIF ) designation from Fiduciary 360 (fi360), an organization offering training, tools and resources to promote a culture of fiduciary responsibility and improve the decision making processes of fiduciaries. The AIF designation signifies knowledge of fiduciary responsibility and the ability to implement policies and procedures that meet a defined standard of care. Throughout her career, Marie has been working with public and private retirement plans, foundations, endowments, religious organizations and private family offices in providing institutional consulting services. Marie has been an active member of MAPERS (Michigan Association of Public Employee Retirement Systems) for over 20 years. She is primarily responsible for investment policy, asset allocation, and performance measurement, investment manager due diligence, client education and communication. Recently, Marie was recognized by Barron s as one of the Top 1,000 Financial Advisors for Other honors include 2011, 2010 and 2009 acknowledgments by Barron s as one of the Top 100 Women Financial Advisors in the country and in 2007, Marie was named as one of the Top 25 Financial Advisors in Crain s Detroit Business. Michael H. Muirhead Jr., AIF, Investment Associate Michael is an Investment Associate with the Vanerian Group within Merrill Lynch. Michael brings over 15 years of experience in working with Public, Private and Philanthropic institutional clients. Prior to joining the Vanerian Group, Michael held a number of consulting, sales, marketing and management positions within the Retirement Group at Merrill Lynch. Michael also has direct investment consulting experience working with several clients as part of a regional investment consulting firm including investment policy, asset allocation, performance measurement and manager search and due diligence. Michael has recently been awarded the Accredited Investment Fiduciary (AIF ) designation from Fiduciary 360 (fi360), an organization offering training, tools and resources to promote a culture of fiduciary responsibility and improve the decision making processes of fiduciaries. The AIF designation signifies knowledge of fiduciary responsibility and the ability to implement policies and procedures that meet a defined standard of care. 8

10 He specializes in helping clients manage their Endowments, Foundations, Defined Benefit/Pension, Defined Contribution/401(k)/403(b) and Non Qualified plans. Michael earned a Business Administration degree from Wayne State University with a concentration in Finance and Investments. Maral Thomas, Investment Associate Maral joined Merrill Lynch in 2002 after earning a B.A. in Economics from the University of Michigan. Prior to joining Merrill Lynch, Maral worked at the Federal Reserve as a Financial Analyst. Her primary responsibilities include investment manager identification and quarterly performance measurement for consulting clients. Mani Khera, Registered Client Associate Mani joined Merrill Lynch in 2005 after earning a B.A. in Finance from the University of Houston. Her primary responsibilities include support for the consulting team and clients. Ira D. Hamman, CFP, Financial Advisor Ira, a proven, corporate financial executive joined Merrill Lynch in Ira brings over 20 years of experience working in the profit and non-profit sectors where responsibilities included oversight of 401(K) plans and endowments, commercial borrowing structures and treasury management. His current role as a Financial Advisor is to understand the client s need and then utilizing the vast array of resources within Merrill Lynch, tailor a strategy that will provide direction in achieving those goals. Ira graduated from the University of Akron with a B.S. in Accounting and then went on to get his Masters degree in Taxation. Ira is licensed as a Certified Public Accountant and holds the CFP mark as awarded by the Certified Financial Planner Board of Standards, Inc. Ira has a passion for helping his clients achieve their goals in both the corporate and non-profit areas and at the personal, family level. Institutional Investments & Philanthropic Solutions Kristin Carlson Vogen, Senior Vice President Philanthropic Specialist Kristin is a senior vice president and senior institutional philanthropic specialist with Institutional Investments & Philanthropic Solutions at Bank of America Merrill Lynch. With experience in planned giving at a national nonprofit organization, Kristin provides consulting assistance on planned giving and other fundraising topics, board fiduciary and governance education, and review of development policies. Prior to her current role, Kristin worked for seven years within Philanthropic Management as a senior philanthropic relationship manager managing endowments for nonprofit organizations and administering private foundations. Kristin has served as Chair of the Exempt Organizations Subcommittee of the Chicago Bar Association s Federal Taxation Committee. She currently serves on the planned giving advisory committee for Chicago s Public Broadcasting Service affiliate WTTW, the Museum of Science and Industry, and Ravinia Festival. She serves on the Professional Advisory Committee for the Chicago Community Trust and the Chicago Foundation for Women. Kristin serves on the Board of the Cara Program. Ms. Vogen graduated Abilene Christian University with a BA in Human Resource Management and William Mitchell College of Law with a JD. 9

11 Firm Overview Bank of America Corporation and Merrill Lynch & Co., Inc. joined forces to create a truly global company with a full breadth of financial services. The new company is a premier provider of global wealth management services. We have a leading wealth management platform, with a significant global standing, with more than 17,000 financial advisors i and approximately $2.1 trillion ii in client assets. Among these professionals are 65 designees of Bank of America Merrill Lynch Global Institutional Consulting, a distinguished group of Advisors who can provide the investment solutions described in this proposal. Bank of America Merrill Lynch s Global Institutional Consulting has provided institutional investment expertise and leadership for decades. Our designated Institutional Consultants work with more than 585 clients and utilize extensive technical proficiency and disciplined business models to support these relationships and their associated assets of more than $50 billion under advisement iii. Institutional Investments & Philanthropic Solutions ( II&PS ) II&PS within U.S. Trust has an in-depth understanding of the needs of nonprofit institutions. It leverages the resources, intellectual capital and long-standing philanthropic commitment of our leading financial institution. With more than 220 years of experience serving nonprofit institutions and philanthropic individuals, Bank of America Corporation s Global Wealth and Investment Management oversees $60.7 billion in philanthropic client assets iv. Of these assets, II&PS currently manages approximately $26.3 billion in discretionary assets for nonprofit clients v. Our staff, of more than 170 philanthropic specialists located across the country, has an array of experience in serving the nonprofit sector vi. Investment Management II&PS, together with your Global Institutional Consultant, offers a wide variety of investment platforms to manage your portfolio in a manner consistent with your investment objectives and goals. We utilize the full breadth of open architecture investment solutions to provide Local Church Ministries with a broad base of strategies from which to choose, along with the opportunity for truly customized portfolio management and asset allocation strategies. Fiduciary & Investment Oversight As part of our philanthropic consulting services, we work with nonprofit organizations to develop, or refine, the controls for organizations to help ensure that the duties of care, loyalty and obedience are adequately documented. It is important that all decisions made by the governing body are informed, in good faith and absent conflict of interest. A key aspect of the fiduciary oversight provided by Bank of America N.A. involves the investment review devised by our Investment Oversight Group. The Group is composed of seasoned investment and fiduciary professionals who review asset allocations, manager selections, and investment policies as well as "prudent" practices as required by governmental bodies. The three bodies of law which are considered are the Uniform Prudent Investor Act, the Uniform Prudent Management of Institutional Funds Act and the Restatement of the Law Third, Trusts (Prudent Investor Rule) which establishes the standard for state trust law. 10

12 FEE PROPOSAL Based upon the information provided from Local Church Ministries United Church of Christ, we propose the following discounted fee: Asset Level Asset Allocation Manager Fees Bundled Fee $40,000,000 63% Equity / 37% Fixed Income 31 basis points (0.31%) 65 basis points (0.65%) Please Note: We have included a sample investment proposal based on these assumptions. This fee is subject to change based on final aggregate funding and asset allocation. Our proposed fee above is based on a bundled solution and includes investment manager fees. In summary, our proposed fee covers the administrative services outlined in this proposal above as well as the following services: INVESTMENT MANAGEMENT CUSTODY AND ADMINISTRATION STRATEGIC REVIEW AND ADVICE Fiduciary Oversight Portfolio structure and design Manager selection Manager replacement Manager monitoring Bank of America Merrill Lynch transaction and trade services (there are NO commissions for trading) Portfolio rebalancing Day-to-day discretionary portfolio management Asset safekeeping and asset servicing Daily cash sweep Endowment and Trust Administration Interface between investment managers, depositories, and clearinghouses On-going consultation with your relationship team A review of your investment strategy Investment policy planning Investment policy documentation Spending policy analysis Philanthropic advisory REPORTING CONVERSION ADDITIONAL SERVICES (AVAILABLE FOR AN ADDITIONAL FEE) Online account and reporting services Consolidated account reporting Performance reporting and measurement Data gathering On-site planning meeting Extensive pre-testing Asset and data transfer Reconciliations Sub-fund accounting Tax preparation and reporting 1 The above fee is inclusive of repositioning of your current investment holdings, custody, and portfolio reporting and quarterly investment performance appraisals for the portfolios. As we help you define your financial goals and assess your risk tolerance, the final asset level, selected investment platform, asset allocation and investment manager selection will determine the final fee associated with our services. Some investment managers may include internal fees due to holdings in mutual funds, exchange-traded funds, and/ or hedge funds. The fee schedule above is subject to change and is valid for ninety days from the date of the proposal/fee schedule. 1 Proposed fee does not include the filing of IRS Form 990(s). 11

13 i Source: Bank of America Investor Fact Book. As of December 31, 2011 ii Source: Bank of America. As of 12/31/2011, Total Client Assets consists of assets under management and assets under advisement in Institutional Investments & Philanthropic Solutions accounts held at Bank of America, N.A. and Merrill Lynch, Pierce, Fenner & Smith, Inc. iii Data and asset amount as of 9/15/2011 iv Source: Bank of America. Global Wealth and Investment Management (GWIM), the wealth and investment management division of Bank of America Corporation. As of March 31, 2012, GWIM had approximately $60.7 billion in Philanthropic Client Assets. Philanthropic Client Assets consists of the following assets of philanthropic clients held in their GWIM accounts: assets under management (AUM) of GWIM entities, client brokerage assets, assets in custody of GWIM entities, deposits of GWIM clients held at Bank of America, N.A. and affiliated banks and assets in custody included in AUM. v Source: II&PS as of March 31, Institutional Investments & Philanthropic Solutions (II&PS) managed assets are those where Bank of America, N.A. has been appointed as trustee or investment advisor with discretionary authority to manage assets on behalf of an Institution. vi Source: II&PS as of 6/30/