Reserve Fund Investments
By: Jeff Lack, BAcc, CPA, CGA, Director of Internal Operations
(This article originally appeared in the WB Condo Connection, Volume 3, Issue 4 released in 2011).
Section 115 (8) of the Ontario Condominium Act states that “Before investing any part of the money in a corporation’s reserve fund accounts, the board shall develop an investment plan based on the anticipated cash requirements of the reserve fund as set out in the most recent reserve fund study.” Besides complying with the Act, developing such a plan forces the Directors to think about and organize what they are doing as well as consider such matters as who has access to their corporate records and information (both personal and corporate) and who has signing authority and access to the investments. The plan should also ensure that the information and investments are accessible in the future if there is a change in Board members. In addition, an investment plan should ensure that the investments chosen meet the stringent requirements of the Condo Act, namely that they are “eligible securities” as defined in section 115 (5).
Some Board members may believe they don’t possess the knowledge and experience required to develop such a plan and to manage the investments on behalf of the corporation. After all, in many cases we are looking at investments of several hundred thousand dollars, and in some cases well over $1 Million. As such, Boards often turn to their Property Management company for advice and our answer often surprises them – “we can’t help you, but we know who can!”
You see, as your Property Manager, it is important that we provide you with honest and sound advice that comes from good experience and proper education. It is also important that we know our limitations in order to point you in the right direction when we are asked to do something that may be beyond our scope. After all, we are property managers – we do not offer legal advice as we are not lawyers. We direct you to a qualified lawyer with industry expertise. Likewise, we do not offer engineering advice – we are not engineers. So why would we offer investment advice? We have not been trained as investment advisers nor are we investment experts. This also begs the question…why would you want someone without the proper experience and education managing your investments? With that in mind, we return to the original answer to our Boards – “we can’t help you, but we know who can!” Wilson, Blanchard has access to investment advisers who are experts in the condominium industry and we can certainly arrange for a meeting with one (or more) of them and the Board.
Sometimes meeting more than one investment adviser is necessary. It is important that the Board of Directors find an adviser that they trust and that they are comfortable working with, especially when a significant amount of money is involved. This should be no different than obtaining the services of any other contractor. Boards often obtain three or more quotes for a contract renewal or major repair, so why not meet with more than one investment adviser to determine which one best fits the Board’s expectations.
To give Boards an idea of what kind of service is available, we recently met with one of the advisers that we recommend and he provided a summary of the services he provides.
We work with Boards on the development of Reserve Fund Investment plans. We have been doing this for more than ten years, so we have created a system, put it in place and we have worked out the bugs. We also work directly with the Board of Directors to gather the necessary information to open the investment accounts. We then create a spreadsheet and update it to track investments and maturity dates.
This is a client added value for Wilson, Blanchard as there is absolutely no fee charged to the corporation for this service. [It should be noted that Wilson, Blanchard does not receive any financial compensation what-so-ever, either from the investment advisers that we recommend or from the investments themselves. Investment advisers may earn commissions directly from the investments that they place on behalf of the corporation.]
While the approach works best with corporations that are investing for periods of one year or longer and although working with larger deposits provides more flexibility for laddering the plan, we will consider working with corporations with smaller deposits on hand.
We believe that services such as those described above bring great value to our condominium clients and can help to maximize the corporation’s return on their assets.
Wilson, Blanchard has been working with multiple sources to help appoint investment advisers for our condominium clients who could provide a complimentary reserve fund investment plan based on the information provided in their reserve fund studies. If you would like more information about the services available, please speak with your property manager who would be happy to arrange for a meeting with one of our recommended third-party investment advisers.