Reserve funds have been a hot topic in Florida community association law for quite some time. Investing reserve funds in particular has been a tricky subject for both lawmakers and community associations to address.
But now there is a new bill, SB 1490 on the table that could open new doors for communities to invest operating and reserve funds. If passed, this bill offers associations a way to invest funds outside of traditional bank savings accounts.
As with any potentially complicated law that can affect entire communities, there will be many requirements that must be met in order to qualify the investment of reserve funds. Here are a few of the main requirements:
- The board will need to adopt a written investment policy yearly
- An investment advisor must be selected who has no relations or conflict of interest to any board member or unit owner
- Funds invested are subject to insurance under the Securities Investor Protection Corporation
- The investment advisor must act as fiduciary and be in full compliance with the Employee Retirement Income Security Act of 1974
- At least once a year, the association needs to provide the investment adviser with an investment policy statement, the most recent reserve study report or an estimate of reserve funds needed for each reserve item, as well as the financial reports.
Fiduciary duties and governing documents
With any item pertaining to board funds or reserves, the board must always maintain the integrity of its fiduciary duty. This fiduciary duty can be highly scrutinized when it comes to investing association funds. Additionally, each association must examine its governing documents to determine whether there are any association specific guidelines regarding investments. If there are stipulations, these might mean that investments are forbidden or highly regulated. It could also mean that it’s time for your board to amend these bylaws if the community is on board.
The risk and the reward
With any investment, there is a risk involved. Stocks and bonds are the safer option but don’t offer as high of a return. With more aggressive investments the reward potential becomes greater but the risk increases as well. All investments should be done with care and consideration of your community’s demographic and needs, factoring in recent and accurate reserve studies and the liquidity of association funds.
Thinking of approaching your community with the potential of investing reserve funds? Make sure you understand the law and seek legal counsel before taking any further steps. We’re here to help in all matters of community law.
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