Solving the financial planning: puzzle getting all the planning pieces together helps position institutions for a future that's fiscally fit

University Business, Jan, 2006 by Ann C. Logue

IN 2004, ROLLINS COLLEGE IN WINTER PARK, Fla., received an amazing gift. George Cornell--who is a university alumnus and philanthropist, a relative of the founder of Cornell University, and the son of one of the first employees at IBM--left the liberal arts college $93 million in his will when he passed away the prior year. The gift nearly doubled the college's $113 million endowment.

Would Cornell's generosity help Rollins achieve its institutional goals, or would it ruin the school by creating divisions over future strategic direction?

Treasurer George Herbst's prior experience handling a windfall donation at another institution meant he knew to be grateful for one particular fact: Cornell had given his alma mater some advance notice on the gift. "We knew it was coming. We knew the bequest was in the estate and that the estate was large," Herbst says. He also knew that he had to help the campus create a financial plan.

Long before Rollins College actually received George Cornell's bequest, leaders there began planning for it. An outside financial advisor, St. Louis-based Hammond Associates, helped with the institution-changing donation. Rollins administrators and trustees set new investment and spending targets for the endowment that would ensure intergenerational equity. The goal was to put the fund to use in such as way as to make the institution stronger while respecting the heritage that gave George Cornell so much respect for the place.

"You've got to plan ahead, and you've got to get your board educated," Herbst says. Without that step, the bequest might have led to infighting, rash decisions, and the foolish spending of a spoiled heiress. Instead, Rollins officials were able to think about the matter and explain the potential--and the limitations--of the bequest to students, faculty, and alumni. Some of the money was set up for faculty awards, some for initiative funding, but most of it went to the endowment to support the college into the future.

With or without a windfall, giving thought to financial planning is crucial for higher ed leaders today. Finances are indeed top of mind. A recent study reported on in the higher education press found that financial matters take precedence over academic and student's affairs, with 53 percent of university presidents having fundraising on each day's agenda and 44 percent attending to budget and finance matters every day.

College financial officers have to pay this year's bills and manage an endowment for posterity. The Rollins case shows that even influxes of cash are stressful to the institution's character. By using financial planning strategies and outside financial planners, colleges are preparing to meet the future head-on.

Financial Planning Resources

The list is a long one, but it's not all that precise. Tuition, donations, investment income, research grants, financial aid, and state aid are major funding sources for institutions of higher ed. Still, not all of this revenue arrives on demand; donors don't appreciate past-due notices, and George Cornell was 94 when he left his estate to Rollins. State-supported universities sometimes see their funding delayed when the state budget is held up for reasons unrelated to higher education.

Donors, who may have made offbeat investments over the years, are giving to their beloved alma maters, whether or not anyone on the endowment staff knows how to make sense of it. "It's really a jigsaw puzzle that's put together each year," says Pierre Allaire, vice president of Institutional Advancement at the University of North Florida in Jacksonville. And it's a puzzle that grows in complexity as the institution changes.

That means the job changes, too. University treasurers make financial plans for a living, and they sometimes need help in the form of outside advisors who can give an independent view on special projects; develop policies for gifts, income, and endowments; and assist in communicating with institutional stakeholders. Although outsiders are beginning to bring their expertise to IHEs, it's a slow process, says Paul Gydosh, a certified financial planner and managing director of Kensington Wealth Partners in Columbus, Ohio. After all, universities are in the business of brainpower, so there's sometimes an unfortunate bias against expertise that comes from outside of the academy.

Academics may also bring biases to the discussion. Gydosh, who has a few campus clients, says that biases are sometimes related to academic theory, but more often related to individuals' views of what is right for the institution. A hired hand may have a deep perspective on a particular area of valuation or planning with no preconceived notions about what is best for the university.

But just as a university's staff can be blinded by internal biases, outside experts bring their own perspectives, for good or for bad. These financial advisors may be used to dealing with businesses, which operate under a different set of strategic imperatives than the average educational institution.