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How do I set up a spending rule? (New Spending Interface)

Check out a video tutorial on setting up a Percent Average spending rule in the New Spending Interface here!

Spending rules dictate how returns on an endowment can be spent by an institution.  Organizations may apply one spending rule to all of their endowment funds or assign different rules to groups of funds (note: a client should have distributions impacting units when implementing multiple spending rules within the same pool). A client user is able to create multiple spending rules, assign funds to a spending rule and track changes within the spending rules.  The following training shows you how to set up a new spending rule in Fundriver.

Log in to Fundriver and click on the ORGANIZE tab.

Log in to Fundriver and click on the ORGANIZE tab.

Click on SPENDING RULES.

Click on SPENDING RULES.

Click the green ADD button to add a new spending rule.

Name your spending rule and enter a brief description.

Select a TYPE for your spending rule.  See below for more information on Spending Rule types.  

A Spending Rule TYPE is required, even if it is a Blank Rule.

Blank Rule - Nothing is calculated. All funds are required to have a spending rule even if they do not calculate spending.

Due to/Due From funds often are assigned blank spending rules, as are other kinds of funds.

Dollar Amount Per Unit – The spending amount is the number of shares times the rate entered into this rule. This is more commonly used in clients over $300 million. In most cases, spending needs to impact unit price (not the number of units) and all funds need to take a distribution.

Percent Average – This is the most common rule. It can be configured to calculate based on the average fund value, pool value, or unit price.  See below for instructions on selecting parameters.

If underwater % to Distribute: Enter 0 if the fund is not permitted to spend underwater. Enter 100 if a fund can take distributions underwater. If a fund can take 90% of the allocation if it is underwater, then enter 90, etc.

Avg Of: Options are Fund, Pool or Unit Price

% to Distribute: Enter a whole number. For example 5% should be entered as “5” not “.05”. Enter the annual rate for spending.

Periods for Average: If the rule is trailing 3 years using quarterly values, then enter 12. If the rule says trailing 3 years using annual values then enter 3.

Period Length: Options for averaging are monthly, quarterly, annual, semi annually.

Options for % average

Percent Of Income – This is rarely used. It is designed for funds that can only distribute income or realized gains. This to support funds following pre-UMIFA guidelines.

Prior Year Spending – This rule calculates an increase from the prior year spending plus a percent of any new gifts. (Less common.)

Proportional Distribution – This distributes a fixed amount across all funds assigned to the rule. If a fund that participates in the rule does not take a distribution, the total may not add up to the amount entered. There is also a rounding bug that may cause the total distribution to be off by a few pennies. This rule can be used when spending impacts units or unit price.

Yale Method - The Yale Method spending rule is a blend of the average market value and prior year spending rules. It can be configured in Fundriver to work on the fund or pool level. The system default is calculated based on the pool.

See this article for a more in depth training!

Once you have selected your spending rule and applied applicable parameters, click SAVE.

Parameters Withdrawal

Posting Frequency: How often does your organization post distributions in Fundriver?

Transaction Type: If your organization utilizes custom transaction types, you'll be able to select a transaction type other than distribution here.

Allocation Date: Also known as valuation date used to calculate spending draw.

Auto Reinvest for Spending Thresholds not met: If your organization uses the reinvest threshold or authorize date (as seen in image below) check this box if you want Fundriver to calculate the draw and post the reinvestment as a separate transaction type (example: external transfer in).  If your organization adjusts unit price for distributions this box must be checked.

Underwater

If Underwater - % To Distribute: Enter as a full number.

HG Threshold %: In the examples referenced above and below the client chose to have 102% HG Threshold, therefore the allowed amount to spend is the difference between the  Market Value and the 102% HG Threshold.

Limit to Amount Above Historical Gift: If the underwater percentage to distribute is less than 100% this box will allow spending up to the point that the fund would go underwater, therefore preserving the corpus.  

Examples:

100 % Distribute - UNCHECK Limit to Amount Above Historical Gift = full spending when fund underwater.

0% Distribute UNCHECK Limit to Amount Above Historical Gift = 0 spending when fund underwater, if the fund is above water the full amount will be distributed (will put fund underwater).

0% Distribute CHECK Limit to Amount Above Historical Gift = No spending when fund underwater OR If above water, when spending will bring fund underwater will only spend the amount above historical gift.

Spending Calculation

Avg of: Description of each option is below.

% To Distribute: Use the annual spending policy percentage .

Periods For Average: How many period are averaged?

Fixed Periods: Does your organization average all available quarters? Or only available averages?  The example below shows a fund that was created in March 2016.  Where the average of fixed periods with the box checked would add zeros for the periods where no average was available.  Leave the box unchecked would be averaging only available fund values.  

Period Length: Do you average monthly, quarterly, annual, semi annually?

A message will appear confirming your rule was successfully saved.

Click on the ASSIGN PRIMARY RULES tab.

Select your new rule from the SPENDING RULE table.

Highlight funds on the left to which you would like to apply the rule.  Move them to the right box by clicking the arrow button.  Once moved over, the funds are assigned.

Highlight funds on the right to which you would like to apply the rule.  Move them to the left box by clicking the arrow button.  Once moved over, the funds are assigned.

If you would like to apply the rule to all funds, click the SELECT ALL box and then move the funds by clicking on the arrow button.  You can also hold down the CTRL button + click to select multiple funds.

ASSIGN SECONDARY SPENDING RULE

You now have the option to add a secondary spending rule as well.  This would be utilized if a fund had more than one spending rule assigned to it.  And example of this would be if the standard spending policy is 5% but the fund allows and additional 3%, that 3% would be the secondary rule.

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