The UK charity sector contains a very broad variety of charities, from small voluntary community groups to large national bodies with thousands of volunteers and employees. Some of those smaller charities can sometimes find themselves faced with a transformative financial event, for example following unexpected positive news of a legacy left in someone’s Will, or on the sale of a long-held asset such as land. We call this a ‘tipping point’, when the governance and financial arrangements of the charity need to shift gear and tackle new questions which were perhaps not previously relevant for the trustees. This article shares some of our experience of what works well in this scenario and includes pointers and practical resources to help.
One of the main practical outcomes of a transformative financial event is that the objectives or overall strategy of the charity may change, in light of what the charity now has capacity to deliver. It will be important to include any new strategic objectives within the financial goals captured in a new investment policy statement (IPS). An IPS is a key document for any charity which is about to invest for the first time. It is not unusual to find a charity with a draft IPS which is a ‘work in progress’, which is then used in discussion with investment managers. We have prepared some helpful guidance on preparing an IPS which can be found here.
If someone is not actively engaged in keeping an eye on their own investments, they might not feel particularly comfortable about the responsibility involved in looking after investments which are intended to benefit others. There is however a great deal of free support available to help trustees build their knowledge and confidence when it comes to investments. This includes demystifying the investment jargon, which can often be a barrier in its own right. Our two-minute explainer videos include a guide to equities and bonds, and they explain the role they play in an investment portfolio. These videos can be found on our Charity Resource Hub.
If your charity has received a windfall payment, this might be the moment to reflect on whether the right processes are in place to monitor and oversee the charity’s new financial situation. For example, if the charity has not previously had a finance or investment sub-committee, this might be the moment to consider if this step is now useful. It will be important to consider the terms of reference (TOR) for any new sub-committee. The charity’s governing document should also specify how such a sub-group is to be validly created, and how it reports into the main board. It is usual to find a sub-group of some kind having ongoing monitoring responsibilities when it comes to investments, including presenting regular updates and recommendations to the main board of trustees from this sub-group, with final decisions resting with all trustees. This sub-group might be strengthened by new external recruitment, to ensure you have the skills and experience you need around the table. You will also need to check whether your charity can co-opt individuals onto a sub-group, if you wish to explore this route. It can be a useful way to involve new people with specialist knowledge, who don’t yet wish to volunteer as a trustee but are willing to sit on and contribute to a sub-committee.
For trustees in England and Wales, CC14 is the key reference point for regulatory guidance on what’s expected of trustees when they are investing charity money. In Scotland, OSCR also has guidance on charity investments which can be found here. With an investment policy statement to hand, some time devoted to learning about investments, and recruitment to strengthen the number of volunteers in the charity, your organisation will be well placed to take a positive approach when navigating a tipping point.
If you have reached a tipping point or would like to discuss your charity’s investment strategy more broadly, please get in touch.
This communication is provided for information purposes only. The information presented herein provides a general update on market conditions and is not intended and should not be construed as an offer, invitation, solicitation or recommendation to buy or sell any specific investment or participate in any investment (or other) strategy. The subject of the communication is not a regulated investment. Past performance is not an indication of future performance and the value of investments and the income derived from them may fluctuate and you may not receive back the amount you originally invest. Although this document has been prepared on the basis of information we believe to be reliable, LGT Wealth Management UK LLP gives no representation or warranty in relation to the accuracy or completeness of the information presented herein. The information presented herein does not provide sufficient information on which to make an informed investment decision. No liability is accepted whatsoever by LGT Wealth Management UK LLP, employees and associated companies for any direct or consequential loss arising from this document.
LGT Wealth Management UK LLP is authorised and regulated by the Financial Conduct Authority in the United Kingdom.
