The legal responsibilities of Trustees have increased significantly over recent years. These are usually challenging roles and rightly so.
The responsibility of Trustees to do what is right for the charity they work for is both important and essential. You don't need the team at Chapters Financial to tell you that the Charity Commission, a government organisation, sees these responsibilities as the cornerstone of the effectiveness of our important charity sector. Their website is very useful in checking details of a charity, its trustees and its financial position / reporting and a link to this can be found here: https://register-of-charities.charitycommission.gov.uk/
In May 2018, The Charity Commission updated their Essential Trustee document, first published in March 2012, called 'CC3 / The essential Trustee, what you need to know, what you need to do'.
The updated 2018 document can be found here: https://www.gov.uk/government/publications/the-essential-trustee-what-you-need-to-know-cc3/the-essential-trustee-what-you-need-to-know-what-you-need-to-do
Another helpful document for Trustees, originally published in May 2013, and updated in May 2018, in what's involved for a Charity Trustee (CC3a), which can be found here: https://www.gov.uk/guidance/charity-trustee-whats-involved
For Trustees of charities this is evidenced by the Trustee Act (2000) that came into force on 01 February 2001. This legislation was introduced to keep pace with the evolving investment market, following the previous legislation in 1961, referred to as the Trustee Investment Act (1961). The new Act, amongst other points, introduced new powers of delegation, new powers for the appointment of agents and introduced appropriate safeguards for the operation of the new powers, including a duty to take proper advice in relation to investments and a statutory duty of care.
With deposit returns having been historically low (noting that the Bank of England has started to raise bank base rates at the end of 2021/beginning 2022), interest returns have not normally been high in the past decade. The deposit protection limit rose back to £85,000 in January 2017 and has remained unchanged. Overall, the situation is not improving for funds on deposit. Indeed, the option of placing some funds into investments has come to the fore and consequently the importance of taking financial advice on this topic, especially with the real effects of inflation on the increase.
The government offers much guidance on how to invest charity money and has a webpage focused on this specific topic here: https://www.gov.uk/guidance/how-to-invest-charity-money. It is noted on the website that a consultation is underway on this detailed guidance as at April 2022, also with an update to be clearer on responsible/ ethical investments (*See below).
It is the Trustees' responsibility to invest and manage these assets in the best interests of the Trust and its beneficiaries. In addition to the document above, the Charities Commission provides additional investment information to Trustees as indicated in the Charities Commission PDF document CC14, now entitled Charities and investment matters: a guide for trustees which can be found here: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/857987/CC14_new.pdf
Trustees should have set investment objectives, which may well be set out in their governance document, such as income needs for their funds and attitude to investment risk, and these should be documented and reviewed regularly. This should include any ethical restrictions (*see above) your charity has and you should usually check returns against a benchmark. As with individuals, a charity may also apply other investment parameters on important issues such as environmental, social and governance (ESG) responsibilities of the companies into which they invest.
Trustees should hold some funds on deposit to cover immediate running costs - and this is a prudent course of action for the management of any business. Recommendations will need to be agreed and approved by the Trustees and documented accordingly.
You may wish to refer to our example Investment Risk Scale to consider investment risk further.
The value of funds and the income generated can fall as well as rise and is not guaranteed. Past performance is not a guarantee of future performance.
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As a registered UK charity, the Trustees will be aware of the tax benefits that a Charitable Trust can enjoy. The HMRC website details the tax guidance for charities here: https://www.gov.uk/charities-and-tax/overview
Our Independent Financial Advice Offering
We are Independent Financial Advisers and Chartered Financial Planners based in Guildford, Surrey.
We have excellent contacts with many investment houses, some of whom have individual departments for charities and specialise in this area. We can use these contacts to develop your charity's investment strategy to meet its objective of diversification and any ethical constraints you wish to consider.
Presentation and Investment Recommendations
We are pleased to offer presentations and information to Trustees to ensure that they have sufficient understanding about investment to make prudent decisions, whether that be to generate income or capital growth, or indeed both.
The initial discussion and implementation of an investment strategy for a Charitable Trust is the beginning of an investment process. Once implemented, the investments should be reviewed on a regular basis, and if required re-balanced, to ensure that they are meeting the Trust's investment objectives both now and into the future. As the objectives of the Trust's funds may change, so may the asset allocation. As a minimum, this should be once a year.
For guidance and information purposes only. Please seek Independent financial advice before proceeding with any changes/new contracts. The Financial Conduct Authority does not regulate taxation advice.
Chapters Financial is authorised and regulated by the Financial Conduct Authority.