Trustee guide to accessing investment advice

What is investment advice?

• Investment advice is any written recommendation or proposal to Trustees to invest in a specific way, having taken into account the charity’s specific circumstances, requirements and risk tolerances. This can be strategic (i.e. a recommendation on a specific asset class or type), or specific (i.e. a recommendation to invest in a specific fund or range of funds).
• Investment advice and management are different. An investment manager “manages portfolios in accordance with mandates given by clients”.*
• Investment advice should be formally documented.
• Some advice is FCA-regulated. The FCA notes this “includes any communication with the customer which, in the particular context in which it is given, goes beyond the mere provision of information and is objectively likely to influence the customer’s decision whether or not to buy or sell”.
• Decisions about liquid and free capital (i.e. cash held in the bank) should be considered investment related decisions.

When should you take investment advice?

• The Trustee Act 2000 states that “…before exercising any power of investment… a trustee must… obtain and consider proper advice about the way in which…the power should be exercised”. It is clearly important therefore that Trustees take advice before making material changes to (and indeed any review of) their investment arrangements*.
• As a result, we consider it best practice for Trustees to take professional advice when devising/reviewing their investment policy (not just later on when documenting this formally or selecting an investment manager or fund). This assists Trustees in considering and setting their investment objectives and attitude to risk, before then supporting them in choosing an investment strategy and appropriate implementation for their charity.
• You should review your charity’s investments on a regular basis.
• The Charity Commission notes that “there are other ways of investing cash, particularly for larger charities. Take advice about your options.”
• If you don’t get external professional advice, the Charity Commission expects you to keep a record of your reasons not to.

From where should you take advice?

• Advice needs to come from someone experienced in investment matters. Their knowledge should be current and relevant.
• Some investment advice is regulated. For this you need an FCA-regulated adviser. Some advisers/managers and most individuals are not regulated to provide advice – ask if you are not sure.
• Regulated or not, advisers are responsible for advice quality and may be held responsible for sub-optimal outcomes. If advice is coming from a Trustee or other individual, this should be understood by both parties and formally documented.
• Professional advice should be impartial. Some firms provide both investment advice and management. If you use these firms, understanding the scope of their advice, identifying and managing potential conflicts of interest is critical.
• Regular review of the investment manager should happen independently of the manager. This should cover their management and any advice they provide. The Charity Commission also notes that your investment manager should not prepare your investment policy.
• A number of investment consultancies offer independent, specialist investment advice to charities. This enables you to receive a “whole of market” review to construct a bespoke strategy for your charity for a transparent fee.

Why should you take investment advice?

• Proactive, professional and tailored advice can improve the likelihood of achieving your aims as a charity through improved financial outcomes.
• Taking advice can help to ensure that investment management costs are reasonable and manage potential conflicts of interest. It can also guide you towards the most suitable asset classes and investment products that are aligned with your charitable mission.
• An expert, impartial view on your investments can provide comfort that selected managers are appropriate to manage your charity’s assets, for example through access to the adviser’s detailed research. Independent oversight can enable a better understanding of the value that your managers are providing.
• Taking advice can improve governance and help enable purposeful trustee decisions. The Charity Commission says, “When you take advice, you remain responsible for the decision you make, but if you have considered and acted on appropriate advice, this is likely to protect you”.

Who should take advice?

• Charity Commission guidance expects trustees of all charities that invest assets to take professional advice unless there is a good reason not to; for example, if there is current and relevant expertise on the trustee board.
• If you take advice from a trustee, you must consider the advice objectively and identify any conflicts of interest.
• Before you make any social investments, you should consider taking advice on the suitability of the investment from both a charitable impact and financial return point of view.
• You must keep a record of your reasons for not taking external professional advice.

Checklist