How Small Charities Can Approach Financial Investing Voluntary Sector Network


For a small charity, venturing into a financial investment doesn’t need to be intimidating if good planning is in place to support the process and the investment strategy is straightforward.

Start with the plan

Planning is the most important part of the investment strategy. Before the trustees make decisions about their investments, they must decide on the charity’s overall financial plan and goals and determine how much to invest, what to invest in, and how the investments fit into those plans.

It is also important to understand how much money is available for investment and what is limited. The less experienced the trustees, the simpler the plan should be.

Another consideration is the time scale of the investment. To determine this, questions must be asked about the objectives of the investment: is capital necessary in the short term or is a longer term investment acceptable? These facts will shape the investment process and determine risk appetite.

Check the legalities

Legally, trustees must know and act within the investment powers of their charity; they should exercise caution and skill when making investment decisions and select suitable investments for their charity. An important point is for them to check the founding documents, such as the articles of association, to see which investments are allowed and if any restrictions are in place.

Charities should take advice from someone experienced in investing, review their investments from time to time, and include information about their investment policy in the annual report of the trustees.

Simplicity is the key to success

The investment strategy should be as simple as possible – it will cost less and be easier to understand.

Investing in an investment trust fund can be a good option, which will allow a charity to pool their money with thousands of people and invest in global stock markets. Mutual funds are invested in a wide range of stocks, which reduces risk.

Another option is the Oeic (open-ended investment company) – a type of company or fund in the UK that is structured to invest in other companies with the ability to constantly adjust its investment criteria. and the size of the fund. The company’s shares are listed on the London Stock Exchange and the price of the shares is based largely on the underlying assets of the fund.

Charities can invest in mutual funds and Oeics with as little as £ 25 per month or a lump sum of £ 500 – so it can be easy to gain a foothold in the stock market. Such investments are also low-maintenance: the charity will have nothing to do and the fund manager should provide semi-annual reports so that the board can check the progress and the reports can also be included in the report. annual.

Identify a fund manager

Charity Finance’s annual fund management survey is a good place for small charities to identify fund managers to approach. It will include all major fund managers and companies with charitable expertise.

There are also useful investment comparison sites such as Hargreaves Landsdown or Best Invest, where charities can check which fund managers might meet their criteria. It all comes down to planning, if the charity has decided that it doesn’t want to pay more than some fee or is considering income or capital growth, those details will lower the playing field.

What to look for in a fund manager

Charities should seek an advisor who will provide advice as part of the fees they charge for the investment purchased. If a charity first seeks advice from an independent financial advisor, the independent financial advisor will charge a fee and the fund manager will do the same.

To start

After the research, phone different fund management companies to understand the fees and costs involved and what the service includes. Does it include online access to the account, for example, free of charge and simple reports that could be inserted in the annual declaration?

What are the best investment options for small charities?

A single Oeic – these can be growth or income oriented or cautious and aggressive – and the investment options should be linked to the plan. The longer the time horizon of the investment, the more risky the investments that could be considered.
A collection of Oeics that meet the investment criteria of charities. With this option, it is very important to check if there are any investment restrictions in the constitutive documents, like avoiding tobacco stocks.
It is best to avoid a direct investment portfolio for small charities as it will be more expensive and more difficult to administer.

The best advice for any small charity embarking on a financial investment is to go for it, but make sure that proper planning supports the whole process. It needs to be kept simple, and the charity needs to make sure that it receives great advice as well.

David Rowe is Managing Director responsible for UBS charitable activities and lecturer at Cass Business School – Introduction to Charitable Investing and Theoretical Practice Course which runs until October 2014.

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