Many charities have surplus funds to those needed for their immediate charitable activities. This leads to a situation where it may be beneficial to invest the monies.

Before any investments are made, it may be prudent for the charity, or its trustees, to seek financial advice.

Most charities distribute a proportion of their funds to their immediate charitable needs, with the balance held to support their specific aims over the short, medium and long term.

Charities are seeking investment advice more frequently as years progress. This could be down to one of the following reasons:

• Investments becoming more and more complex
• Strict legislation and guidelines being put in place in respect of investment by charities
• New charities are continually being founded
• Total donations to charity are increasing year upon year

With the ever increasing availability of information and new technology allowing donations to be made quickly and easily, the situation is likely to continue.

For example, Children in Need has raised more money each year than in the previous year, all the way back to 1927. This could be attributed to the fact that originally the Charity requested donations via post on their annual radio show. Nowadays, they produce an annual 'Telethon' TV show, with a high degree of involvement from the public, who donate whilst attending the events throughout the UK, via post, over the telephone and over the internet.

The rules and regulations surrounding charities and the investment options available to them are considerable, intricate and involved.

Many charities are founded as trusts. As very few charities are based in Financial Services, their areas of expertise can be expected to be in areas outwith those involving trusts and their investment limitations.

The Charity Commissioners issued the following statement:
"the trustees of every charity should draw up an investment policy for the charity"

The investment policy of the charity should include the following:

• The charity’s investment objectives
• The desired balance between capital growth and income generation
• The degree of risk that the charity is willing to accept for the possibility of future gains.
• When returns and/or withdrawals may be required for the needs of the current and any possible future beneficiaries
• The charity’s preferences for, or aversion to any particular investment sectors or types
• How often the charity intends to review the investments

The Charities Acts 1992 and 1993 states that:
"the trustees have a duty to manage the charity’s property prudently"

To manage charitable investments prudently, there are many areas that need to be properly researched, considered and reviewed, these may include any or all of the following:

• What the charity is legally allowed to invest in
• Which investment options will meet their chartable purpose
• Which investment options will not specifically conflict with their chartable purpose
• Whether the charity is willing to invest into other charities or Common Investment Funds (CIFs) specifically set up as qualifying charitable funds
• Whether investment powers are to be kept ‘in house’ or if the charity is willing/keen to delegate the powers
• The charity’s tax status and requirements for it to be maintained
• Taxation rules of investments held by charities
• Which countries legal system the charity is legislated by (Scottish charities, for example are legislated by entirely different acts and guidelines to those based in England)

Charities benefit from a very beneficial tax status. In order to maintain this status, charitable trustees must ensure that all invested funds are invested in qualifying expenditure. Qualifying Expenditure is a term meaning expenditure allowed by the Government / HMRC within the parameters of a Charity. Investments made outwith qualifying expenditure may lose the tax advantages, or in the worst case scenario, may cause the charity to lose its charitable status altogether.

At McCrea Financial Services we have experience in advising charities in respect of their finances, as well as the necessary knowledge and understanding of the rules and regulations.

We continually review both the investments performance and the regulations surrounding them to allow us to review whether amendments would be in the charity’s best interests, or in the case of legislative changes, may be required.

Should the charity have any specific requirements for their investments, the advice given will be specifically geared at meeting all the charity’s wishes.