“The first rule in investing: don't lose any money. The second rule: don't forget the first rule.”  Warren Buffett

Another unfortunate story (remember Panorama and Comic Relief?) has come to light this week about an international Christian charity that failed to safeguard its assets when it came to investment management. The Charity Commission has been investigating this charity since 2011 because one of the trustees was allowed to invest £5m of the charity’s assets “in the financial markets through potentially high risk speculative foreign exchange trades, without independent professional advice”! 

The trustee in question resigned and has subsequently been declared bankrupt. The trustee board has tried to get the funds returned, however it has become apparent that the funds will not be fully recovered.

Whilst it is tempting to leave the decision of what and how to invest charitable assets with a trustee who claims to have sufficient investment management experience (we know that getting into the detail of investment management is not everyone’s cup of tea), it is the obligation of each and every trustee to ensure that they are fully confident they know and understand the decisions being made.

A key part of every trustee’s responsibility is to see that independent financial advice has been taken, and to seek reassurance that the charity’s assets are being appropriately invested, at a level of risk that is acceptable to the aims and objectives of the organisation.

The Charity Commission provides very readable advice and guidance for trustees on exactly this matter (Charity & Investment Matters: A Guide For Trustees). They must consider advice from someone experienced in investment matters, saying:

“If trustees have considered the relevant issues, taken advice where appropriate and reached a reasonable decision, they are unlikely to be criticised for their decisions or adopting a particular investment policy.”

Unfortunately in the case of the Christian charity, they do not appear to have followed these rules, nor taken independent advice and therefore did not perform their role as trustees. The loss of funds and services to their beneficiaries, not to mention the disruption an inquiry causes to the charity, its staff and trustees is quite considerable, when all that was required was for trustees to fully appreciate and perform their fiduciary responsibility.

Trustees – if you do only one thing for your charity today, download CC14 and make it your bedtime reading.  If you don't you may well come to regret it!

Article by Valerie Austin