4. What can and should charity trustees do in relation to investments?

Charity trustees need to consider if they have the power to invest charity assets before undertaking this activity.

The name given to your governing document will depend on your charity’s legal form. The common legal forms for charities with investments are:

Investment powers may be listed in your governing document. If you’re not sure, seek advice. 

If your governing document is silent on the matter of investment powers, there may be default investment powers available to the charity trustees, depending on the legal form of your charity.  For example:

All charity trustees have legal duties and responsibilities under the 2005 Act.  A duty is something that you must do and all the duties must be met. The general charity trustee duties in the 2005 Act set out a broad framework that all charity trustees must work within. As a charity trustee, you are trusted to look after the charity’s assets and you are responsible for making sure that the charity fulfils its charitable purpose(s).

Charity trustee duties apply equally to all charity trustees and all activities carried out by charities. All of the charity’s trustees should work together to make sure that these duties are met. 

As a charity trustee, you must make sure that any activities are in the interests of the charity. You need to weigh up the pros and cons before making any decision that could significantly impact the running of the charity. The risk associated with any investment needs to be properly understood. You may want to undertake training, attend information events, and take professional advice to help inform your decisions and help you understand more about investments, so that you can scrutinise and discuss this aspect of the charity’s finances. 

As a charity trustee, you have a duty to act with the care and diligence that it is reasonable to expect of a person who is managing the affairs of another person. 

This means that you must act with a higher level of care than you do with your own finances and affairs. When you are dealing with the charity’s affairs, you should do so as carefully as you would if you were looking after someone else’s affairs, for example a relative or a friend.

You must make sure that you protect the charity’s resources and that you do not put the assets of the charity at undue risk. Charity trustees need to consider what’s appropriate for their charity, considering all relevant factors.

When charity trustees are making decisions about investments, they should make sure that: 

• they have the power to make investments in terms of the governing document, or law governing the legal form of the charity.
• appropriate advice is taken, where necessary. You can use the charity’s money to get professional advice for the charity if needed.  
• they identify potential risks to help with good decision making and decide how to manage risk where it exists.
• the investments are in the interests of charity, for example making sure the investments are not inconsistent with the charity’s purposes.
• they are acting in accordance with their charity trustee duties,
• investments are diverse where possible.
• any conflict of interest affecting a charity trustee is identified, declared by that trustee and managed appropriately by all charity trustees. This should be done in line with the charity's conflict of interest policy. 
  
  

Acting in this way will help charity trustees to meet their legal duties. 

Charity trustees of certain legal forms of charity will also have duties under other legislation. For example, where the charity is a trust there are specific requirements in the Trusts (Scotland) Act 1921. Where the charity is a company there are requirements in the Companies Act 2006 that will apply to the charity trustees as company directors. 

It could be that some of your investments form part of an endowment fund. An endowment is a fund consisting of assets which are held for the benefit of the charity. The objective is to provide the charity with income to spend on its charitable purposes. There are two types of endowment funds - permanent and expendable.  

• A permanent endowment fund is one that consists of assets that have been gifted to the charity with specific conditions attached and where the capital cannot be spent in any circumstances. 
• In an expendable endowment, the capital may be spent in those circumstances specified in the terms of the endowment document.  

A charity may have an endowment even though it no longer holds the paperwork that originally established it. It is important for charity trustees to know and understand any constraints that exist on how they may spend/use the charity’s assets. Other information may assist charity trustees in identifying whether they do hold an endowment, for example accounts for previous years and minutes of charity trustee meetings.  

Despite a charity being given an endowment which is designed to provide income for future use, it may be possible (depending on the terms of the endowment) to change the assets within the fund. For example, some of the original investment portfolio could be sold and the proceeds reinvested in different investments. It may depend on the nature of the endowed asset as to whether it can be changed or not – for example, a building that was given to the charity for its own use is less likely to be capable of change.

Find out how to apply for consent to reorganise a restricted fund.