Articles

The importance of taking independent advice

Navigating the world of investments can be difficult and often daunting. Investible assets can be powerful to help fund and support a charitable cause, but knowing what to invest in, who to invest with, and how to invest can be challenging.

Using an independent investment consultant could be the most appropriate way to help answer these questions. Importantly, the Charity Commission now expects all charity trustees to ‘take professional advice before making and reviewing investments’, following updates made to the Charity Commission’s guidance for investing charity money, CC14, published in August last year. The guidance now also states that investment managers should be reviewed regularly and ‘independently of the manager’.

We believe that all organisations working in the third sector should be doing their utmost to help charities succeed in their cause. From an investment standpoint, this means avoiding excessive fees, unnecessary manager reviews and pinpointing the components of the investment strategy that need attention.

The role of independent investment consultants isn’t well established across the not-for-profit sector like it is within other sectors. Often, we see charities adopting a long-lasting relationship with one or two investment managers. We believe that investment managers have been servicing the needs of charities well for many years, however, any advice or information around the strategy they provide will inherently pose a conflict of interest.

Independent investment consultants, like Broadstone, can act separately to the investment managers, and are able to give independent advice on strategy, investment policy, manager performance and fees across the market, providing trustees with greater insight and understanding.

What can an investment consultant help with?

Your first investment

For a variety of reasons, many smaller charities do not currently invest their spare cash. Often, this leads to trustees holding their reserves in a traditional bank account. Although this may appear a sensible and safe option, CC14 has highlighted the risk that holding a large cash balance in the bank could pose. Investment consultants are able to help you navigate your first investment and walk you through the what, who and how of utilising one of the many low risk, cash like, liquid investment options that the market has to offer. Not only does this create opportunities to access the high interest rates available at the moment, but it also reduces the overall risk of loss of funds for your charity.

Your investment policy

Some charities might not have one, others may have one that was created before the current board was in place. Your investment policy is a crucial document that governs the way you go about investing. It details your appetite for risk, what you want to achieve from investing and any preferences in terms of the type of product you wish to invest in, such as environmental, social and governance (ESG) orientated, or mission aligned investments. Not only does your investment policy aid with future investment decisions, but it can be used to hold investment managers to account and ensure that they provide products that fit with your policy. This can be a great way to drive change or satisfy yourself that the investments are aligned.

Your investment reviews and monitoring

This is where independent input is extremely valuable. Trustees should frequently review their investment arrangements to ensure they remain in line with their investment policy. This includes ensuring that manager performance and fees are competitive within the market. Independent consultants are well placed to conduct this work as they are able to objectively compare across the broader market, rather than a situation where investment managers are ‘marking their own homework’. Targeted reviews and frequent monitoring can help identify the parts of a portfolio that are working and the parts that are not. This allows trustees to spend time and resource on the things that matter most.

Quotes from managers

Yogita Patel, Relationship Manager for Charities and Endowments, Blackrock

“BlackRock is proud to be one of the leading managers of charitable assets in the UK. We welcome the updated CC14 guidelines from the Charity Commission, which emphasises the importance of seeking professional advice when reviewing investments. We look forward to continuing to work with trustee boards and consultants, such as Broadstone, to provide them with the information they need about our investment solutions and ensuring charities can continue to make a positive impact while securing their long-term financial sustainability.”

Chris Wagstaff, Head of Pensions and Investment Education, Columbia Threadneedle Investments

“It is readily apparent that many charities continue to incur a significant opportunity cost by either shying away from making investment decisions or doing so without the benefit of independent investment advice and risk management. This is against the backdrop of it being well established that inadequate investment governance both constrains long-run investment returns and compromises risk management. 

Indeed, without the benefit of independent investment advice and risk management, I can’t see how charity trustees can act effectively, within the scope of the charity’s investment powers and governing document rules, while acting in full compliance with the many provisions of CC14, associated legislation and regulation.”

Sharika Sharma, Head of Business Development, CCLA

“There are times, such as when first investing in a long-term portfolio or conducting a periodic ‘deep dive’ review of your investment approach and choice of manager, when tailored, specific advice is required to help trustees understand their options and navigate the market.

Clearly, it’s important that the advice is fully independent of any investment management firm so the adviser’s only interest is in recommending what they believe will give the best outcome for your organisation.”

Richard Macey, Director of Charities, M&G Investments

“As a long-standing provider of investment funds to the Third Sector for over 60 years, we are increasingly of the view that many charities, particularly those with more modest sums to deploy, are under-served by the market in terms of the range and flexibility of advisory offerings.  With recent updates made to CC14 guidance, we agree that this has brought the topic into sharper focus, and that is why we are happy to offer our support to innovative new approaches like this from Broadstone.  A wide-ranging independent service that can provide Trustees with the confidence and reassurance they require to make effective investment decisions is most welcome, and we are particularly pleased to note that charities of all sizes can benefit; democratisation of access to vital sources of support and information irrespective of asset size is an important principle that we are very much aligned to.”

State Street Global Advisors

“In our experience, charities often benefit from independent investment advice, especially when those advisors can leverage the institutional asset management marketplace which brings broader choice and the potential for lower charges.”

Ben Edwards, Hamilton Lane

“Post CC14, it won’t be surprising to see charities in the UK increasingly taking independent advice on their investments from an investment consultant. Another focus for trustees following the CC14 guidance is likely to be the use of social investments, or mission-aligned investments; the investment strategy should be intertwined with the wider charity strategy, and this can be achieved through using private market impact investments.”

Stuart Fiertz, Co-Founder & Head of Responsible Investment, Cheyne Capital

“Investment consultants have the unique ability to perform an in-depth review of the whole market. The insights they glean through this process inform their ability to interrogate and scrutinise managers thoroughly, both directly and relative to peers. Broadstone, for example, take the time to perform site visits of managers’ investments as part of their due diligence on behalf of their clients.

Furthermore, investment consultants’ dual perspective on both the manager universe and their clients can lead them to advise managers on tailoring their strategies to best suit their clients’ needs. If consultants are able to pool several clients together, they may also be eligible for a lower fee level from managers due to the higher amount of the combined investment.”

Natasha Silva, CAMRADATA

“Trustee boards that oversee the management of charities’ assets are finding portfolios are being squeezed by several factors including falling donations, higher inflation and other economic challenges, along with cost of living pressures and environmental issues. Against this backdrop, charities have become more confident in the alignment of their mission and their money.

Being able to provide a service whereby charities have access to data on relevant funds, fees, investment objectives and sustainability credentials for eg, is where CAMRADATA can further aid the third sector, as Broadstone is doing.”

Richard Graham, Global Head of Consultant Relations, Janus Henderson Investors

“Following updates to CC14 last year alongside the increased breadth of investment options available, it seems imperative that charity trustees seek independent advice. This should provide them with a greater chance of meeting their investment return and income expectations which may also include sustainability or impact goals.” 

Laurence Gagen, Partner and Head of Charities, LGT Wealth Management

While investment managers will provide ongoing advice and assessment of suitability to their charity clients, many smaller charities may feel they lack the investment experience required to get started. Investment consultants can act as that professional extension of the board to scan the market and provide options across cash and investment solutions.

Isobel Fraser, Charities Business Development, Waverton Investment Management It is great to see a service being implemented to help guide smaller charities who may otherwise not have access to independent investment advice. Waverton works closely with a broad range of charities and their independent advisers to help implement an investment strategy aligned with the unique requirements of each organisation. We look forward to continuing such work with consultants, including Broadstone, to support charities in achieving their financial objectives.

 How can Broadstone help?

As an independent investment consultant, Broadstone are perfectly positioned to assist in the areas mentioned above. We have expertise within the industry and are well placed to provide an independent view on managers and investment strategies. We also have deep experience of advising on cash investments, producing investment policies and performance reports to satisfy all of the areas mentioned above.