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Scotland - Scotland
Last updated September 2020

Operating a Charity in Scotland - Charles Stanley

Graeme Dreghorn, Financial Planner, and Mary Coughlan, Investment Manager at Charles Stanley outline some of the key differences in operating a charity in Scotland compared to the rest of the UK.

Whilst the day-to-day needs of running a charity in Scotland are mostly the same as the rest of the UK, as Scotland has its own legal system the regulations and organisations involved differ.

While general advice will still stand, for the important statutory requirements and also for the specific nuances of working in Scotland, it’s a good idea to be aware of the differences. In Scotland, charities are regulated by the Office of the Scottish Charities Regular (OSCR), the body incorporated as a result of the Charity and Trustee Act (Scotland) 2005. This act contains three broad principles that charities north of the border should adhere to.

1. Charities should operate in a manner consistent with the charities purpose.

2. Charities must act with care and diligence.

3. Charities must manage any conflict of interests between the charity and any person/organisation the charity appoints.

Managing Assets

The responsibilities of managing charities’ assets lands on the trustees. An important first check is to understand the scope of these powers. Under Scottish law this can be ascertained from the powers laid out in the governing document. It is important to state that Trustees are not legally bound to chase the highest returns, and decisions should be measured in both the financial and non-financial factors for any investment. This applies to both stock market investments and also cash reserves. In the low-interest environment that we are in today, there is a real question as to whether holding large cash reserves that erode against inflation would align to the first two principles of the law.

Involving professionals

It is unlikely that most charities will have expertise in the legal, accounting and investment sectors from the trustees in place. As the responsibility on the trustees is to act with care and diligence, appointing professionals to each sector where this skillset is not present is enshrined in the legislation. Whilst the involvement of solicitors and accountants is commonplace, holistic wealth management provides the third pillar when charities have assets to manage.

Investment Managers and Financial Planners can offer a number of benefits to a charity. Managing an investment portfolio is as complex a process as completing annual accounts, and for any charity with even reasonable reserves not having professional involvement risks non-compliance. Even the most experienced self-select investors can be led to making poor decisions that a professional would not make. Investment Management is at its core, making educated decisions on which geographies, themes and sectors to buy and also which to avoid. This is a full-time job, involving vast amounts of research and ongoing monitoring and amendment based on the ever-changing world. The first step is for a charity to set a clear investment policy statement, so the manager has a framework. The Trustees can ensure good outcomes for the charity’s assets by setting clear, realistic criteria for where monies should be invested, detailing what level of returns and risk are acceptable and expected and what distributions can be made by the charity. In a world of reduced funding, Investment Managers who can provide better returns on the charity’s assets can be crucial. Better returns mean greater distributions, which can be made to support the charity’s core activities.

Involving a Financial Planner can also bring in a number of benefits to charities and also to its trustees. Fundamentally a planner is involved in the creation of investment policy statements and the investment strategy, working in tandem with an investment manager and trustees. A planner will also be involved in the stress testing and forecasting of any plan to check its long-term viability. There are also other benefits to involving Financial Planners. Good financial planning is focused on getting the best outcome for the individual by understanding their lifestyle and what it is important to them. Typically, people become involved in third sector leadership because of deeply held beliefs, and by working hand in hand with trustees or executives, a planner can then address lifestyle issues that can help keep key staff members happy and engaged with the charity. In practice, this can take the form of managing step downs into semi-retirement or reducing hours, providing comfort on when and how a person retires, this then allows discussion with the organisation on how to manage succession planning and creates a more stable environment with which to operate.

The most important step to take is to identify where there are skill gaps and ensuring you have the appropriate support to meet statutory requirements.

For information on how Charles Stanley could help you, please contact us.

020 3797 2510

www.charles-stanley.co.uk

The value of investments can fall as well as rise. Investors may get back less than invested. Past performance is not a reliable guide to future returns. Charles Stanley is authorised and regulated by the Financial Conduct Authority.