Beware the sheep!
There have been two recent updates relating to investment advice for charity investors:
Consumer Duty: a new rule introduced by the Financial Conduct Authority, the financial regulator, requiring investment firms to provide a higher standard of consumer protection and value for money.
CC14: updated guidance by the Charity Commission for trustees on investment matters which is more insistent on the requirement that charities obtain advice.
The response by parts of the investment industry to the FCA’s new rule is to either decline to provide advice to ‘retail clients’ (broadly those that have less than £5m to invest), or ask them to self declare as a ‘professional investor’ (and lose retail protections, or the continue to offer advice as before).
CC14 requires taking advice before making an investment decision. This might be buying a standard charity mixed fund or a single share, such as Marks & Spencer – both are investment decisions. If a charity fund manager will no longer offer you advice, even on the suitability of their own products, what should charities do?
Here come the investment consultants. Consultants do offer advice but not all are independent. If you asked a charity mixed fund manager to run a health check on your current portfolio manager, you would be unsurprised if they suggested that their own mixed fund was superior. That would be advice, but perhaps not useful (or independent) advice. Similarly, a charity might approach a consultant to review their arrangements, but find that the solution is to recommend appointing the consultant as an OCIO which is essentially a fancy and expensive sort of mixed fund manager as we mentioned in our October 2023 blog.
The good news is that there are consultants who do provide independent advice and which does not lead, as night follows day, to appointing them on some perpetual mandate. That advice is more likely (but not guaranteed) to be independent of a conflict. Yoke and Co is such a consultant, and is regulated by the FCA.
Many readers of this blog will be aware of the saying ‘beware of false prophets which come to you in sheep's clothing, but inwardly they are ravening wolves’. So, when you look for someone to give advice, as you should, be alert and always ask at the outset i) if this will be advice and ii) if they already know what the advice will be.
If you would like some advice on advice or picking the sheep from the wolves, please do not hesitate to get in contact.