Protecting Your Charity’s Investment

This article comes from the Canadian Council of Christian Charities September 2016 Issue.

Some churches decide to invest funds that are not immediately needed for operating purposes. The church’s Board is responsible for investing with a high level of care, to ensure applicable prudent investor principles are followed.

This article will discuss the scope of prudent investor principles, the importance of an investment committee, and some common issues related to investment best practices.

There are various types of funds a church may invest:

a) Prior years’ cash surpluses and not needed this year

b)Reserve funds

c)Restricted funds 

Any legal expectations can usually be found in your province or territory’s Trustee Act. The Canada Revenue Agency (CRA) also has general expectations set out in the Income Tax Act.

Who’s in charge of investing?

Generally, the church Board or any other group with board-like powers over church assets are responsible. These members can also be referred to as Trustees. Trustees are expected and required to invest the church assets with a high level of care, as though investing their own money.

Properly investing a church’s funds is a significant fiduciary responsibility. Trustees must consider the best interests of the church, self-comply with applicable laws, and protect themselves from personal liability.

Accordingly, before a church decides to invest funds, an investment policy should be formulated. A large amount of funds may require a qualified investment advisor or manager.

Prudent investor principles

Most legislation sets out some version of the following prudent investor principles. A Trustee will:

  • exercise the judgment and care that a person of prudence, discretion and intelligence would exercise in administering the property of others;
  • use the skill, diligence and judgment that a prudent investor would exercise in making investments; and
  • invest trust property in any form of property or security in which a reasonable and prudent investor would invest.

Specified investment criteria

Some provinces have some form of the following investment criteria that must be considered prior to making investment decisions:

  • General economic conditions
  • Possible effects of inflation or deflation
  • The role that each investment or course of action plays within the overall trust portfolio
  • The expected total return from income, and the appreciation of capital
  • Needs for liquidity, regularity of income, and preservation or appreciation of capital
  • An asset’s special relationship or special value, if any, to the purposes of the trust

The investment committee

To protect the Trustees and the church, the investment committee should consider the following best practices:

  • Appoint Board and staff members who are well versed in the church’s finances and investment needs.
  • Engage a qualified investment advisor knowledgeable in charity and trust law, to develop an investment policy.
  • Develop an investment policy that meets legal requirements, and addresses any alternative considerations. (See below)
  • Engage an investment manager to handle the investment activities and provide periodic portfolio reports.
  • An investment manager and investment advisor should not be related.

Common issues related to investment practices

1. Ethical investments can be based on theological, moral, or applying a particular worldview, because churches are set up to carry out some of these legally recognized charitable purposes:

a)Advancement of Religion

b)Relief of Poverty

c)Advancement of Education

d)Providing other benefits to the community, determined to be charitable by the courts

The number of these investments to choose from is lower and risk potentially maybe higher.

2. Community Investments—See CRA Guidance CG-014

3. Investing in Credit-Denied Groups—See Prudent Investor Principles

4. Guaranteed Investment Certificates (GICS)—short term GIC’s should be better

5. “Can’t Miss” Investments—See Prudent Investor Principles


It is a significant challenge for Trustees to meet the fiduciary care expectations od properly investing a church’s financial assets. An investment committee and a well-developed investment policy, actively administered with professional counsel, will go a long way in demonstrating your church’s compliance with the law’s prudent investor principles.

If you need an investment policy, please contact David Holton or Victor Ku in the CBWC office.