07 December 2018 - Article
In February 2016, several newspapers reported that Age UK (the 'Charity') received £6 million a year from the energy supplier, E.ON, to promote the Age UK fixed 2 year energy tariff to older people and that this tariff was more expensive than others available. Following the press reports, the Charity submitted a serious incident report to the Charity Commission and suspended offering the tariff to customers. The Charity Commission opened a compliance case to establish whether the trustees of the Charity had properly discharged their legal duties. Separately, Ofgem, the energy market regulator, considered the consumer and market aspects of the deal.
Whilst recognising that the diversification of fundraising methods is an evolving area and that commercial partnerships and a stable and secure income stream can benefit charities, the Charity Commission provided the Charity with regulatory advice to ensure that the trustees are fully compliant with their legal duties.
The Charity should more clearly distinguish between advising beneficiaries on 'money matters' and engaging in commercial fundraising activity
The Charity regularly campaigns on fuel poverty and energy efficiency and how these issues can affect older people. The Charity explained that the arrangement E.ON was intended to raise money for the Charity, not further its purposes, although older people were considered when developing the tariff and it contained other benefits such as no exit fees. The Charity Commission highlighted that a charity's beneficiaries are not just those who directly seek assistance. Accordingly, the target customers, are also the charity's beneficiaries.
Whilst the Charity highlighted that it would not attempt to sell a commercial product or service to someone who approached the Charity for advice, the Charity Commission highlighted that confusion could be caused.
The Charity Commission found that processes were in place to review the suitability of products and these were followed, but that these processes should be reviewed the potential conflict involved in generating income from a customer base including or defined by their beneficiaries.
Any future participation in the energy market should be carefully considered
The Charity Commission noted that the energy market poses significant risks to charities due to its volatility and complex pricing structure which may be confusing to customers. It suggested that the Charity consider carefully following professional advice whether it was in the Charity's best interests to engage in the energy market.
The fee or commission received should be made clear and transparent to beneficiary customers
The Charity Commission found that the nature of the commercial partnerships and the fee or commission received by the Charity through its trading subsidiary was not made clear to customers. The Charity should be clearer that products or services have been endorsed for a commercial purpose, rather than because the Charity considers the product as particularly suitable for a beneficiary.
The Charity should have systems in place to ensure that the commercial activities of its trading subsidiaries does not undermine the charity's purposes
The Charity Commission did see evidence that the suitability of the arrangement was regularly reviewed, the length of time between reviews was insufficient given the inherent risk involved. The Charity Commission noted that the contract included a clause which would have given the Charity some ability to act if it no longer considered that the contract was in its best interests.
The Charity's Customer Charter should make it clear that products and services are not necessarily the cheapest
Whilst noting that Ofgem had found that the literature did not breach any regulations, the Charity Commission considered that, given the Charity's advocacy work, it was likely that customers would have expected the tariff to be the cheapest, rather than a broader definition of 'best value'. The Charity has a Customer Charter setting out the principles that guide the Charity and says that its services and products are competitively priced, but does not make it clear that products are not necessarily the cheapest available. The Charity Commission suggested that the principles in the Customer Charter could be better brought to customers' attention.
Key lessons for other charities:
Trustees must have effective oversight of commercial partnerships, whether entered into directly or through trading subsidiaries, and must ensure that they are in the best interests of the charity and will help the charity achieve its purposes.
The Charity Commission expects that trustees:
- have appropriate processes in place to oversee and control commercial partnerships and can demonstrate that these processes are effective;
- are clear that a partnership is in the best interests of the charity and regularly reviews partnerships to ensure they remain in the best interests of the charity;
- consider the risks and benefits to the charity's name and reputation;
- make sure that any fee or commission received by the charity is clear and transparent;
- routinely monitor performance of all trading subsidiaries to ensure there is a good and proper use of charity assets; and
- are prepared to assert the rights of the parent charity as shareholder over a trading subsidiary if an agreement is no longer in the best interests of the parent charity.
The full report is available here.