Investing in your church via religious charitable development funds (RCDFs): a case of too much trust needed?

I am always willing to look at ways for my local church to fund more evangelism and help more of the poor. So when our Rector said that we would get 0.75% for any money I deposited in an ‘online community saver’ account with the Anglican Investment and Development Fund (AIDF), I was interested. And in the normal course of events, I might have gone ahead – even after, as we are advised to do by consumer protection bodies, reading ‘the small print’. But unfortunately times are not normal for funds like AIDF.

AIDF, an arm of the Diocese of Canberra and Goulburn, is a ‘religious charitable development fund’ (RCDF). So is the Anglican Development Fund Diocese of Bathurst (ADF Bathurst), in one of the dioceses next door to us. AIDF appears to be, according to the last documents lodged with Australian Securities & Investments Commission (ASIC), solvent. Not so the ADF. Its status with the same body is ‘External Administration’, which means that it has, for some reason, lost control of its operations. In this case, it was because a major creditor, the Commonwealth Bank, when the ADF didn’t repay its loan when it was asked to, installed a Receiver and Manager as part of its recovery processes. This is usually not good news for creditors, and as a depositor in ADF, AIDF or any RCDF, you would be a creditor. An unsecured creditor who gets paid back only after the secured creditors have been paid back. Which often means considerably fewer cents in the dollar than 100.

Follow the story in the paper linked above, or the Western Advocate, and you will see that the Bathurst Diocese’s RCDF is broke, owes $39.3 million to creditors, and is involved in very expensive litigation to try and avoid repaying the money the way the bank wants them to.

So, in the absence of any strong information to distinguish an investment in AIDF, our Diocese’s RCDF, from one that was made by people similar to me next door in their RCDF (ADF Bathurst), I’m not inclined to transfer my money. Whatever the percentage that is paid to our church.

Putting this aside for the moment, how secure is the investment my church is recommending, an investment in an RCDF? That’s where ‘the small print’ comes in. (Actually we don’t have to get down to that detail before we get some concerns about the investment.)

The Rector said we’d get 3.75% pa. If you are careful with your money, you’ll probably know that that is well above the rate other institutions are paying for an online savings account. And AIDF is going to pay another 0.75% out to the church, making a total cost of funds of 4.5%. Their brochure and website is not that dissimilar to those of your bank, building society or credit union – in fact they invite you to compare the offer with that of the banks – so at this rate it sounds too good to be true. In that case the consumer protection adage with investments “If it sounds too good to be true, it probably is” applies. So there’s something else going on – perhaps, ruling out a mistake, a compensation for extra risk of some sort?

Or something to do with the fact that AIDF is a charity and the depositors are church-goers? They say in the brochure (and on the website) that

Investment in the Fund is designed for investors who wish to assist the Fund in its charitable work and for whom profit is not of primary relevance…”

But this implies that, because we churchgoers are not motivated by profit, we will accept a below- market rate because we are assisting AIDF in its charitable work. (In fact, as a Christian charity helping our brothers and sisters in need and spreading the good news of Jesus, some of us may be prepared to lend to AIDF interest-free.)   So this doesn’t explain the above-market rate. (The alternative meaning of the quote, that we are not concerned that AIDF is a not-for-profit entity, doesn’t make as much sense. We are lending them money, not investing to get a return from their profits.)

So we are back to extra interest for extra risk as an explanation.

On the application form (the inside of the brochure), there’s a heading that’s hard to miss:   ‘NEW ACCOUNT CUSTOMER INFORMATION’.   The first thing you learn is that

The AIDF has an APRA exemption from certain requirements of the Banking Act 1959.  Neither the controlling entity nor the AIDF is prudentially supervised by APRA.  Contributions to the AIDF do not enjoy the benefit of Investor protection under the Banking Act 1959.

Whether or not you know that APRA is the Australian Prudential Regulation Authority, ‘exemption’, lack of supervision, whomever it’s by, and lack of investor protection wouldn’t be good to most people. And it isn’t. Odds on, you have limited scope to differentiate between safe and unsafe banks. But because the financial system needs your money, long ago the legislators put things in place to give you the confidence that your funds would be safe. These are absent for RCDFs (of which AIDF is one). Your risk is therefore greater. How much greater? You would need to assess the RCDF’s financial situation and prospects to answer this properly.   (For AIDF, even if you had the skills to do this, the information is not readily available. There is a document called ‘AIDF Audited Accounts 2014’ on the website, but it is a far from complete set of financial statements, including being absent the all-important audit report.)

RCDFs are normally guaranteed by their parent church body. In the case of the AIDF, the enabling church law says that ‘The fund shall be guaranteed by the Diocese of Canberra and Goulburn’ (paragraph 16). To properly assess the comfort to be taken from this statement one would first need to know that the ‘shall’ is now ‘is’. Then the terms and conditions of the guarantee, including whether it is supported by security of any kind, and, most importantly, the financial condition and prospects of the Diocese. Unfortunately this information is not even available to church members.

Investing in something that pays interest? I’ll let the government’s MoneySmart website have the final word:

Some types of investments paying interest are relatively safe and others can be quite risky. It’s very important to do your research before you invest in some of these products. Seek financial advice if you are unsure.

So sorry Rector, I would have liked to help, but I’m afraid, at least for the moment, there’s too much trust required for me.

P.S.  Business by The Book exists to provide accounting, audit and governance services, for no fee if necessary, to not-for-profits who are themselves serving those who are the cultural equivalents of the Bible’s fatherless, widows and aliens.