Yesterday saw a story on the front page The Sun about an affinity deal between Age UK and E.on. While this blog post doesn't focus on the details of this story, it has raised some issues that charities need to be aware of . I seek to explain affinity deals and what charities need to consider when deciding whether to enter these arrangements.
What is an affinity deal?
An affinity deal is where an organisation (e.g. a charity) promotes a company's products to its clients (or beneficiaries). In return for promotion, the organisation may receive a commission or a set fee. For example, an insurance company may have a product which it wishes to promote to supporters of Charity X. In return for promoting this product to their supporters, the insurance company gives Charity X a commission for every supporter that buys the product.
Why would a charity have an affinity deal?
Charities are under increasing financial pressure. Simply put, affinity deals are a way that charities can generate more resources in order to further their charitable aims and objectives. If done right, an affinity deal has the ability to direct supporters to product that they may wish to purchase whilst ensuring that a portion of the proceeds goes towards a good cause. Moreover, the sector has been consistently told by policy makers that they need to diversify their income streams and find new ways of generating resources. As the Minister for Civil Society said in June 2015: “…we all know money is very tight…civil society must continue to innovate the way it funds itself, runs itself and delivers social action.” The number of charities that have affinity deals has grown over recent years as part of these efforts to generate funding in more innovative ways.
Aren’t affinity deals risky?
Any method of raising income involves risks – affinity deals are no different. The most obvious risks to charities through affinity deals are reputational damage and potential conflict with charitable objects. However, these need to be balanced against other risks such as the risks to beneficiaries if a charity fails to generate income sufficient to meet their needs, or the impact that failure to generate sufficient income could have on sustainability of the charity.
What responsibilities do charities have on affinity deals?
The most important thing for charities is the need to make sure that any financial activities do not conflict with the furtherance of their charitable objects. At all times charities have a responsibility to ensure that they do not take unnecessary risks and protect the resources of the charity. This includes potential tax liabilities that may be generated through any deals. They also have a responsibility to protect the reputation of the charity in any actions that they undertake. Charities also make sure that they act within relevant laws and regulations. For example, promotions must be consistent with advertising regulations. Charities must prevent any unnecessary private benefit being generated through these deals. Whilst some private benefit (i.e. profit) can be permissible where it is necessary to support the charities’ objects (i.e. generating more income), they must carefully consider whether the level of private benefit that deals create is justifiable. Furthermore, charities must make sure that they are undertaking sufficient due diligence on companies which they have affinity deals to ensure that charities assets and reputation are protected. It is critical that charity trustees are aware of these responsibilities when sanctioning any deals and staff should assess any changes in risk and report on these regularly to the board of trustees.
Is there any guidance on affinity deals for charities?
CC20 Section G sets out formal guidance on how charities should engage with commercial partners. All charities should read and understand this guidance, ensuring that all affinity deals meet the expectations of the Commission. The Institute of Fundraising also has guidance on charities working with businesses which can be read here.
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