Power of attorney guidelines catch out advisers

Power of attorney guidelines catch out advisers

Many advisers face running into compliance problems because they are unaware a client’s lasting power of attorney should have explicit permission to outsource investment decisions, experts have warned.

A power of attorney is nominated to act on another person’s behalf if they no longer have the mental capacity to be able to make decisions.

Guidance set out by the Office of the Public Guardian makes it clear express instructions should be given by the lasting power of attorney to invest or continue investing in a discretionary fund management (DFM) scheme.

Without this permission, the attorney would need to apply to the Court of Protection for retrospective consent, even if the attorney delegated investment decisions before the Office of the Public Guardian updated its guidance in September last year.

But experts have warned many advisers are unaware the power of attorney should have express power before delegating decisions to a discretionary fund manager.

Aidan Campbell, partner at law firm CMS, said the adviser’s decision to appoint the investment manager could be open to a regulatory breach or legal challenge in the future if the client does not make it clear investment decisions can be outsourced. 

He advised advisers and DFMs to “carefully review” the terms of any lasting power of attorney to make sure there is a clear basis for the DFM’s appointment, adding: “A DFM should only accept engagements where this is the case.”

Dan Kiernan, director of research at Intelligent Partnership, said it seems it is still not common practice to have the express permission included.

He said: “Depending on the sequence of events and the nature of the complaint, the adviser, attorney, solicitor or manager could all find themselves at potential risk of non-compliance.”

Over the years, attorneys have become increasingly common as it has become cheaper and simpler to put one in place ahead of it needing to be used.

Despite this, Mr Kiernan said there is still little in the way of support or training for advisers who work with power of attorneys.

Issues with lasting power of attorneys have been flagged as a growing concern, and last month several advisers told FTAdviser they have run into difficulties when it comes to acting on instructions from a client’s attorney.  

Last year, the Financial Conduct Authority warned some firms had failed to implement adequate policy when dealing with vulnerable clients with mental or physical health problems.

Dave Robinson, director of Centurion Wealth Care, said he became aware of the issue with power of attorney and DFMs a while ago, but that it came as a surprise to most of the advisers he has spoken to.

Mr Robinson, who is also a member of the Court of Protection Practitioners Association, said: “It is absolutely vital that financial planners review their fiduciary clients to make sure they haven’t unwittingly advised them to breach their powers.