RegulationNov 2 2016

Concerns over power of attorney issues on the rise

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Concerns over power of attorney issues on the rise

The head of a compliance firm has said he has seen a rise in cases where advisers are wary of carrying out action requested by a client’s power of attorney.

A power of attorney is nominated to act on another person’s behalf if that person has an accident or an illness which means they are no longer able to make decisions.

Problems arise for financial advisers when a power of attorney makes decisions about money or property belonging to a client, which the adviser feels is not in the client’s best interest.

Phil Young, managing director of compliance firm ThreeSixty Services, said over the past 12 months his team had flagged this as a growing concern.

He cited several reasons why this problem is becoming more prominent, pointing out that – as people live longer – there are more cases where people’s minds deteriorate before their bodies, meaning decisions have to be made on their behalf.

Mr Young said advisers are now more aware of the problem and increasingly worried about carrying out action which they feel is not in the best interest of their client, partly due to the regulatory or legal repercussions it could have on their business.

Another factor, he said, is it has become significantly cheaper over the past two years to put a power of attorney in place, while improvements to the government’s application process have encouraged more people to register a POA, meaning there are more people with these powers.

He said he has only recommended that advisers disengage with a client on a small number of occasions, and emphasised this should be a last resort, adding: “If you just walk away from it then it doesn’t solve the problem because it will move to someone else; it’s important to report it to the Court of Protection.”

It was potentially a hand grenade waiting to go off Paul Lindfield

Mr Young argued there should be more support to ensure power of attorneys understand what their responsibilities are, and suggested advisers should ensure they proactively offer guidance to the POA. 

The Financial Conduct Authority published a report last year to try to address how firms deal with vulnerable clients, warning some firms had a "patchy" approach and had failed to put adequate policy in place.

Evidence has since emerged that some financial services companies were failing such individuals when it comes to fair treatment. 

Rules set out in the FCA handbook state a firm must pay “due regard” to the interests of its customers, manage conflicts of interest fairly, ensure advice is suitable, and arrange adequate protection for clients' assets when it is responsible for them.  

Paul Lindfield, director of wealth management at Sedulo Wealth Management, said he recently disengaged with a client for the first time in 20 years after the power of attorney demanded that he encash the client’s entire investment portfolio.

The majority of the investments were ring-fenced for long-term care fees, and so Mr Lindfield said he did not agree with this course of action, saying it was detrimental to the client’s estate and long-term care planning needs.

He was therefore instructed by his external compliance provider and professional indemnity insurer to disengage with the client with immediate effect and report the issue to the relevant authorities.

Following correspondence with the power of attorney, he also suspected another adviser had become involved, urging the client’s investments to be encashed and reinvested under their business.

“Some advisers would have caved into this pressure, but we will always do what is right for our clients and maintain our ethics,” Mr Lindfield said, adding the issue caused a lot of hassle and cost.

“This was not a nice situation; the process took a lot of time and we had to lose a client, while potentially generating an unfounded complaint because we did not give the POA what they wanted.”

He said the issue was potentially a “hand grenade waiting to go off” if it was not handled in the correct way, pointing out he had to be careful to follow all the right procedures to ensure his business wasn’t at risk.

Matthew Harris, director of Dalbeath Financial Planning, had also faced problems arising from a client’s power of attorney, but more commonly with guardianships, where the court decides who will act for the client. 

“On rare occasions, the person who has been granted a guardianship can ask us to release money from an investment for a reason that we are not entirely comfortable with,” he said, adding however, he has always been able to resolve this via dialogue with the client's guardian. 

“We have never had a situation where a guardian or attorney has asked for a very large policy to be cashed in, but if this happened we would certainly refuse to action it.”

Keith Churchouse, chartered financial planner at Chapters Financial, said this issue points to the importance of getting it right when appointing attorneys.

“Children are not always the best option and we have experienced a situation recently where this might be the case.

“There are often occasions where relatives are not experienced in larger sums of money and can become daunted by so much cash that they become vulnerable in being able to allocate it correctly.” 

Tony Catt, compliance officer of TC Compliance Services, said this is a difficult issue for advisers because often the only contact with the client is through the POA.

“Therefore, it would be difficult to know whether there has been a change of circumstances that may necessitate an action that seems to be at odds with previous advice and arrangements.”  

He said an adviser risks being hit with a liability or legal sanction if they assist action which is detrimental to the client.