RegulationDec 14 2016

Power of attorney guidelines catch out advisers

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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. 

“Failure to do that could have major repercussions, particularly if investments do not perform to expectations.” 

In October, the Society of Trust and Estate Practitioners (Step) asked its members to provide examples of how the Office of the Public Guardian guidance might be difficult to apply in practice.

Phil Young, managing director at support services Threesixty Services, said discretionary fund managers now check the lasting power of attorney, and will refuse to deal with the attorney if express powers are not included. 

He said advisers might not realise this is an issue until they get their request to use a DFM rejected. 

While Mr Young said the larger DFMs are likely to know about this, he warned some smaller firms might not be aware, particularly if advisers run money with their own discretionary investment scheme in a sister company.

Claire Walsh, chartered financial planner at Aspect 8, said she also thought many advisers and attorneys would be unaware of the requirement, but added: “I’d say the responsibility lies with the attorney here.”

She said advisers and DFMs should be involved when drawing up the instructions to the attorney to ensure they are given powers to manage investments.

“In reality these are the conversations and agreements that advisers and DFMs have with all clients to ensure their needs and objectives are understood. It is just about documenting this in an appropriate way.”

James Nield, an investment manager with Thesis Asset Management, said it “seemed harsh” to apply such a move retrospectively.

He said the only solutions are to draft a new lasting power of attorney, apply to the Court of Protection, or move to an advisory relationship, all of which might be costly and time-consuming for the client.

"Interestingly I understand that not all DFMs are interpreting this guidance as we are and are carrying on as they were."

A spokesman for the Office of the Public Guardian make it clear, however, that it issued advice – as opposed to rules – which sought to encourage donors to insert instructions into their lasting power of attorney to ensure their wishes can be respected.

katherine.denham@ft.com