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How to advise clients acting under power of attorney

“I think having a clear dialogue between the donor, the attorney and the financial adviser is very important here. So where things are in a slightly grey area, the financial adviser might agree that they will communicate with both the donor and attorneys, or emails go to both or they're both in phone calls.

“And the financial adviser should be alive to requests or decisions which ring alarm bells and give them cause for concern about whether the donor actually has capacity.”

But someone making an unwise decision does not mean they lack capacity, says Martin.

“So if [the donor] says, ‘I've decided I'm going to buy a pink sports car because I've always wanted a pink sports car, and yes, it might cost £100,000 and that might represent 10 per cent of my net worth, but this is really what I want,’ it might be an unwise decision but that doesn't mean he doesn’t have capacity to make that decision.

“However, if [the donor] has forgotten that last week he bought a blue sports car and there’s already one in the garage, then clearly that would ring alarm bells, and you’d think, ‘You had forgotten this important information that you've already got a sports car, and how much it cost, and how much money you've got left.’”

While Martin says the responsibility in assessing capacity in the first instance falls on the attorney, as well as the responsibility of when they should get involved, she adds that an adviser has a crucial role to play.

“The professional obligations that the financial adviser has, I would certainly think would extend to being alive to these issues when they arise. So [this means] asking questions and having the contact details of attorneys and having that dialogue open.”

Safeguarding donors

If an attorney is potentially not acting in the donor’s best interest, concerns should be reported to the Office of the Public Guardian.

Robinson at Centurion says advisers who work with attorneys should be prepared to “stand up to people”, recounting two instances where he has reported attorneys due to concerns about how they were managing the donor’s finances.

“Understand that although the attorney might be giving you instructions, you’ve also got an ultimate client, and your duty is to both of those two people.”

Robinson adds: “If you’re going to get involved with attorneys, you need to build your knowledge of the regime that applies. There’s more to this than giving financial advice.”

Chloe Cheung is a features writer at FTAdviser