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New OPG guidance for Attorneys on use of Discretionary Investment Services

In September 2015 the Office of the Public Guardian (OPG) published an update to its guidance on powers of attorney that may limit the ability to appoint a Discretionary Investment Manager, or continue with their services.

Attorneys frequently find themselves in a position where they to deal with potentially large sums of money on behalf of a relative laking the capacity to manage their financial affairs, and choose to seek the guidance of a bank or Independent Financial Adviser (IFA) in fulfilling their responsibilities. The Property and Financial Affairs Lasting Power of Attorney (LPA) is the document that confers the powers needed to provide this assistance, which most attorneys think provides adequate authority. However attorneys need to be aware of the guidance and restrictions in the Mental Capacity Act 2005 (MCA 2005) and Mental Capacity Act 2005 Code of Practice.

An attorney has a duty to act within the scope of their powers set out in the LPA, but is also subject to the provisions of the MCA 2005, in particular section 1 (The principles) and section 4 (Best interests). Attorneys and anyone acting in a professional capacity in relation to the person who lacks capacity (known as the “donor”) also have a specific obligation to follow the Code of Practice (section 42(4) MCA 2005). In addition, attorneys have a duty:

  • not to delegate unless authorised to do so
  • to comply with the relevant guidance.

Following the OPG’s guidance it is apparent that many LPA is do not provide sufficient permissions to allow the attorney to delegate the management of the donor’s money. It is worth taking a moment to explain why this is becoming a problem in relation to the types of services available. UK banks and financial advisor are regulated by the Financial Conduct Authority, and their permissions allow them to either operate on an advisory basis, where the attorney seeks advice but makes the ultimate decision, or a discretionary basis where the attorney gives the IFA or bank the power to make day-to-day decisions on the management of money (such as buying or selling investments) without referring each and every decision to their client. This is known as a discretionary power.

Financial advisers are increasingly choosing to outsource the management of their clients investments in the face of increasing requirements from the FCA associated with researching, selecting and reviewing investment funds that are used in their clients portfolios. There has been a significant move towards outsourcing these responsibilities to discretionary investment managers so that the financial planner can concentrate on dealing with the client’s life planning and taxation needs. This has also been commonplace for solicitors that haven’t engaged with a financial adviser, but instead refer their clients directly to a preferred stockbroker or investment manager.

The new guidance suggests that when creating a financial lasting power of attorney (LPA), donors should include specific wording to allow their attorneys to delegate investment management decisions to a discretionary investment manager, such as a bank or IFA. The OPG also suggests that without specific wording within an LPA, attorneys would not be able to use a discretionary management service and would have to make investment decisions themselves.  It also suggests that the wording should be checked by the relevant financial institution before the LPA is registered.

Furthermore, the guidance says that if an LPA has already been registered without such express permission, the attorney must apply to the Court of Protection for authority to appoint an investment manager.

At the moment it seems that few companies in the investment management community are aware of this guidance, but it made front-page news in the financial press last autumn (here) and is becoming more widely known. The guidance is causing difficulties for attorneys who are already using an investment manager under an LPA that has been registered without the specific clause.  Some are finding that such investment managers are now refusing to act putting attorneys into the difficult position of having to make financial investment decisions themselves.  Where the attorney does not want to act in this way, and if the donor lacks capacity and is unable to make the change to the LPA themselves, the only way that attorneys are able to maintain, or engage, the services of discretionary investment managers is to make an application to the OPG, which is expensive and can take some time. This could lead to potentially missed investment opportunities or worse still the inability to sell down investment and release money to cover the donor’s expenses.

We have therefore taken the step of writing to all our clients who are attorneys to warn them that this is likely to become a more prevalent issue, and to give them the opportunity to seek legal advice before it becomes a problem.

You can find further guidance in the following links:

Make and Register your Lasting Power of Attorney: A Guide (LP12)‘. The most significant change to the guidance is the addition (on page 28) of suggested wording for inclusion in a financial LPA where the donor wishes to authorise attorneys to delegate investment management decisions to a discretionary investment manager.

Also guidance from the Law Society: https://www.lawsociety.org.uk/support-services/advice/practice-notes/lasting-powers-of-attorney/

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