Lasting Power of Attorney and DFM investment

We occasionally receive what we would class as ‘technical queries’ from firms. We generally only deal with queries relating to FCA regulation and compliance but this was an interesting question so we thought we should give it wider circulation.

The query concerns the ability of attorneys to engage with DFMs. An issue came to light around 2015/16, which is summarised in this STEP blog and this update.

The England & Wales Office of the Public Guardian (OPG) published an update in September 2015 providing guidance on financial lasting powers of attorney (LPAs) and how attorneys can delegate investment management decisions to a discretionary investment manager.

Under this guidance an attorney can appoint a bank or an IFA to act on their behalf to make investment decisions; however specific wording must be incorporated into the LPA. Since the guidance was issued in 2015, STEP and other professional bodies have contacted the OPG with their concerns.

The primary issue is that if an attorney is currently using a discretionary manager without explicit permission in the LPA, then they need to apply to the Court of Protection to obtain retrospective consent.

This has an impact for advisers where a client is recommended to invest in a DFM portfolio – the potential difficulty that might arise in the event that the client subsequently enters into a LPA needs to be considered. And, of course, if advising an attorney/deputy, advisers need to consider the OPG guidance.

There is a difference between England and Wales on the one hand and Scotland on the other (there could be some differences in Northern Ireland too). OPG in E&W is governed by the Mental Capacity Act 2005 and updates. The OPG in Scotland is governed by the Adults with Incapacity Act 2000 and updates. So if advice is being provided to a client resident in Scotland or NI, some research around this aspect will be prudent. 

The essential issue is that attorneys and deputies are constrained in delegation of any decisions that they should make themselves. Cursory research indicates that including some wording (there is a wide variety of wording out there so not real consistent approach we can recommend) in an LPA might permit the use of, or continued use of, a DFM but this is far from certain as ultimately some organisations, banks, etc. and even DFMs might not accept that wording and so reject the LPA out of hand.

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

ATEB Compliance offers compliance and regulatory advice.

ATEB Suitability provides report writing software for the financial services market.

Our View

A can of worms indeed!

As if that were not enough of a muddle, there are other potential complications – including being clear who is the client, the principal or agent and who is the subject of the suitability assessment. And how does this this interact with the very common practice of DFMs operating on an Agent as Client (AAC) basis? That would seem to add a whole new layer of complication on what is already muddy and we would wager that few lawyers are even aware of the risks of dealing with DFMs on an AAC basis – and even fewer lay attorneys and deputies are likely to be aware of this.

 

 

Action Required By You

Consider whether this has relevance for clients with a DFM portfolio or to whom you are recommending a DFM portfolio and action appropriately.

CREATE BEAUTIFUL
SUITABILITY
REPORTS
TAKE BACK
CONTROL OF YOUR
SUITABILITY REPORT
PRODUCTION
SUITABILITY
REPORTS
WITH FULL
COMPLIANCE
CONFIDENCE
HANDS-ON COMPLIANCE
Helping you to implement solutions
FILE CHECKING
All business cases checked, including DB transfers
Section 166 and
Regulatory Reviews
Extensive S166 experience
Audits and
Health Checks
Need a regulatory check-up?
E-COMPLIANCE
A lighter touch support service
FCA Applications
We have completed hundreds
of Part IV applications
previous arrow
next arrow
Slider

About the Author

Technical Manager - Often referred to as the Oracle or the Sage, Alistair has a wealth of financial services experience. He is our go-to Technical Manager and enjoys nothing more than a complicated conundrum. Feel free to test his renowned knowledge by getting in touch.

Contact Us

Brought to you by

Explore more articles in this category

Other articles that you might be interested in