Investing for someone as their attorney or deputy; where do I start?
The Office of the Public Guardian has issued guidance for attorneys and deputies thinking of investing money for the person whose affairs they look after.
The note reminds attorneys and deputies that they can’t do whatever they like with the person’s money, that the person should be supported to make decisions themselves where possible, and that decisions should be made in the person’s best interests and be based on the person’s preferences and beliefs.
Attorneys and deputies are taken through the basics of investments, returns, and risk and the note recommends instructing a financial adviser registered with the Financial Conduct Authority. It also mentions, though not using the specific phrase, that discretionary management is not allowed unless the power of attorney or Court of Protection Order says so. It points out that there might be restrictions in the power of attorney or Court Order about how a person’s money can be invested. The need to plan for the long term is highlighted. It gives a helpful checklist:
- Have you gathered all the financial information you need?
- Have you found a suitable financial adviser?
- Have you been able to get the views of the person?
- How much money are you able to invest?
- What type of return is needed?
- What’s the level of risk?
- Will the investments satisfy the person’s current and future needs?
- Have you set a date to review the plan?
This guidance is accessible for lay deputies. It points out some things which we would like to think are obvious but which attorneys and deputies have managed to fall foul of in the past, either accidentally or deliberately.
There is clear guidance that attorneys and deputies shouldn’t put the person’s investments in their own name, but should rather give evidence to the company holding the investments that they have authority to act. If the person wants to use money to invest in their own business or that of a family member and friend, they are advised to apply to the Court of Protection. Readers might remember the attorney who “broke every rule in the book” https://www.wrigleys.co.uk/court-of-protection-blog/attorney-who-broke-every-rule-in-the-book-removed/ or the “investment” in a reptile business in the case of re: Buckley  EWHC2 965 COP. That case also provides some advice about investments.
The guidance makes the important point that the person whose beliefs are important is the person the money belongs to. Somebody might, for example, have beliefs which mean Sharia compliant investments are appropriate. If those beliefs are the incapacitated person’s then the attorney or deputy needs to pay attention to that. If those beliefs are only those of the attorney or deputy, then they are not relevant.
The note also refers to the problem of discretionary fund management. Investment advice can be provided in either an advisory or a discretionary way. Both professional and lay attorneys have been caught out by this issue.
It might seem complex, but there are essentially two different ways of investing:
- Under the advisory method, the financial adviser will advise the attorney what to do but the ultimate decision will be theirs. The attorney signs the forms to sell investments etc, the adviser only recommends.
- Under discretionary arrangements, the investment adviser is given a remit and they can then make their own investment decisions within the agreed parameters. They can buy and sell investments without the need for any input from the attorney.
Unless there is a specific clause in a power of attorney allowing discretionary type investments, an attorney can’t allow them to be operated that way, even if the incapacitated person previously had that sort of arrangement. That is because the Court sees the discretionary option as the attorney delegating, which isn’t allowed unless the power of attorney says so.
This is only an issue for attorneys, not deputies.
One point the note does not cover is the need for independence. Before the retail distribution review, it used to be quite easy to tell which financial advisers were tied to selling the products of only one or a few companies and which looked at the whole of the market. Those who were tied were called restricted advisers and those who were not were called independent advisers. After the retail distribution review, in order to be independent a firm must not only look at the whole of the market but must also cover the whole range of financial products available. Anybody who does not is restricted. As a result you will find both old style restricted advisers who only sell the products of one or a few companies, and also ‘whole of market’ advisers who would previously have been called independent but who do not cover the full range of financial products, for example mortgages or pensions. I was involved in the consultation around the retail distribution review. I felt strongly that there ought to be three labels so potential clients could tell who was independent and covered the whole range of financial products, who was independent but didn’t cover the whole range of products and who was restricted to selling the wares of one or more companies. Unfortunately they didn’t happen.
Interestingly, the Law Society are now looking more closely at the steps solicitors need to take when obtaining financial advice for their clients or referring them to financial advisers. We may see restrictions on the circumstances where it is appropriate for an aspect of advice to be obtained from a firm which is not independent in the pre-retail distribution review sense, but to my mind that would be most unusual and very fact-specific. Unless there is some unusual factor we would always instruct an adviser who covers the whole of the market. The STEP Mental Capacity Interest Group guidance on investment specifically refers to using an independent financial adviser; https://www.step.org/sites/default/files/Policy/Deputyship_Guidelines.pdf