Lasting Powers of Attorney for Money Managers
A five-minute guide for advisers and money managers
How is this relevant for advisers and money managers?
Increasing numbers of your clients have Lasting Powers of Attorney (LPAs) in place, which give someone else the power to make decisions on their behalf. As the adviser or money manager, you need to know:
- What LPAs are for and how do you know if they are valid?
- From whom can you take instructions?
- Are discretionary investment mandates permitted?
- What are the best working practices when advising clients who have LPAs?
What are Lasting Powers of Attorney?
LPAs allow an individual (known as the donor) to appoint family members, friends or trusted professionals as attorneys with the power to take decisions on their behalf in relation to either property and financial affairs, or health and welfare decisions. In this note, we consider the impact of Property and Financial Affairs LPAs only.
LPAs are a key tool for estate planning; they give individuals the peace of mind that their assets can continue to be managed and that their wishes and preferences can be communicated to service providers in the event that they lose capacity to do so themselves.
As useful as they are, LPAs are lengthy documents that are not always easy to follow. This note sets out the key elements of a Property and Financial Affairs LPA from the perspective of financial advisers and money managers, as well as introducing the Office of the Public Guardian (OPG)’s new Use a lasting power of attorney service.
1. Has it been registered?
An LPA cannot be used until has been registered with the OPG. An unregistered LPA will not convey any legal power on the attorney to take decisions for the donor. An LPA that has been registered will have an OPG reference number at the bottom of page 1 and perforations at the bottom of each page.
2. If there are more than one attorneys, do you need instructions from both of them?
When you are dealing with a client’s attorneys acting under an LPA, it is important to be clear on the terms of their appointment. If the donor has appointed more than one attorney, they are required to specify at section 3 of the LPA whether their attorneys are appointed jointly (which means the attorneys must act together), or jointly and severally (which means they can act together or independently). This will determine whether you can take instructions from just one attorney, or if you need confirmation from all of them.
For reasons of practicality, donors often choose to appoint their attorneys jointly and severally as it allows the attorneys can make decisions individually or together. This means that where a decision is simple or time-sensitive, only one attorney’s input is required. It also means that the LPA will not be invalidated if one attorney dies or can no longer act.
It is possible that the donor requires some decisions to be made jointly and other to be made jointly or severally. If this is the case, there will be details of the decisions that must be made jointly on continuation sheet 2 to the LPA.
3. Is the attorney’s power exercisable immediately?
The donor must specify whether they want their attorneys to be able to take decisions as soon as the LPA has been registered, or only if the donor loses capacity to take decisions themselves. This appears at section 5 of the LPA.
Again, for reasons of practicality, clients often choose to allow their attorneys to take decisions as soon as the LPA has been registered. This means that an attorney will have concurrent power with the donor to deal with the donor’s property and assets and is useful on occasions where the donor is physically (rather than mentally) unable to act for themselves, for instance because they are abroad.
Where you have a client who has registered an LPA, it is important to establish whether the client’s attorney(s) are able to act while the client still has capacity. If the attorneys are permitted to act concurrently with the donor, it is advisable to agree with your client in advance with whom you will communicate. If the attorneys are only permitted to act once the donor has lost capacity and you are contacted by the attorneys, you should request evidence of the donor’s lack of capacity before taking instructions from them.
4. Does the LPA include instructions as to discretionary management schemes?
While a Property and Financial Affairs LPA gives attorneys the power to manage a donor’s finances and investments, it does not permit them to sub-delegate that management. This mean that attorneys cannot simply allow a donor’s investment manager to run the donor’s investment portfolio on a discretionary basis unless expressly permitted to do so by the LPA.
The OPG addressed this concern in September 2015 by issuing new drafting guidance and suggested wording that the donor should include as an Instruction at section 7 of the LPA.
When you are dealing with attorneys acting under an LPA, it is important to establish whether the LPA includes an Instruction permitting the attorneys to sub-delegate the management of a discretionary management scheme. You should pay particular attention to this where the LPA in question was prepared before September 2015, as it will pre-date the OPG’s guidance on the issue. If there is no such Instruction, the attorneys do not have the authority to appoint an investment manager to manage the donor’s investments on a discretionary basis, or to allow an existing discretionary management scheme to continue. Any agreement entered into by the attorneys and an investment manager could be void for lack of authority, as well as giving rise to potential regulatory and compliance consequences for the financial adviser or money manager.
If you have clients with LPAs that do not have the special permission for discretionary management, this can be remedied by putting in place new LPAs (and revoking the old ones) if the client still has capacity. If they do not, then an application to the Court of Protection would be needed, unless a work-around solution can be found.
Before LPAs: Enduring Powers of Attorney
Enduring Powers of Attorney (EPAs) were the predecessor to LPAs, and are much shorter documents. Since 1 October 2007, it has not been possible to put in place a new EPA, but EPAs created before that date are still valid. Attorneys appointed under an EPA may act while the donor still has capacity but, once the donor loses capacity, the EPA must be registered before it can be used or, if it is already in use, before it can continue to be used.
What’s New? The OPG’s Use a lasting power of attorney service
In July 2020, the OPG launched its Use a lasting power of attorney service. This new portal allows attorneys and donors to create an account with the OPG, “add” their LPA or, in the case of attorney, the LPA by which they are appointed, to their account and generate access codes to share with any service provider requiring evidence of an attorney’s valid appointment before acting. These service providers can view a summary of the LPA, which addresses many of the key elements set out earlier in this note.
Benefits of the online summary
- The new service will speed up the process of proving an attorney’s authority to act, which can take weeks under the current paper-based system.
- The portal provides service providers, such as financial advisers and money managers, with an easily digestible summary of the main points of the LPA, in contrast with the LPA itself which is length and can be hard to follow.
Disadvantages of the online summary
- For financial advisers and money managers, the greatest disadvantage to the new service is likely to be that, while the summary will show whether or not a donor has included Instructions or Preferences at section 7 of the LPA, it does not set out what these are. Therefore, it will not be possible to see from the summary whether the donor has included the instructions as to discretionary management schemes set out in more detail above
- The main worry for most will likely be whether the service provides an opportunity for fraudsters to take advantage of vulnerable or elderly donors by misleading them into divulging the activation code provided when the LPA is registered, and by which an account with the OPG can be created. That said, these risks can be mitigated by taking precautions with the activation code and, since there is no intention that the new service will replace the current paper-based system, there is no obligation for a donor or attorney to create an account.
Best working practice for clients with LPAs
- Always ask if your clients have an LPA in place
- If so, ask for a copy and check if it has been registered
- Note whether the attorney(s) have concurrent authority or can act only if the donor has lost capacity
- Record who you will communicate with when giving advice or taking instructions
- Check if discretionary investment management is permitted (be particularly aware in the case of LPAs pre-dating September 2015)
For more information on LPAs please contact us.
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