Invitation to members – LPA discretionary investment clauses

Emily DeaneThe 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.

The suggested wording within the LPA can be similar to the following, ‘My attorney(s) may transfer my investments into a discretionary management scheme. Or, if I already had investments in a discretionary management scheme before I lost capacity to make financial decisions, I want the scheme to continue. I understand in both cases that managers of the scheme will make investment decisions and my investments will be held in their names or the names of their nominees’.

Tell us your views

STEP would like to invite members to provide examples of how the OPG guidance may be difficult to apply in practice, so that we can present a test case to the OPG and underline that the impact of this issue is potentially far-reaching.

Issues that have arisen include:

  • There is no guarantee that your bank or IFA will accept this wording, and you may need to confirm their agreement in writing before the LPA is registered.
  • HSBC has specific wording that it will not stray from, while other fund managers are willing to continue acting without the delegation clause. Other banks and IFAs may switch to the stringent guidelines in future.
  • You can re-do the LPA where the donor still has capacity, but this option may not be well received by the client, and is time consuming and costly.
  • If the LPA has already been registered without the express wording, the attorney can apply to the Court of Protection for the retrospective authority to appoint an investment manager.

This is also time consuming and costly.

If you are currently acting as an attorney and you have already delegated investment making decisions, there are some options available to you:

  • You could change your discretionary manager to an advisory manager so that you are still ultimately making the decisions, although you should check any potential liability issues that may arise.
  • You could speak to your discretionary manager about the firm’s policy and what their requirements are.
  • You could re-do the LPA where the donor still has capacity, or alternatively apply to the Court of Protection when the existing discretionary manager is not willing to continue/or start acting in accordance with the OPG guidance.

However, it might be prudent to wait and see whether the OPG will consider amending its guidance before taking any action. Currently, the OPG feels discretionary investment management accounts for a tiny percentage of registered Powers of Attorney, so the number of Attorneys affected is relatively small.

STEP is hopeful that by providing the OPG with a test case of practical working examples, then it might recognise and review the difficulties that attorneys and their advisors are facing in this connection.

The best case scenario would be the determination that the delegation of investment management by an attorney to a discretionary investment manager is already legally permissible, without the need to retrospectively apply for it through the court.

STEP will provide an update when further information is available.

We would very much value your input. Please send your examples to [email protected] by 31 October.

Emily Deane TEP, STEP Technical Counsel

2 thoughts on “Invitation to members – LPA discretionary investment clauses

  1. I believe I have commented on trust discussion forum about the guidance contained in part A 7 – Preferences and instructions in the OPG Guide LP12. It states “The only circumstances in which you must write an instruction is in a financial LPA, if :
    you have investments managed by a bank and want that to continue.
    you want to allow your attorneys to let a bank manage your investments.

    This would imply that such an arrangement can only be used if a bank is managing the investments. What if these are managed by some other organisation such as a stockbroker or IFA?

    The suggested wording “Or, if I already have investments in a discretionary management scheme before I lost capacity to make financial decisions, I want the scheme to continue.” could in my view be interpreted so as to make it obligatory for the attorney to continue to use such a scheme when it might not be appropriate, given the donor’s current financial circumstances. I would suggest that the words “I want” should be replaced by “my attorney(s) may allow”. In that way the attorney(s) can use his discretion as to whether the arrangement is appropriate for the donor.

  2. I have only just come across this as a problem. My mother has an Enduring Power of Attorney that was registered in 2011.
    Acting as her Power of Attorney I appointed a discretionary investment manager in Sept 2015, without any problems.
    However, sadly this company has not delivered the investment returns that were forecast and nor has it kept pace with similar companies. As my mother’s finances are not performing well I sought, in conjunction with an IFA, to find a company that may be better able to look after her money.
    It was at this point that the new discretionary investment manager highlighted this recommended clause to be added to the Power of Attorney. I do not believe this is relevant – it is my opinion that they are misinterpreting the provision as it pertains only to LPA’s. Also, I have been in touch with the OPG and they have told me that the wording of a registered EPA cannot be changed.

    It seems that, with the new discretionary manager refusing to budge, I may be forced either to stick with the poor performing company or move my mother’s money to a company that is not my first choice. Surely this cannot be the intention of the clause?

    I am being told that I could seek a judgement from the Court of Protection. However this feels like a nonsense……it will result in expense, delay and may mean that my mother suffers loss against what she could have benefited from had her money been moved when the instruction was first requested.

    This is a long way of me asking…..has a test case been brought by STEP as discussed herein and, if so, was it successful?

    Many thanks

    Mary Hamilton

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