When making and registering an individual Lasting Power of Attorney (LPA), the donor should complete Section 7 – Preferences and Instructions, if they would like the attorney to continue or start to utilise a discretionary fund management (DFM) service. The Office of Public Guardian recommends using the following wording (or similar) in this section, although its acceptance by the DFM cannot be guaranteed;
“My attorney(s) may transfer my investments into a discretionary fund management scheme. Or, if I already had investments in a discretionary fund 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.”
An attorney can employ professionals such as accountants, solicitors and regulated financial advisers to help manage the donor’s affairs, but they also have other certain duties, one of which is not to delegate authority, unless it’s specified in the LPA.
Concerns were raised around 2015/16 about the involvement of DFMs as these may take financial decisions on a regular (sometimes daily basis) without the need to involve the attorney. This is seen as the attorney delegating their authority and, therefore, requires the special wording in the ‘preferences and instructions’ section of the application.
However, in practice is a DFM clause strictly required? Well the answer appears to be “It depends.” We have never had a lasting Power of Attorney rejected for a DFM service provided by a wrap platform, though in theory it could be rejected. My suspicion is that a DFM service provided by a discretionary fund manager directly to a client would require this special wording though I cannot of course guarantee this to be the case.
So what should you do if you have a Lasting Power of Attorney (LPA) that doesn’t contain the correct discretionary fund management (DFM) wording?
To be virtually certain that your investment will continue to be managed by your DFM manager once your Lasting Power of Attorney is in force you should consider creating a new replacement LPA with the additional wording under Section 7 – Preferences and Instructions of your LPA application. This doesn’t guarantee it will be accepted by your DFM but it is highly likely to be accepted. This is the preferred course of action if you are directly invested with a DFM manager and not via a wrap platform.
If you are invested in a DFM service through a wrap platform it is likely that an LPA without the additional wording will suffice but to be sure you should ask the wrap provider via your independent financial adviser if the wording of your existing LPA without reference to DFM is acceptable. If it is acceptable then no further action is required. If not then you should arrange a new LPA with the DFM wording included.
If you decide not to arrange a new LPA what will happen to the donor’s investment? If the investment is with a wrap platform, the provider will probably allow the attorney to leave the investment where it is but no longer allow it to be managed as a DFM service. If it is for direct investment with a DFM manager then potentially the investment could be encashed and the money returned to the donor for the attorney to re-invest on their behalf.
If you, as the attorney, are not happy with the result then you could take your case to the Office of Public Guardian and request the outcome the donor would have wanted.
Unfortunately, there is no simple solution so each case needs to be judged on its merits. As long as the donor, if of sound mind, and the attorney/s have discussed the situation, obtained advice and made a decision that is in the donor’s best interest, then it is highly likely, though not guaranteed, that everything will work out for the best.* You know it makes sense.
*The contents of this blog are for information purposes only and do not constitute individual advice. You should always seek professional advice from a specialist. All information is based on our current understanding of taxation, legislation and regulations in the current tax year. Any levels and bases of and relief from taxation are subject to change. Tax treatment is based on individual circumstances and may be subject to change in the future.