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INVESTMENT BY ATTORNEYS IN DISCRETIONARY MANAGEMENT SCHEMES CLARIFIED
by Paul Caslin , Wills , Tax and Trusts Associate Solicitor at Aaron & Partners LLP
Recent news that the Office of the Public Guardian ( OPG ) has agreed to change its guidance in relation to property & finance lasting powers of attorneys ( LPAs ) has been welcomed by legal professionals , investment managers and attorneys alike .
The change means it will no longer be necessary for a specific instruction to be included within an LPA if an attorney wishes to instruct a bank or discretionary investment manager to assist with the finances of the person whose affairs the attorney is managing .
LPAs are legal documents enabling an adult to appoint someone else ( an attorney ) who can make decisions about their finances should they be unable at some point to make them for themselves . In 2015 , the OPG had controversially amended its guidance to require specific wording to be included within an LPA if such investment management were to be allowed , on the basis that an attorney cannot delegate their authority and that they must carry out their duties personally . This guidance rendered many existing LPAs unfit for purpose . An attorney owes a duty of care when making any decisions for somebody else , including when investing that person ’ s assets , which must always be in the person ’ s best interests . However , most people acting as Attorneys do not possess the required skills and expertise to invest without taking professional advice . The guidance caused a range of practical difficulties and legal inadequacies for both attorneys and their professional advisors . Without the inclusion of the express clause , which many people were unaware of when setting up LPAs , attorneys were unable to appoint an investment manager or replace one that was underperforming without a new LPA being made ( assuming the person making it retained mental capacity to be able to do so ) or applying to the Court of Protection for permission . These anomalies raised concerns that the guidance was not infact in the best interests of the person it was designed to protect .
The OPG has now made a U-turn , recognising that discretionary fund management allows skilled professionals to regularly review investments within agreed risk parameters , so as to react swiftly to changing investment markets , which reduces overall risk and creates management efficiency . Accordingly , the OPG has confirmed that delegation of investment management by an attorney to a discretionary investment manager is legally permissible , whether or not an express clause is included in an LPA , and without the need to retrospectively apply for permission through the Court of Protection .
This news will no doubt benefit those who already have LPAs without the express clause , if their attorneys wish to invest or make changes to existing investments performing below expectations , potentially saving thousands in lost investments and Court of Protection fees . For those who are contemplating making LPAs now , the OPG has already updated its LPA guidance ( LP12 ) to state that in circumstances where a person making the LPA already has investments managed on their behalf by a discretionary fund manager , or would like to allow their attorneys to use discretionary investment management , they should " consider taking legal advice on whether it is necessary to make specific provision " for this in the LPA . The previous guidance stated that express provision was needed , so this is a shift in tone .
It is not clear whether further updates to the OPG guidance will be made but the Society of Trusts and Estates Practitioners ( STEP ) has advised that the OPG ’ s verbal confirmation " will be sufficient for an attorney needing to instruct a discretionary investment manager in the interim period ." Continuing to include the express instruction within the LPA is still advisable until the OPG update their guidance on the basis that it avoids any costly arguments by any discretionary fund management providers . Nonetheless , this highlights the need for those considering putting in place LPAs to take appropriate legal advice beforehand . If you have made or are considering making an LPA , or are an attorney of an existing or proposed LPA , please contact us to discuss whether this new change affects your position .
For further information , please contact :
Paul Caslin Wills , Tax and Trusts Associate Solicitor Aaron & Partners LLP T : 07855 163346 E : paul . caslin @ aaronandpartners . com
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