2020-03-14
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Can attorneys delegate investment decisions to a Discretionary Fund Manager?

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Posted by Mitra Mann on 02 March 2018

Mitra Mann - Probate Disputes Lawyer
Mitra Mann Senior Associate

A Lasting Power of Attorney (“LPA”) for property and affairs is a very useful tool.  Once registered, the LPA allows the attorney (who is someone chosen by the donor) to take control and manage the donor’s property and affairs. 

This includes operating the donor’s bank accounts, buying or selling the donor’s property, investing the donor’s savings etc. Attorneys, however, need to be aware of the scope of their authority. They are placed in a position of trust and must make decisions personally. They cannot therefore generally give someone else the authority to carry out their duties. 

Where does an attorney therefore stand in situations where the donor historically delegated certain financial decisions to others?  Can the attorney simply continue with the same arrangement after the donor loses capacity and delegate those decisions to others?

This is of significant relevance to donors who delegate investment decisions to a Discretionary Fund Manager (“DFM”).  The role of a DFM is to make the best decision about investments.  They invest the donor’s funds without seeking the donor’s permission every time they see an opportunity.  The donor therefore does not make the investment decisions themselves. 

It was initially thought that attorneys could continue investing through the discretionary scheme, just as the donor previously did.   However, guidance published by the Office of the Public Guardian (“OPG”) makes it clear that attorneys would be unable to delegate decisions which they should make personally.  The issue of delegation has been the subject of several debates but it is recognised that attorneys should make decisions themselves.  This was highlighted by Senior Judge Lush in Northamptonshire County Council v RG and Others [2015]:

“Attorneys cannot usually delegate their authority to someone else.  They must carry out their duties personally.  Of course, they may seek professional or expert advice when appropriate (for example, investment advice from a financial advisor or legal advice from a solicitor) but they cannot, as a general rule, allow someone else to make a decision that they have been appointed to make”.

The OPG’s Guidance

The guidance published by the OPG is of significant relevance to those investing in a discretionary fund management scheme.  According to the guidance, if a donor uses a discretionary fund management scheme and would like their attorney to continue investing in that scheme, then express instructions should be given to the attorney in the LPA allowing the attorney to delegate investment decisions.  Without such express instructions, the attorney would be unable to use a discretionary management service after the donor loses capacity. 

What are the implications for Donors?

Donors who have historically outsourced investments to DFMs need to be aware that this arrangement may not continue after they lose capacity, unless they give express instructions to their attorney in the LPA.  In the absence of such instructions, the DFM may refuse to act for an attorney and the donor may miss out on future investment opportunities. 

What are the implications for Attorneys?

Attorneys who are now taking over the control of the donor’s affairs cannot continue relying on the discretionary investment manager without express instructions in the LPA.  This means that attorneys will have to make investment decisions involving large sums of money, which they may be reluctant to do by themselves if they do not have the required financial skill and knowledge.  Once again, this could lead to donors missing out on investment opportunities.

Attorneys who have been delegating investment decisions to DFMs without express instructions in their LPA will find they have acted outside the scope of their powers and could be personally liable for any losses suffered by the donor.

What are the implications for Independent Financial Advisors (“IFAs”) and Discretionary Fund Managers (“DFMs”)?

Although the OPG’s guidance was published in 2015, it is noted there are many registered LPAs which do not contain the specific instructions mentioned above.  It is therefore vital that this is checked before the IFA recommends an investment scheme to an attorney and/or before the DFM takes instructions from the attorney. 

DFMs who are aware of the guidance may refuse to take instructions from the attorney in the absence of the required authority in the LPA. In fact, a few banks have recently become more aware of these risks and have refused to accept instructions from the attorney to continue investing funds in a discretionary fund management scheme.  This unfortunately means missed portfolios for DFMs. 

DFMs who are unaware of the guidance and who have continued investing in a discretionary fund management scheme on the instruction of attorneys (where the LPA does not give the attorney the authority to delegate) may run into compliance difficulties as they should only accept engagement where the attorney has the authority to appoint them.

How can we help?

Donors, attorneys, IFAs and DFMs all share a common interest – making sure there is clear authority in an LPA allowing the attorney to invest, or continue investing, in a discretionary fund management scheme.  Donors and attorneys would want to avoid missing future investment opportunities and DFMs would want to keep hold of their portfolios without running into compliance difficulties.  It is therefore advisable to seek advice on whether specific instructions are included within an existing LPA. 

If the LPA does not contain such instructions, we can help resolve the situation.  Depending on the circumstances of the matter, the following options can be explored:

  1. If the donor still has capacity, it is advisable for the donor to make a new LPA with specific instructions allowing the attorney to invest or continue investing in a discretionary fund management scheme.  This is to ensure that if the donor loses capacity and the attorney takes control, specific permission has already been granted to continue investing with a DFM.

  2. If the donor has lost capacity and the attorney and the DFM have continued investing in a scheme without specific permission in the LPA, an application can be made to the Court of Protection for (i) retrospective approval of the previous investments; and (ii) seek the Court’s permission for the attorney to invest in a discretionary fund management scheme. 

The focus of this article has been on attorneys and whether they can delegate investment decisions to DFMs.  Similar rules apply to deputies appointed by the Court of Protection.  Where a deputy has been advised to invest the donor’s funds in a discretionary management scheme, specific permission is required from the Court of Protection and we can assist with such applications.  It is also advisable for DFMs taking instructions from deputies to check the scope of the deputy’s power.

About the author

Mitra Mann

Senior Associate

Mitra is a specialist in both, contentious probate and contentious court of protection work.

Mitra Mann

Mitra is a specialist in both, contentious probate and contentious court of protection work.

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