Advisers could face allegations of misselling if they fail to correctly assess the mental capacity of clients with lasting power of attorney (LPA) requirements, says financial advice group Symponia.
The warning follows the change from enduring power of attorney (EPA) to LPA requirements on Monday.
Symponia says IFAs using LPA without checking their client’s mental capacity could suffer client and regulatory backlash if their client loses money. Clients could sue the IFA for miss-selling and at worst, the FSA could strike the adviser from the register.
The group urges advisers to take particular care when assessing their clients' mental capacity as it is an important part of the new requirements. Adviser should also make sure clients without an EPA or LPA in place consent to a family member sitting in and do not show any signs of being unduly influenced.
Janet Davies, managing director and founder of the Symponia network says: “We need to protect ourselves. Advisers dealing with an older age group need to be aware there is a certain onus on them to prove their client’s capacity.
“I don’t think IFAs have necessarily checked the mental capacity of the person they’re sitting in front of. The vast majority of financial advisers deal with young professional people or high net-worth people and the question of capacity never really arises.
“Where I think the problem can sometimes happen, and IFAs aren’t trained in this, is when we talk with people, often of increasing age. More people are seeking financial advice as they approach retirement; more retired people are looking for steady investments."
Symponia says an IFA must show written proof he properly questioned the client if he feels any doubt about the customer’s mental capacity. They must use methods such as asking the client to count backwards from 20, draw a clock face or remember the name of the last three Prime Ministers. The adviser should seek further legal or medical evidence if in doubt.
The change to LPA is designed to minimise the potential for abuse. Clients can still plan for the future but it will take them longer as the forms are more complex and more expensive. Symponia estimates the cost of registering an LPA through the courts at more than £700.
Advisers and their clients cannot establish or change an existing EPA following the change, although they can revoke an existing, non-registered EPA.
Financial business can be written by an IFA using an existing EPA but they cannot create a new one. Instead, clients will have to implement an LPA as a revised version.
The two types of LPA introduced this week are property and financial affairs and personal welfare.
Property and financial affairs features similar aspects to the EPA. Advisers can use it before and after the client loses mental capacity. The adviser must register the LPA with the Public Guardian before the client can use it.
Personal Welfare includes provisions for giving or refusing consent to medical treatment or intervention in circumstances where the donor can no longer make such decisions. The client can only use the LPA after the donor has lost mental capacity.
Last month financial services business More Th>n said the changes would cost consumers an extra £7bn.
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