While advisers have a duty of care to ensure all clients fully understand the effects of their financial decisions this is especially true when it comes to dealing with older clients. Janet Davies discusses some of the issues advisers need to bear in mind
This year saw changes to how mental capacity is viewed and treated with the introduction of the Mental Capacity Act 2005. The main changes affecting the financial services community centre on the introduction of Lasting Powers of Attorney (in England & Wales), which have now replaced the previous Enduring Power of Attorney (although documents written before 1 October remain valid).
Up until the 30 September, individuals acting as donors could nominate attorneys to act on their behalf, either for a specific time and/or event using a "power of attorney" or for the rest of their lives, up to and beyond possible mental impairment; this was done using the far reaching "Enduring Power of Attorney (EPA)".
Although the EPA had to be registered with the Court at the onset of mental incapacity, it was (and still is) perfectly legal for attorneys to act on a non-registered EPA.
One of the fundamental changes to the system now states that Lasting Powers of Attorney (LPA) must be registered with the Court before they are enforced, regardless of the mental capacity of the donor.
Although the process and the associated legal costs are much higher than before (pre 1 October), there is much less scope for abuse, as the donor (providing they have capacity) has to give their permission for the LPA to be acted upon.
One additional area encompassed by LPAs is that people can appoint attorneys to make decisions not just about financial affairs but about their welfare. This can include decisions about withholding medical treatment and refusing resuscitation. It is possible to appoint separate attorneys for each section. It is important to note that the Welfare LPA can only be registered once the donor has lost total mental capacity.
With an ageing population, it is likely that more and more advisers will be looking after the needs of older people. Many advisers start working with a client while the client is still working, but the natural passage of time will eventually see that client retire, and while it isn't usual to question the mental capacity of a younger person, memory loss can be more prevalent as we age.
For the most part, advisers will have rational and logical conversations with their clients, but should something out of the ordinary happen, say for instance the client suddenly says something unexpected or out of context then the adviser has a duty of care to ascertain capacity in more detail.
As advisers we are not normally medically qualified, and as such we can't diagnose, but we can take steps to ensure our confidence in the mental capacity of our clients. Should our suspicions be aroused (by the client's behaviour) then we need to record not just the suspicions, but what steps we took to confirm/disprove them.
For instance we could ask the client to make a cup of tea and when they return ask them to repeat or summarise what we said before they left the room, we could ask them to count backwards from 20 or name the past four Prime Ministers.
The new Act concentrates on the individual's rights and mental capacity must be assumed to exist, unless there is strong evidence to the contrary. As people dealing with money, advisers must be sensitive to the difference between an unwise decision and one made without full cognitive ability. Failing to follow our advice and going on a mass spending spree, giving money to a donkey sanctuary or backing the 100/1 at Haydock doesn't automatically signify a loss of capacity.
It is not uncommon for us to meet with our older clients and find them accompanied by other family members or friends. Fundamentally there is nothing wrong with this, but, we have a duty to check with the client themselves that they do not mind.
It can be tricky, especially if the family member is assertive, but we must ensure that we meet with the client alone and ask the direct question "are you happy for this person to be here?" The nature of the question and the answer must be recorded, and again if we are in any doubt that the client is being influenced in any way we should retreat, perhaps arranging to come back at a time when the family member isn't present.
Some organisations have been guilty in the past for suggesting (quite vociferously) that older people seek the counsel of their children before they make a decision, quite frankly this is wrong and at odds with the ethics of the new act. Older people are just that, older, they are likely to maintain full mental capacity to their dying day, and the suggestion that they have a family member present can be viewed by some as tantamount to an insult.
People have criticised the new Act, but several weeks in, things have started to settle down. The objectives of the changes were to limit the scope for abuse, and as professional ethical advisers we need to embrace this, and remember to play our part and not underestimate the importance we play in the financial lives of our clients.
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