Sheree Green looks at recent changes on guidance for management of investments via a discretionary investment provider, and what they mean for attorneys


In March, the Law Society issued a press release celebrating news that the Office of the Public Guardian (OPG) had agreed to change its guidance on the need to have express provision for the management of investments via a discretionary investment provider within a financial lasting power of attorney (LPA). This looks like good news, and it is. However, are attorneys really ‘home and dry’ on this issue?

The problem

In 2015, OPG amended its public guidance (LP12) to say that, if the donor of the LPA had investments managed by a bank or other financial institution on a discretionary basis, that they must give their attorney explicit power within the LPA if they wished their attorney to continue with such an arrangement, once they (the donor) had lost capacity. 

The following standard clause (later referred to as ‘standard clause X’) was included within LP12 for use as an ‘instruction’: “My attorneys may transfer my investments into a discretionary management scheme. Or, if I already had investments in a discretionary 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.”

This led to some discretionary fund managers (DFMs) refusing to accept instructions from an attorney unless the LPA contained this prescriptive wording. 

The result? Some donors, if they retained capacity and wished their attorney to be able to continue with this form of investment, revoked their existing LPA and made a new one including this specific clause (with all the associated additional expense and delay). Some attorneys applied to the Court of Protection (CoP) for a one-off order granting authority for them to instruct a DFM (again, with all the associated delay and expense). In other cases, attorneys abandoned any use of a DFM and opted instead for more limited ‘off-the-shelf’ financial products. 

The journey

The Law Society and other representative bodies lobbied long and hard to persuade OPG to revoke this guidance. A test case was to be brought in the CoP, seeking a ruling that the delegation of investment management decisions by an attorney to a DFM was permitted under the general authority conferred by an LPA. Unfortunately, despite the willingness of counsel to assist in bringing such a case, it fell by the wayside when P died prematurely.

The current position

At long last, OPG, having taken external legal advice on the matter, subsequently agreed to amend the public-facing advice on its website, replacing the problematic 2015 guidance with neutral wording. This flags problems that have arisen with financial institutions previously and suggests that donors may wish to take legal advice if they may be planning the use of discretionary management schemes: “In circumstances where you already have investments that are managed on your behalf by an investment professional (known as discretionary investment management), or would like to allow your attorneys to use any scheme involving discretionary investment management, you should consider taking legal advice on whether it is necessary to make specific provision for this in your LPA.

“This is because at least one major financial institution has taken the position that existing contracts relating to discretionary investment management schemes will come to an end on the loss of capacity of the donor of an LPA, and that any new investments by attorneys in discretionary investment management schemes will only be permitted if there is an express instruction on the matter in the LPA.”

OPG has also removed standard clause X.

What are the implications of this?

Good news for solicitors

It is great to see OPG publicly acknowledge the importance of legal advice for those contemplating making an LPA. Lawyers know that their value is not so much in creating an LPA, but in providing wise counsel around critical issues such as the choice of attorney and the range of powers or restrictions that are appropriate for an individual entering into a contract that could have life-changing consequences.

But risk remains

As OPG points out, at least one bank refused to engage with an attorney due to the absence of an express power in the LPA – and that refusal pre-dated its 2015 guidance. OPG guidance, past or present, is not binding upon financial organisations. They will operate as they see fit. For private client solicitors, best practice must surely dictate that we advise our clients on the merits of including wording similar to standard clause X. After all, we are no longer paid by the word, and it costs nothing to add in this fail-safe provision by way of insurance.

But what about those who choose not to use a solicitor? Standard clause X is not included as an option to donors making their LPA by simply following the online process. Now it is no longer available in any format anywhere on the OPG website. Inevitably, less ‘home-made’ LPAs will include this provision going forward. OPG may raise no objection. But what about the banks?