What are the implications of poor investment decisions for attorneys and deputies?

When an individual makes an unsuccessful investment decision using their own money, the consequences may be limited to financial losses. However, for an appointed deputy or attorney responsible for managing the financial affairs of an individual who lacks capacity, a poor investment decision can have more serious ramifications.   

Duties of attorneys and deputies

Attorneys and deputies have a duty to act in the best interests of the incapacitated person under s1(5) of the Mental Capacity Act 2005 (“MCA 2005”). When making an investment decision, they should consider all relevant factors, the present and past views of the incapacitated person, along with those close to them, and allow the incapacitated person to take part in any decision making to the extent they are able to do so. In addition, they must follow any instructions or restrictions in the LPA or deputyship order.

No particular financial qualifications are required for attorneys and deputies to make investment decisions. However, they must exercise the same level of skill and care that a reasonably prudent investor would when investing their own money. If they are paid for their services or professionally qualified, the standard of skill and care expected will be higher (7.59 and 8.57 MCA 2005 COP). While attorneys and deputies cannot delegate their authority, they may rely on advice from suitably qualified financial advisors.

Potential implications

If an attorney or deputy is found to have made investment decisions that are not in the incapacitated person’s best interests, it is open to the court to revoke the LPA or discharge their appointment under sections 22(4)(b) and 16(8) of the MCA 2005 respectively. Depending on the circumstances surrounding the decision, they could face claims to recover the sums lost, for costs, or a professional negligence claim in the case of professional attorneys or deputies.

Re Buckley: The Public Guardian v C [2013] EWHC 2965 (COP)

Miss Buckley, an elderly woman with dementia, had appointed her niece as her attorney. The niece used almost £80,000 of Miss Buckley’s money to set up her own reptile breeding business. Her rationale being that her aunt loved animals and she had been told the return on investment would be 20% over two years. However, Senior Judge Lush was highly critical of the investment, commenting that the attorney “broke almost every rule in the book in making it”:

• She did not obtain or consider investment advice from a qualified person;
• The investment was too high risk considering the donor’s age contravened the perceived wisdom that lower risk investments are more suitable for older people;
• The investment should have been in Miss Buckley’s name, not the attorney’s, in line with paragraph 7.68 of the MCA 2005 CoP ;
• By investing in her own business, she breached the fiduciary duty of attorneys (and deputies) not to put themselves in a position where their interests’ conflict with their duties. The judge emphasised that where there is even a potential conflict of interest, attorneys must apply to the court for an order under s23 MCA 2005.

In addition to the investment, the niece had used c. £43,000 of Miss Buckley’s funds for her own benefit.

The court revoked the LPA, satisfied that the niece’s behaviour contravened her authority and was not in Miss Buckley’s best interests.

Re PP:  BB v PP (by the Official Solicitor as litigation friend) [2015] EWCOP 93

PP, a 78 year old woman suffering from Alzheimer’s dementia, had appointed her son in law BB and a solicitor CD, as her attorneys. BB instructed an Independent Financial Advisor to invest c. £340,000 of PP’s money into Octopus Bonds which was an inheritance tax (“IHT”) mitigation scheme. There was little or no direct benefit to PP, but there would have been a benefit to the beneficiaries of her estate. BB also gifted £324,000 of PP’s funds to his wife.

The Court did not accept that the saving of IHT was automatically in PP’s best interests. Evidence had been submitted in the proceedings of a discussion that PP had previously had with her financial advisor in which she had indicated that she did not want to engage in IHT planning because she and her daughter did not get on.

DJ Batten found that BB had not acted in MM’s best interests in investing funds in Octopus Bonds, and that he had a conflict of interest, given that his family would potentially benefit from the inheritance tax saving. CD was found to have failed in her duty to provide sufficient oversight over the actions of BB. The LPAs were revoked and they were required to pay part of the costs of the proceedings. In addition, the majority of the gift made to BB’s wife had to be repaid.

Conclusion

In circumstances where there is a conflict of interest, but an investment decision may still be in the best interests of the incapacitated person, an application should be made for directions from the court before proceeding with the investment.

Attorneys and deputies should ensure that they understand their duties and responsibilities before making any investment decisions and obtain advice from suitably qualified financial advisors when appropriate.

FURTHER INFORMATION 

If you have any questions or concerns about the content of this blog, please contact Anna Metadjer and Chloe Jacot or any member of the Dispute Resolution team.

ABOUT THE AUTHOR

Anna Metadjer has extensive litigation experience, acting for both domestic and international clients on complex, multi-jurisdictional, trust and estate disputes. Anna acts for clients bringing and defending claims relating to estates, including disputes regarding the validity of wills, estate administration, and claims under the Inheritance (Provision for Family and Dependants) Act 1975. She regularly advises beneficiaries and trustees regarding allegations of breach of trust, disclosure requests, and the removal of trustees. Anna is also experienced in dealing with Court of Protection disputes relating to the appointment or conduct of attorneys and deputies, the recovery of assets, and reporting restrictions.

Chloe Jacot is a trainee solicitor at Kingsley Napley. She is currently undertaking her second seat in the Dispute Resolution team, having completed her first seat in the Medical Negligence and Personal Injury team.