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Attorneys, beware that relying on an investment manager is not enough

The recent buckley case served as a reminder for all attorneys when dealing with the financial affairs of donors. the court’s guidance suggests a wider application of attorney’s fiduciary duties and all should be alert to how they comply with these responsibilities.

The judgement from the Public Guardian was handed down last year and reconfirmed Attorney’s responsibilities when dealing with a donor’s financial assets and investments. Whilst Attorneys’ investment powers and responsibilities have always been subject to strict guidelines, the judgement re-emphasised the fiduciary duties of Attorneys.

The Buckley case is extreme and Judge Lush referred to the implied responsibilities under the Trustee Act 2000 and the standard criteria of suitability and diversification for investments. These guiding principles should not be lost on Attorneys.

Making investments relevant to the donors position should be forefront in the Attorney’s mind. Many of us will remember that before the Mental Capacity Act 2005 came into force both the Court of Protection and the Office of the Public Guardian were involved in the investment of funds and used short term ST and long term LT codes to define the type of investment and risk. ST1 and ST2 codes are relevant for smaller funds where suitable investments were cash and National Savings. 

Even though this historical basis provides a one size fits all solution the process still makes some sense; although what happens in today’s low interest rate environment? The return on cash assets have been plummeting in recent years and Attorneys either accept low rates of return or higher investment risk with the aim of increasing returns. With elderly clients, capital preservation is normally the key driver for their investments and there are only a small number that can afford the luxury of living off cash assets. 

In recent years many academic studies have suggested that life expectancy continues to increase and the fee inflation for care home fees remains significantly higher than the Government’s headline inflation rate.

How do Attorneys ensure that they comply with the recent guidance and still provide for the best interests of the donor against this economic backdrop?

Professional advice in this area is a must and many Attorneys are turning to financial planners rather than pure investment managers to ensure they can meet the long term requirements of those they are responsible for.

Financial Planners are able to help Attorneys understand ‘risk’ in its many guises, which range from too long to the effects of cash and low risk returns. Using a range of cash flow models to help Attorneys find the right fit between these risks will be key in ensuring their assets can support the expected expenditure. 

Obtaining professional advice on whether investments will last against the ravages of living too long and long term inflation allows Attorneys to fully discharge their fiduciary responsibilities. Starting with this type of professional financial planning will ensure that any investments made will be relevant and suitable.



Date: 8th September, 2014
Author: Iain Muffitt - Financial Adviser


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