Advising the older client – when your client loses capacity
As the post-war baby boomers begin to grow older, advisers may find that the age profile of their client base is increasing and inevitably the possibility of acting for clients without mental capacity increases.
Capacity: how to determine when there may be an issue
Mental capacity and its decline in older age will be a key issue in dealing with older clients. There is no single test of capacity; the issue of capacity is “task specific” and whether an individual is capable of making a decision depends on the nature of the task which they are undertaking.. For example, an individual may be entirely capable of deciding what to eat for their dinner and how to spend their leisure time, but they may not have the necessary capacity to make decisions relating to their financial affairs. Given the complexity and importance of most financial decisions, if a client is beginning to lose capacity this may be one of the first areas in which their lack of mental acuteness becomes evident.
The Mental Capacity Act 2005 (the MCA)
Questions of mental capacity are now governed by the MCA and its accompanying code of practice. There are four key questions which must be considered:
- Can the individual understand information relevant to the decision, including the likely consequences of making, or not making, the decision?
- Can they retain this information long enough to make the decision?
- Can they use and weigh the information to arrive at the choice?
- Can they communicate their decision in any way?
If there is a ‘reasonable belief’ that the answer to any of these questions is ‘no’, then the individual does not have the capacity to take action or to make a decision. ‘Reasonable belief’ means that any other reasonable person would have come to the same conclusion. Under the MCA the concept of a person’s best interests is paramount and where it is possible for an individual to reach a decision, help should be given to them to do so.
What to look out for
As a financial adviser you will not be expected to be an expert in assessing capacity, but if it appears to you that a client no longer has the ability to understand, remember and weigh up information relating to key financial decisions then the client’s capacity must be in question. You may notice some signs that indicate a problem: perhaps some financial behaviour that is unusual for a particular client; such as a longstanding client who has always been cautious in their financial dealings starting to take inadvisable risks, or you might receive instructions to raise large sums of money from their portfolio for unspecified reasons.
If you have concerns about a client’s capacity, there may, ultimately, come a point when you have to decline any further instructions until someone is appointed to act on the client’s behalf. If you believe the client has sufficient capacity to consent to you discussing the situation with a third party, your concerns can be brought to the attention of another family member or the client’s solicitor so that a medical assessment of capacity can be carried out. As a matter of good practice, when taking on a new client you should obtain details of any Enduring Power of Attorney or Lasting Power of Attorney he or she may have made, so that you know who has authority to act for the client in the event of their incapacity.
What if financial abuse is suspected?
Sadly this is a growing problem and, as someone who deals with financial advice, you could be in the frontline for detecting when an older person is being taken advantage of. In this context we are considering the older client who retains control over their own affairs rather than where an attorney or court appointed Deputy is acting. Again the alarm bells should ring when clients depart unaccountably from normal patterns of behaviour, if large sums of money are being transferred to a third party with no adequate explanation, or if you find that the client is being prevented from giving you direct instructions.
If a third party accompanies your client to meetings, you should ask to spend some time with your client alone so that you can establish that no undue influence is being brought to bear and that their instructions are genuinely their own. Remember, however, that an older person retains the right to make a bad decision. As their financial adviser you may not think that they should prejudice their financial security by making gifts to others that are unaffordable, and your advice will reflect that view. If, however, your client is making such gifts of their own volition without being unduly influenced or pressurised by a third party, and they can understand and retain information about the consequences of what they are doing, then it is likely that they have capacity and, if they do, the course of action cannot be challenged.
If you have concerns that financial abuse is taking place then contact should be made with the local authority adult safeguarding team, the client’s solicitors, or the police.
For more information, please call us on 0800 915 7732.