The Office of the Public Guardian (OPG) published new guidance in May 2019 which, among other things, emphasises the importance of proactive investing and the need to seek financial guidance in the majority of cases.
As a Deputy is appointed by the Court of Protection to look after the affairs of someone else, usually because their client cannot look after their own affairs, it is the responsibility of the Deputy to have the relevant investment experience and knowledge. The OPG guidance suggests that a Deputy should work with a Financial Adviser when they feel that they do not have the relevant expertise. Ascertaining what is sufficient relevant experience and knowledge can be difficult, as can understanding where the responsibility for each element of the decision making lies.
It is also of course important when acting in this capacity to assess whether a personal injury trust should be established. If a trust is not established, this could affect your client in respect of benefits they are in receipt of - either being reduced or even stopping altogether. In addition, your client’s future entitlement to benefit support could be affected as well.
Investing the lump sum awarded needs careful consideration as the claimant might not have the ability to work again and this award is vital to their future wellbeing.
Of course you can act without seeking financial advice. The OPG guidance covers a wide range of topics and you should consider each of the following:
The risk and understanding the principles of investing
Risk is the chance of losing some of the person’s money. Generally, the greater the possible returns, the higher the risk an investor will have to take. All investments involve some degree of risk, but by making an informed decision to accept risk creates the opportunity for greater returns, known as the risk/reward trade-off.
The ability and willingness to accept risk will determine the most suitable range of assets for the investment. If you are not comfortable with, or do not understand the risk you’re taking on behalf of the ultimate client, you should not invest.
The starting point for any investment strategy should be to think carefully about what you want your client’s money to do in the short, medium and long term as your objectives for each of these could be different. As a general rule of thumb, the longer an investment is kept, the more likely it can overcome any short-term volatility. However, you should consider whether this is feasible, bearing in mind the client’s financial needs.
Where to invest and the types of returns you can expect
There are techniques for managing risk and the most common is through asset class diversification.
Broadly, there are four main asset classes:
Cash – you save money in a bank or building society account and receive interest
Fixed interest securities (also called bonds) – you loan your money to a company or government and receive interest frequently and you capital back at a certain date in the future
Property – you invest in a physical building. The returns come from both rent and capital appreciation
Equities (stocks and shares) – you buy a stake in a company and receive potential dividends and capital appreciation
Which assets do you choose?
Nobody can predict which asset class will be the best performing each year and by only investing in one could see potential large differences in returns each year. By investing in products that contain a range of asset classes you can help to reduce the overall risk to which capital is exposed.
Checklist
Have you gathered all the financial information you need?
Have you been able to get the views of the client?
How much money is needed to invest?
What type of return is needed?
What’s the level of risk needed to generate the level of return?
Will the investments satisfy the client’s current and future needs?
Have you set a date to review the plan?
Of course you can act without seeking financial advice, however, if you act as a Deputy and you do not feel your expertise and knowledge satisfy each of these areas set out by the OPG their recommendation is that you seek financial advice.
Under those circumstances, financial advice will be tailored to your individual client’s needs. It will consider the sum of money, the objectives and the time frames applicable to that individual. Good financial advice will be reviewed as a minimum once a year and documented to provide a strong audit trail for Court Deputies.
At Armstrong Watson we support Deputies with the combined value of Chartered Financial Advice, Chartered Tax Advice and a range of investment solutions providing active fund management, diversification and strategies designed specifically to combat inflation.
