As advisors, you are probably meeting next generation relatives of your long-term clients. These new contacts may play an important role in your continued relationship with your client, as the client’s “representative” (the attorney appointed by a “Power of Attorney” in most provinces, or the mandatory appointed by a “Mandate in anticipation of Incapacity” in Quebec) for financial and legal matters if your client becomes mentally incapable.
It’s important to get to know them, and to work with them in the best interests of your long-term client. Knowing what a representative is legally empowered to do and the guidance they can offer will help you, your client and your client’s representative work as a cohesive team.
This article deals with situations in which clients have a Power of Attorney for Finances in place.
What is it?
A Power of Attorney is a legal document signed by your client. This document gives another person the power and authority to act on his or her behalf – including working with advisors. As an advisor, it’s important to know what power and authority the representative holds. This article deals only with the powers a representative holds once your long-term client becomes incapacitated and can no longer make his or her own decisions relating to finances generally, and investments with you in particular.
What is the representative’s role?
Generally, the representative can do anything your client can do, except make a will or give away client assets. The representative must always act diligently and in good faith in the best interests of your client. This means that personal preferences must be put aside if they conflict with what your client may believe or want. Some of the responsibilities and duties include:
- Consulting periodically with other family members and friends
- Maintaining accounts of all transactions done on behalf of your client
- Locating documents such as the Will and understanding the terms of the Will to ensure decisions are not made to “get around” or otherwise deny the Will
- Managing your client’s financial assets, investments, real estate (in some provinces), bank accounts, etc.
Are there limits to the powers?
Each province has a variation relating to the family home and gifts (charitable or personal). The most important limitations are:
- Sale of the family home. In Manitoba and Ontario, the Power of Attorney (even if the representative is the spouse) restricts the ability to sell the family home.
- The representative must follow the provincial “Trustee Act” when dealing with investments. This means generally that all investments must be made with the best interests of your client as a priority. You and the representative may find it useful to review your client’s Investment Policy Statement so the representative can understand how and why the investments were chosen originally, and also if any changes should be made in light of your client’s changed circumstances. The Trustee Act rules generally expect the representative to invest in the same manner as any informed and “prudent” investor would for him or herself, considering the economy, inflation, liquidity and other standard influences on investments. An Advisor’s guidance in investment selection is very important.
- “Gifting” can be restricted depending on the province. Alberta representatives cannot make gifts unless your client specifically added that right in the Power of Attorney document, or if the type of gift is something your client was in the habit of giving (such as birthday money to a grandchild, or charitable donations). Similar restrictions are in effect in Ontario – with rules that state charitable donations if allowed should generally not exceed 20% of your client’s income. Saskatchewan laws do not permit gifts at all.
Be careful with joint accounts
Some representatives believe that changing the registration on your client’s investment account from client name to joint with the representative is a good idea. As an advisor, it’s important to guide the representative to an estate lawyer who can review the Will and determine if a joint registration is a “gift” or will interfere with the Will.
A representative may be liable for damages resulting from not carrying out their duties and responsibilities. This means that if the representative fails to maintain a particular standard of care or interferes with the Will, then he or she may have to compensate your client, or perhaps beneficiaries of the estate.
Your role as advisor is important
The long-term relationship you established with your client can prove extremely valuable to a representative. You can help ensure that your client’s investments are managed with the same degree of care, skill and diligence as they would be by your client. You can:
- Assist the representative with appropriate asset allocation
- Develop an appropriate Investment Policy Statement
- Keep transaction records to assist the representative with any reporting that may be required by family members