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This article was written by Michael Bookman and Ellen Bessner. Michael Bookman is an associate at Babin Bessner Spry LLP.

Financial advisors face unique issues when serving senior clients, particularly when confronting power of attorney (POA) issues. As an advisor, you must remember three key principles: your duty is to your client; you must address potentially sensitive issues with your clients — issues such as capacity, POA and estate planning — early in your mandate as their advisor; and you must do your due diligence. If you keep these three key points in mind, your clients will be well-served and risks can be reduced.

Imagine the following scenario: your long-time and loyal client, Adele, is nearing the age of 85. She is an active widow. You have managed her investments since she retired at the age of 65. You have a close client relationship with her. You speak with her monthly to discuss various aspects of her investment account, which you manage. You have been on the look-out for various signs of aging and diminished capacity in your monthly status calls. She unfailingly appears bright, engaged and organized for your calls.

One day you receive a call from Alex, the eldest of Adele’s three sons. You have never spoken with him before but you know he is a marketing manager who has struggled to hold down a job. His tone with you on the call is direct and surprising. He says he has been granted the power of attorney over property for his mother, and he is sending over the paperwork in the next week. He says to you that he had a conversation with Adele last week and everyone believed it was time for her to relinquish the control over her financial affairs. He says the timing was good, the matter was resolved within the family, and that you are now to receive instructions only from him.

Alex tells you that he has been reviewing the investment portfolio and wants to change its risk profile to seek more immediate growth. He wants to meet you with you tomorrow to discuss next steps.

This type of scenario confronts many advisors, particularly as the Canadian population ages. What issues should be top of mind in such a situation?

1. Your duty is to your client

First, it is important to remember that under your agreement with the client, in this case, Adele, and under the law, your first responsibility is to your client. You owe your client serious duties, including a duty of loyalty. You have to act in her best interest first, no matter what Alex or some other person may have told you.

Family members usually are acting with the best of intentions, but Alex’s phone call raises several red flags. Where capacity of elderly family members is an issue, family members are often cited for undue influence and financial abuse. Alex’s own history of financial challenges would suggest to you that he might have motives that are not in his mother’s best interest. Further, during your phone call with Adele last week, she did not mention anything about the scenario Alex has described.

2. Address potentially sensitive issues — like capacity — early

If we had a time machine, we might go back and have a conversation with Adele well before we got to this stage regarding her plans for granting POA for property. In family circumstances, there can be complex decisions to make about who among the family members should receive such powers.

3. Do your due diligence

In these circumstances, then, it would be important, among other steps, to investigate Alex’s claim that he is now acting on Adele’s behalf with the power of attorney over property. Your experience with Adele indicated to you that she was capable. Indeed, all evidence pointed to her being capable. The law presumes the client to be capable until evidence suggests otherwise. As part of your due diligence and investigation, you would likely ask:

  • What does the document granting power of attorney for property say?
  • Is it signed? By whom? When?
  • Does Adele acknowledge that she authorized this and signed it?

A private conversation with Adele is an important part of your due diligence and investigation of Alex’s claims to be authorized to act in Adele’s best interests.

Through all of this (and as part of your general practice), ensure you keep detailed notes, ask for documents, and ensure you are at all times updating your “know your client” form.

The story of Adele and Alex is a familiar one to many advisors, but the unique challenges and risks associated with it cannot be overlooked. With knowledge of best practices, good record keeping and attention to detail, your client’s best interests, these circumstances can be navigated successfully.