View more on these topics

Phil Young: Establishing mental capacity to make financial decisions


Whether it is The Adults with Incapacity (Scotland) Act 2000 or The Mental Capacity Act 2005, the message is still the same for circumstances where you suspect a client does not have full mental capacity to make a decision about their financial future.

As advisers typically deal with people over 55 and well into later life, the mental health issues that often accompany age will present themselves from time to time. This can be an emotionally and technically challenging part of the role.

Most of the principles laid out are common sense and already part of good advice. There is a need to assume the client has capacity unless proven otherwise. Worthy of discussion is principle 4 from The Mental Capacity Act 2005. In deciding whether the client is unable to make a decision, the following four factors should be considered:

  1. Does the client understand the information relevant to the decision?
  2. Can the client retain the information?
  3. Can the client use or weigh up the information as part of the process of making the decision?
  4. Can the client communicate their decision (whether by talking, sign language, or any other means)?

In the rush to get an unequivocal response it is important you do not just ask yes/no questions. The legislation specifically cites that as bad practice. You need to ask the client more open questions and ask them to replay information back to you. Check they understand a few minutes after the discussion and ask the same questions in a different way to check the response is consistent.

Part of your job is also to assess whether the client is under any undue pressure from other people. For this reason, your assessment should be done without others present. This might seem unusual but, at this stage, you are simply assessing with the presumption the client does have capacity. Bringing in others is something you would do once a lack of capacity has been established. The Law Society’s recent guidance on this matter is particularly clear.

After this, your job is to refer on where appropriate. It is the responsibility of the medical profession to conduct full assessments and certify whether a client has full mental capacity or not.

Another point often missed is the need for attorneys to try and help clients make their own decisions where possible. This is because in many situations, particularly those relating to old age, capacity is something likely to come and go and so it is almost impossible to establish when it exists and when it does not. For that reason it is best for the attorney to deal with you with the client present. Clearly there are occasions where this is not appropriate: many clients will have granted the power specifically because they do not want to get involved.

Where no power of attorney exists and a client has lost mental capacity, the Court of Protection can appoint a deputy to protect their interests in a similar way. The deputy appointed could be a family member or friend of the client. In the absence of a suitable person, the court will appoint a professional deputy, usually a solicitor. There is much more supervision, due diligence and involvement of the court with a deputy when compared with an attorney. You should request to see the terms of the court order that has been issued in appointing the deputy to see what level of supervision is involved and to check your advice is in line with the powers the deputy has been allowed.

If at any point you feel the instructions given by the attorney or deputy are not in your client’s best interests, or you suspect there is a conflict of interests or undue influence, you can refuse to proceed with the advice. You should explain the course of action would not be in the best interests of the client and why, and try to gain agreement on a more favourable outcome. If this is not achieved and you believe your client is being seriously financially disadvantaged you can inform the Court of Protection. The court will then decide the best course of action.

All this is a considerable responsibility for an adviser. However, demonstrating an ability to act with this level of social concern and responsibility is at the very heart of professionalism.

Phil Young is managing director at Threesixty



Profile: The complaints commissioner on regulating the regulators

For his first job in financial services, Antony Townsend has certainly gone in at the top: regulating the regulator. He  took over the role of complaints commissioner last May, tasked with independently reviewing complaints about the actions of the FCA, the Prudential Regulation Authority and the Bank of England. And while he has not previously […]


Ukip U-turns on IHT abolition

Ukip has dropped plans to abolish inheritance tax in favour of offering increased wages for public sector workers. Speaking at the party’s annual conference in Doncaster today, recently appointed economics spokesman Mark Reckless said Ukip would no longer campaign for money saved from a European Union exit to fund the end of IHT. Reckless, who […]

Pensions-savings-retirement-piggy bank

Labour calls for pension freedoms awareness campaign

Labour’s new shadow pensions minister Nick Thomas-Symonds has called on the Government to do more to promote awareness of both financial advice and the Pension Wise guidance service. Speaking this morning at the Labour party conference in Brighton, Thomas-Symonds argued the Government must do more to boost public knowledge of the pension reforms, while also […]


Corbyn attacks IHT ‘tax break for richest’

Labour leader Jeremy Corbyn wants to see a graded system of inheritance tax to combat what he sees as a “tax break for the very richest”. Corbyn told the BBC’s Andrew Marr programme yesterday that increasing the inheritance tax threshold to £1m, as set out in the Budget, amounted to a tax break for the […]


News and expert analysis straight to your inbox

Sign up


There are 2 comments at the moment, we would love to hear your opinion too.

  1. Just assuming the answer is yes to all 4 questions at outset. When something goes wrong with the Investment, including poor performance, the client or his representatives will flip flop to “no they didn’t or couldn’t”. It’s amazing what clients can forget if it financially benefits them.

  2. 1. Does the client understand the information relevant to the decision?

    2. Can the client retain the information?

    3. Can the client use or weigh up the information as part of the process of making the decision?

    In the face of a massive and massively complex report on the constantly evolving range of retirement income products now available with, it seems, new ones being launched every other month, I suggest that the above three criteria apply (almost) equally to most ordinary people with no impairment of their mental or physical faculties. In fact, I’d go as far as to suggest that many advisers, if asked the apparently simple question: What do you think is best (because I’m hanged if I know)? might well be hard pressed to choose. Well, Mr Client, it’s a matter of:-

    1. balancing your priorities,

    2. how much risk you’re prepared to take on,

    3. how much of a reduction to your initial income you’re prepared to accept in the hope that the difference between a lower starting income and what you could get by way of a risk-free income option will be made up by increases related to (unknowable) future investment growth,

    4. how important maximising what would be available to your heirs after your death (before or after age 75),

    and so on. Ah, says the FCA, those are all the things you have to get your client to understand so that he can make a properly informed decision. But, ultimately, if the client is completely befuddled by information overload, it’ll all come back to the question: What do you think I should do? Most ordinary clients (in my experience) simply aren’t capable of taking it all on board and making “a properly informed decision”. And even if they do manage to grasp it all, the chances of them retaining that wealth of material for more than a few days are remote.

    But maybe I’m being overly pessimistic. Some of these new Income DrawDown plans with minimum guarantees and locked in gains look promising and, provided a modest required smoothed return (anticipated bonus rate) is chosen, all the with profits annuities that I’ve written so far seem to be delivering year on year increases and the policyholders are very pleased with them.

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm