Are you a financial professional who helps clients make
decisions about their money? If so, are you certain that your
clients are capable of understanding the information you
communicate to them, and of making their own decisions? If you
aren't, you may be placing yourself and your clients at
Capacity is a legal concept. Capacity, with respect to financial
management, refers to your client's ability to make decisions
about their finances. These decisions may be risky or conservative,
reasonable or unreasonable, successful or unsuccessful. The final
outcome of a decision does not determine capacity. Instead, to
possess capacity, a client must only understand that they are
making a decision that affects their finances, and the decision
must reflect the client's own wishes, without undue
interference from others. If you ensure that these requirements are
met when taking instructions from a client, you reduce your
potential exposure to liability.
One common instance in which capacity concerns arise is the case
of a client with dementia. Clients who suffer from dementia may
have difficulty understanding information and making reasoned
decisions about their finances. They may also be more susceptible
to fraud, undue influence, or misunderstandings that could affect
their finances. In addition to dementia, there are a number of
other serious mental or physical illnesses that are also common
causes of incapacity and which financial planners must be aware
How can you protect yourself and your clients? Following these
simple rules in your daily interaction with clients will give you a
Keep written notes of the instructions you receive, the
meetings and discussions you have with clients, major events in
your relationship with your clients, changes to the relationship,
and who else is involved in the relationship, for instance, a child
of the client.
Meet directly with the client without family members or friends
Ask open questions: why has the client decided this way? What
are their aims or goals? How will this affect others close to
Ask personal questions about their life, health, changes to
their home or family life, and whether anyone is placing
restrictions on their activities.
Consider whether the client is vulnerable, dependent, subject
to the control of another person, or whether their relationship
with those close to them has recently changed.
If it is necessary, ask for your client's consent to make
further inquiries of their family, caregiver, or doctor in order to
allow you to determine whether they are suffering from any of the
illnesses which could affect their capacity.
Finally, you may wish to recommend certain proactive solutions
to address capacity concerns for your client. These solutions may
include granting a power of attorney, or executing a representation
agreement for health care or routine financial decisions in favor
of a trusted person. Such preparation helps to provide a solid
foundation for management of the client's affairs should they
become incapacitated, and can help you to ensure that their
finances are protected while also ensuring that your fiduciary
obligations to your client are met.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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It is not uncommon for parents to provide monetary gifts to their adult children. Parents may wish to help their child with a down payment on a property, or help pay out their child's existing mortgage.
On March 31, 2014, BC's new Wills, Estates and Succession Act1 ("WESA") will come into force. WESA introduces new protections for beneficiaries of estates that are in danger of being disputed or deemed ineffective by a court.
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