The wealth and private client industry has an important role to play in ensuring that elderly abuse does not occur – an important topic amid an ageing population.

The following article deals with the difficult and important issue of financial abuse, a subject that particularly concerns older people. As this news service regularly notes under the theme of “protecting the client,” wealth advisors have a duty of care to ensure that their clients’ best interests are served. We have, for example, written about issues concerning lasting powers of attorney. To address the global side of the subject is Anna Metadjer, a senior associate in the dispute resolution team at Kingsley Napley. She specialises in trust and estate disputes. The editors are pleased to share this content; the usual disclaimers apply. Email tom.burroughes@wealthbriefing.com if you wish to comment.

The problem of financial abuse is growing, particularly in respect of older people. Financial abuse involves the unauthorised and improper use of the assets of a vulnerable person, and can include theft, coercion, fraud or the misuse of powers by third parties in a position of trust. 

One in three people born in the UK today are expected to suffer from a form of dementia in their lifetime (1). Given that those aged over 50 control the majority of the nation’s wealth, it is not surprising that as someone ages they generally become more vulnerable to, and a greater target for financial abuse. Sadly, in most cases the perpetrator is a family member, friend or advisor, as they are more likely to be in a position of trust, making it easier to take advantage of any vulnerability. 

While most HNW individuals have access to experienced legal and financial advisors, many do not engage in any advance planning for the eventuality of them losing mental capacity, and to protect them against the risk of financial abuse. Perhaps this is due to a natural reluctance to face what is a very real risk of cognitive decline, or to consider that those they trust most would do anything other than properly look after their affairs in the event of them losing capacity. This can cause particular difficulties when someone owns assets in multiple jurisdictions.

Appointment of an attorney or deputy
In England and Wales, a person can make a lasting power of attorney “LPA,” appointing someone (or many people) to manage their property and financial affairs in the event that they lose capacity. If the person loses capacity to make an LPA before they have done so, the Court of Protection can appoint a deputy to take on this role. The deputy is often a family member, but a professional deputy may be appointed where it is considered by the court to be in the best interests of the incapacitated person. This is often the case where there is a dispute over who the deputy should be, there is no suitable relative to take on the role, or the person’s affairs are particularly complex. 

Even if an attorney or deputy is appointed, cases do arise where the person trusted with this role uses their position for personal gain by misappropriating assets. One way to mitigate this risk when making an LPA may be to appoint two attorneys, as they may each act as a check on the other’s conduct. The Office of the Public Guardian (“OPG”) is responsible for supervising attorneys and deputies and a report can be made to the OPG if there are concerns that deputies or attorneys are not acting appropriately in respect of the incapacitated person’s financial affairs (2).  

Issues concerning overseas assets
While there have been efforts to harmonise the protection of vulnerable adults across jurisdictions through international conventions and treaties, such as the 2000 Hague Convention on the International Protection of Adults, and the 2007 UN Convention on the Rights of Persons with Disabilities, they have not been widely implemented, and there are issues with interpretation and scope such that there is no clear system in place. A regulation proposed by the European Commission in May 2023 (3) with a view to harmonising the position between EU countries was a positive step, though it has faced some criticism from disability rights groups due to the risk of the automatic recognition of measures depriving people of their legal capacity, a lack of clarity concerning supported decision-making for people with capacity problems, and the risk of increased institutionalisation (4) . 

A recent report by the Society of Trust and Estate Practitioners (5) found that there are numerous issues with the cross-border recognition and portability of LPAs. As it stands, if a person who lacks capacity has assets in multiple jurisdictions, it will be necessary to determine whether any LPA made or deputy appointed in the UK would be recognised in each jurisdiction, or if additional steps would be required in order for the attorney/deputy to be permitted to take control of and protect the incapacitated person’s assets.

Depending on the jurisdiction, a court application may be required. The approach to capacity issues or the applicable test for capacity may also differ in each jurisdiction, and further assessments of capacity may be required which comply with the requirements in each country. 

In the meantime, in cases involving financial abuse, assets may be at risk of dissipation. It is important to move quickly to gain control of assets in such circumstances as it can be difficult and costly to recover them once they’ve been transferred out of reach, particularly if they’ve been transferred to another jurisdiction. 

Preventing financial abuse
Financial abuse can be difficult to spot, but signs can include some or all the following:
-- A family member or friend becoming more involved in a client’s affairs and being present at meetings and on calls;
-- Unusual or significant transfers being made;
-- A change in the method of communication used e.g. a client who usually attended meetings in person only communicating by email;
-- Instructions changing following discussions with a family member or friend;
-- Additional names being added to bank accounts;
-- A change in demeanour, such as increased anxiety or nervousness; and 
-- A client being unable to properly explain the reason for a transaction.

While there may be a reluctance on the part of wealth managers and financial advisors to raise concerns regarding the capacity of their clients, or suspected financial abuse by a close family member or friend, their intervention can act as an important barrier to financial abuse. Advisors also need to be alive to the risk to them personally if they act on the instructions of someone who does not have capacity to manage their financial affairs, or a third party seeking to take advantage of their vulnerability. 

Footnotes
(1) https://www.alzheimers.org.uk/news/2023-10-20/19000-people-england-could-be-living-undiagnosed-young-onset-dementia 

(2) https://www.gov.uk/report-concern-about-attorney-deputy-guardian

(3) https://ec.europa.eu/commission/presscorner/detail/en/ip_23_2955

(4) https://www.edf-feph.org/the-proposed-regulation-on-protection-of-vulnerable-adults-must-be-amended/

(5) https://www.step.org/research-reports/mental-capacity

About the author
Anna Metadjer is a senior associate in the dispute resolution team at Kingsley Napley. She has extensive litigation experience, acting for both domestic and international clients on complex, multi-jurisdictional disputes. She has particular expertise in contentious trust, estate, and Court of Protection matters.