In my blog post about Deputies, a contributor advised against using the Deputy provided by the legal firm who conducted your successful Birth Litigation UK case.  She mentions the possible conflict of interest that might arise because the Deputy may wish to use the legal firms in-house services or recommend companies they may have a connection to, and this has the potential to bump up costs from your child’s funds.  The Deputy has a duty to the client to act only in their best interests and a possible conflict of interest should be avoided.

I subscribe to the Law Gazette and it has reported on a case between Irwin Mitchell and a client who lacks capacity*.  There is no suggestion there has been any wrongdoing or mismanagement, and the case simply reflects what is probably common practice where large sums of money need to be invested by a Deputy. 

The issue came to the forefront when the person who lacked capacity needed to make a Will and came to the attention of the Official Solicitor’s office who instigated the court case needed to make a definitive ruling.    

Families who have won their case for birth negligence enter a period called ‘Interim’ where the case is quantified in monetary terms.  This money is to last the child’s lifetime so needs careful management and investment.  The Court of Protection (COP) appointed Deputy will manage this money with the consent and cooperation of the parents/guardians of the child.  Lump sum awards need safe investment with a steady annual percentage return to ensure it lasts. 

Previously Deputies arranged for the parents to choose from a selection of management companies using a set criteria, usually with, 

• A panel of investment advisors, and an investment executive committee who decided the inclusion of firms on their IM panel,
• IM firms specialising in this area,
• A ‘beauty parade’ is arranged which the family can attend,
• Family member views sought,
• Family members informed as to the connection between the IM and the Deputy,
• Assessment of all IM bids by a set criteria / scorecard
• Best interest decisions then made.

However, the Judge ruled that the above criteria could not guarantee independence of advice and avoid a conflict of interest if the IM was part of a corporation which included the Deputy.  Therefore, Deputies cannot use an arm of the firm they work for to manage money awarded for clinical negligence under most circumstances.  What happens regarding investments already made wasn’t addressed and is unclear.  This ruling was only addressing the issue of long-term investments and not other purchases.  However, I think it’s always wise to question any decision the Deputy wants to make regarding the child’s funds and whether there is an added cost to using certain service providers. The ruling now stands as

• Appointing an investment manager where there is a financial connection or benefit to the Deputy / their firm is a clear conflict of interest,
• That conflict cannot be avoided by the application of a beauty parade, scorecard approach etc,
• Court approval is required where the Deputy wants to appoint an in-house or connected investment manager.

This ruling makes for a safer and less conflicted investment pathway for families.  You should no longer be offered investment management that is not truly independent.

It’s unclear at the moment whether this decision will be appealed, but at least it has brought awareness to an issue most of us were unaware of.

Source : Law Gazette