In my blog post about Deputies, a contributor raised the issue of potential conflicts of interest where a Deputy is connected to companies providing financial or investment services. This is an important issue for families to understand when considering who should manage a child’s compensation. This is not an allegation of wrongdoing against any particular firm. The Court of Protection has recognised that Deputies have strict legal duties and must act in the best interests of the person they represent. 

I subscribe to the Law Gazette and it has reported on a case between a law firm 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 and overseen 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 appoints a Deputy to manage the person’s property and financial affairs. The Deputy must make decisions in the person’s best interests and follow the authority given by the Court. Parents or family members may be consulted and their views taken into account, but the Deputy’s primary duty is to the person who lacks capacity.  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 panel,
• Linked 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 law firm and the Deputy,
• Assessment of all 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 law firm was part of a corporation which included the Deputy.  A Deputy should not appoint a connected investment manager where this creates a conflict of interest, unless the arrangement has been properly authorised by the Court of Protection.  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

• A Deputy must avoid placing themselves in a position where their own financial interests conflict with the interests of the person they represent.
• A selection process, “beauty parade” or scoring system does not necessarily remove a conflict where the Deputy or their firm still benefits financially from the appointment.
• Where a Deputy wishes to appoint a connected investment manager, Court of Protection approval may be required.

This ruling makes for a potentially less conflicted investment pathway for families. 

Since this judgment, Irwin Mitchell has sold its asset-management business, so the particular corporate arrangement considered in this case has changed. Families should nevertheless ask their proposed Deputy about any financial or corporate connections with companies they recommend.