Problems for Professional Advisers

Martyn Gowar, a Partner at Lawrence Graham, examines the relationship between client and adviser.

Im not middle-aged - I will be middle-aged next year - but I admit I have been saying that for a number of years now! By the same token, I hope that my middle age will extend to match that of a client I saw last week. He is as sharp as any other client of mine and, having told of his experiences as a prisoner of war of the Japanese, then confessed he was 86. Similarly, will I be like the father of another client who told the client (aged 72) that he was not proposing to hand over the management of his investments to the son because he did not feel the son was experienced enough. Father was 102.

We, therefore, have to determine what exactly we mean by the word "elderly". It can be a widow who is middle-aged but with no experience (and, indeed, often a fear) of handling financial matters, or someone whose birth certificate does not lie. What we are really looking at is vulnerability and some degree of dependence.

The advisor feels a great sense of responsibility for any client who is vulnerable or dependent. It is this sense of responsibility that has made the professional advisor an object of confidence and, despite press attack, a symbol of defence against the intrusions of the unscrupulous. This degree of trust is hard won and easily lost. Regrettably, over the last 25 years, there has been a definite movement away from using a professional adviser in the way that used to be common.

The justification for making that claim perhaps ought to be examined. 25 years ago, the professional adviser was expected to be close to the family or the client because the world of financial advice was much more restricted to those within the Square Mile. Since then, the weekend papers have taken much of the mystique out of investment advice. The investment industry has moved heavily towards collective investment funds, which spread the risk of direct investment, partly for the security and comfort of the investor and partly because they are easier to manage profitably. Therefore, the elderly client does not have to be frightened any more about whether it is right to hold ICI or Shell - those decisions are taken at one remove. This also reduces the dependence on the professional adviser who used to give that advice (after suitable consultation, no doubt). Whether these changes are for the better is a different question, but for the purposes, the elderly still represent, though less so, the last vestiges of that old relationship.

In the past, one way of a client protecting his spouse or dependent was to create a Trust. In this way, the client had confidence that financial decisions would be passed to a suitably qualified person, often the professional trustee. Now, however, the number of Trusts is declining. This is largely due to the fact that, prior to 1974, an enormous number of trusts were created in Wills in order to take advantage of the surviving spouse relief under the old Estate Duty rules. Most of those trusts have now come to an end on the death of the widow or widower. Those Wills and trusts, many of which had a family member and a professional adviser as trustees, were there for a particular tax advantage and given the greater degree of confidence and availability of investment advice, modern Wills more rarely set up trusts for the survivor.

The consequence, therefore, is that the elderly are no longer so likely to be used to relying on a professional adviser and the bond of trust has to be built in a relatively short time. The elderly may not have seen their lawyer or accountant on these issues either recently or at all. They may be much more self-sufficient and suspicious of the adviser who comes in and suggests wholesale changes.

The nature of the advice required from the professional adviser by the elderly has also changed over the same period. The pressures now will often be family pressures. There are few elderly clients who do not wish to ensure that the next generation receive the maximum benefit from the funds that will pass on death. Our modern society has also encouraged the next generation that it is not wrong to "take the wanting out of waiting". They therefore, frequently encourage their parents to consider Inheritance Tax saving and it is far from uncommon that one is asked to advise mother or father by son or daughter. That creates a number of problems of conflict of interest. In the first place one has to determine who is one's client. If mother or father come from this source, it is important to ensure that he or she knows that he or she is the client. It is fundamentally important, and the Law Society rules, for example, stress this point, that the advice is given to the parent and that instructions are taken directly from that client. In this day and age, it may well be that this is purely self-defence on the part of the professional adviser - no-one wants to be involved in claims from disappointed beneficiaries. Litigation in this area seem to be on the increase, as in so many other areas.

The next point which can cause difficulty is in giving advice which may run counter to what the younger generation would like. It is all very well to acknowledge that a course of action might, in the longer term, reduce the Inheritance Tax burden, even eliminate it, but is this really financially or emotionally sensible? One particular area of concern to the children of the elderly is to avoid any ravaging of the elderly's funds to pay for nursing home fees and the disappearance, before their very eyes, of the funds which they had hoped to inherit, as the expense of the nursing home eats into the capital after allowing for whatever support from the state is available. The family house may have to be sold and the parents' capital diminished. There can be very trying cases, emotionally, as one sees the nursing homes enjoying the inheritance that the children thought they would enjoy in circumstances where the quality of life of the elderly parent is either restricted or even non-existent. Nevertheless, the principal duty of the adviser must be to protect the interest of the parent and, as a general rule, the entails the parent not undertaking Inheritance Tax planning which will reduce the availability of resource to a level at which the parent will be dependent on others. That may well mean retaining assets which children think should be given away. Merely because a lifestyle is sustainable now with surplus resources, one cannot assume that the current level of low inflation will always continue. Frequently a parent will state that they can rely on their children to look after them if they run short of resources. They might be able to trust their children, but can they rely on their children's children or ex-spouses?

The adviser must stand the risk of alienating the children but, thank goodness, that does not happen very often. It is not suggested that the adviser should be over-cautious, just sensibly cautious, and balanced. It should also be emphasised that the adviser is there to do what the name implies - advise - and not, necessarily, make decisions. It sometimes happens that the elderly are grateful for the excuse not to do something with which they feel, inherently, concerned and it may be that this will lead to difficulty which requires the adviser to step away from acting for the children. Failure to assert that level of independence and integrity by refusing to act for a conflicting party is not creditable. It follows that there may be cases where the adviser simply should not have taken on the instructions from the parent in the first place if the importance of keeping the children as clients is paramount for one reason or another. But it may be too late to do anything about it.

Arguments have been heard that there is bound to be a conflict of interest between one generation and another. I think this is too extreme a view and, in the majority of cases, the common desire of the elderly and their professional adviser to do the best for the children makes the relationship more secure. The children are often very grateful to feel that their parents are being advised in a way which is sympathetic and objective, and of course professional.

There may be problems in taking on elderly clients whose problems, as we know, take a little more time to understand, but in a world where they often feel lonely and confused, their appreciation of the help they get is a considerable reward in itself. ECA

Martyn Gowar FTII
Partner
Lawrence Graham