*** Personal Finance ***

From time to time we come across cases where clients, often but not always elderly, are persuaded to make investments that turn out to be scams. A quick look at the advertising material would reveal instantly that the investment is one that you shouldn’t go anywhere near, not even if armed with a barge-pole! Very often with these “opportunities”, you will unfortunately have little recourse if things go awry, once you and your  money are parted.

A simple clue, for example, is where the company offering the investment isn’t registered with the Financial Conduct Authority (FCA). If this is the case you will have no comeback whatsoever if it goes bust, whereas with a regulated one you have a certain level of protection. It is also good to check whether the investment in question is covered by the Financial Services Compensation Scheme (FSCS). This should be explicitly stated in the product literature. You should look carefully at the information provided to see who and what you are going to be dealing with. The rule of thumb is that if the promised investment returns sound too good to be true, that is in fact what they are likely to be. If in any doubt, you should ask a professional adviser for an opinion. We at Elementary Investments are happy to cast a glance at the paperwork for you, if you’d like a professional view, and we’re happy do this without charging a fee.

It is essential you are aware of just how much and what sort of risk you are taking when investing your money. Usually an adviser will ask you to sign a confirmation that you understand the investment risks involved at outset, so in a worst case scenario, you can’t plead ignorance after the event. It’s clearly very important you don’t sign such a confirmation if you in fact don’t understand the product or the risks involved. This may seem like an obvious point, but based on experience it can’t be taken for granted.

For elderly clients however making these judgements can be tricky and as advisers we have to exercise caution with clients we categorise as vulnerable. Any client we deal with over the age of 75 in our book is potentially vulnerable, and we make a note on file to this effect. We normally try to involve a family member as a way of waterproofing the advice process. Age is the obvious factor when assessing vulnerability but we also categorise clients as being vulnerable depending on their circumstances. If you are recently widowed, divorced or have lost your job, you also are a vulnerable client. If you are in poor health or have a drug or alcohol addiction you are once again vulnerable. There is an additional duty of care in these circumstances.

If a power of attorney deed for property has been appointed, things are less problematic, as the attorney has been chosen because he or she is a trusted friend or relation and by definition can be counted on to look after your interests. The attorney acts on your behalf when making investments and is obliged to look after your interests. Unfortunately less than 50% of the population over 70 has registered a lasting power of attorney. If you haven’t yet drafted a power of attorney, my recommendation is that you do so. A good time to sort this out is when you are reviewing your will arrangements. You don’t need  to register the deed with the court of protection immediately, but when the need arises, it’s at least ready to be put in place. 

An increasingly common phenomenon is where a scammer isn’t in fact a Nigerian prince offering you via the internet a share in a vast fortune that will become yours once you have paid over several thousand pounds in necessary administration costs. What is more common,  is the family member, who has planning ideas that are designed more for his or her own benefit than for yours. 

A simple and common example of this is where say a nephew persuades his elderly uncle that a good way of saving on inheritance tax would be to make an immediate gift of his money. The idea is to reduce the taxable estate on death. The argument runs that if the money is needed later on, then the gift could be returned. There is a certain logic but, aside from offering hostages to fortune, it may nonetheless not be in your best interests to gift your capital outright then depend on your nephew if you need the money say for residential care fees. Further, once the money forms part of the nephew’s assets it is subject to all sorts of risk over and above the possibility of it being spent on fast cars and faster women! If the nephew is made bankrupt or divorces, the money would form part of his assets and would then come into the equation when matters are being settled in court. It wouldn’t then be possible to claim that the money isn’t really his, because de facto it would be. Far better to take professional advice, as there are tried and tested planning strategies that enable you to retain access to your money, whilst at the same time providing mitigation against inheritance tax.

As I said earlier, vulnerability can take many forms; you may yourself have received a large inheritance and aren’t used to dealing with large amounts of money. You may even have won the lottery! These are generally seen as positive scenarios, but once the dust settles important and often not easy planning decisions have to be made. Having to deal with a large sum of money for the first time on your life is also a form of vulnerability

If you think you may be affected by any of these issues, please feel free to contact us. An initial consultation by phone or in person won’t cost you anything and may well turn out to be time well spent.

Joe Coten is a member of the Personal Finance Society. He may be reached on 0207 588 9626.