One part of a comprehensive financial plan, particularly for older clients, is the existence of a power of attorney (POA). If, for some reason, a client became unable to handle his or her affairs or needed to have someone act for the client in a specific transaction, the durable POA is perhaps the best was to have things handled. Of course, we talk about POAs and their usage but how many of your clients have one?
Advisers certainly are familiar with the limited POA a client signs to allow the adviser to make trades in client accounts, either pursuant to client instruction or under the terms of the client agreement. In such situation, though the client has authorized the adviser to take such action, the client can revoke that authorization and can monitor the trades and activities of the adviser taken pursuant to that limited POA.
This raises the central issue to the use of a POA when the client cannot revoke the authorization or monitor the holder of the power because of mental or physical inability or some other reason. How can a client know that the POA is going to be used as the client intended? How can a client be sure that his or her wishes will be followed and business taken care of when the client cannot?
The selection of the person to whom the POA is to be granted – and potential successors – therefore, is critical to the whole scenario. A person familiar with the client’s needs and wishes is essential as is a person who is both trustworthy and who will act in a timely and proper manner to ensure that things are done. It may well be a family member or perhaps a professional acting in a fiduciary capacity. There are risks, of course, but careful selection and a thorough discussion of what the client will want done and written instruction noting what is NOT to be done will help.
If the possible downside of choosing the right person to grant the POA powers makes one hesitate that is not surprising. However, the risks of not having someone in that capacity may present far graver problems where a client is alive – therefore having financial needs to be addressed – but is unable to take care of those needs. How would you choose?