It's My Money
An 82-year-old widow, Mrs A, has a £600,000 portfolio, mostly cash and short-dated gilts, following her husband's death eight months ago. Her adviser proposes moving £400,000 into a five-year structured product, 100% capital-at-risk, paying 7% a year conditional on an index not falling more than 30%. She needs £28,000 a year of income and has no other liquid assets besides a current account holding £12,000, plus a state pension and a small annuity. Her daughter holds a lasting power of attorney for property and financial affairs, registered with the Office of the Public Guardian four months ago, and has emailed asking that the investment not proceed and that she be included in all meetings. On a call, Mrs A is clear and consistent: 'it's my money, I understand the risk, just do it.' The file contains no capacity assessment.
1. Can the firm act on Mrs A's instruction? What is the daughter's actual role here?
Read the worked answer
Yes, in principle - a registered lasting power of attorney does not remove the donor's capacity. The attorney steps in when the donor lacks capacity (or when the donor chooses to let them act). While Mrs A has capacity, her instruction prevails and the daughter cannot veto it.
But the firm cannot rely on a phone call as its capacity assessment. The file is empty, and 'clear and consistent' on one call is evidence, not a determination. The firm should:
- Hold a structured conversation, ideally on video or in person, and record what Mrs A understood: the product, the capital risk, the conditional nature of the coupon, the five-year lock, the alternatives, and the consequences of losing £400,000.
- Consider vulnerability factors - recent bereavement, age, concentration of wealth, possible family pressure in either direction. The daughter's intervention may be protective or may be about inheritance; the firm does not know.
- If any doubt remains, seek a medical opinion. Under the Mental Capacity Act the presumption is capacity, but the firm cannot discharge its duty by assuming it.
The daughter's role: with a registered LPA she is entitled to be heard and, if capacity is later lost, to act. She is not entitled to override her mother now. And the firm cannot discuss Mrs A's affairs with her without Mrs A's consent while Mrs A has capacity - so the answer to the daughter is a courteous holding reply, not a disclosure.
2. Work through the suitability of the proposed £400,000 investment, and say what you would recommend and record.
Read the worked answer
On the facts, this is not suitable as proposed.
- Concentration and lock-up: £400,000 of £600,000 - two-thirds of net worth - into a single five-year capital-at-risk product at age 82. The time horizon is the product's, not hers.
- Income: she needs £28,000 a year. The coupon is 7% of £400,000, which happens to be £28,000 - but it is conditional. In a year the index falls more than 30%, the income stops and the capital is impaired at exactly the moment she can least absorb it.
- Liquidity: £12,000 in a current account plus a state pension and small annuity against £28,000 of need. She has no buffer. A five-year lock leaves her with no way to fund a care need, a house repair, or a fall in the annuity.
- Vulnerability: recent bereavement, age, and a proposal that would leave her dependent on family or the state if it fails.
Recommendation: do not proceed in this form. Retain two to three years of income needs in cash and short gilts, keep the portfolio diversified, and use a lower-risk income solution for the balance. If a structured product is genuinely wanted, size it to a small fraction of the portfolio with a shorter term and some capital protection.
Record: risk tolerance, capacity for loss, income requirement, liquidity needs, time horizon, alternatives considered and why rejected, and the specific reason the recommendation departs from what the client asked for. If she insists after a full explanation, the firm should still decline to execute an unsuitable trade rather than rely on a signed risk warning - a waiver does not cure unsuitability.
3. The daughter escalates a written complaint that the firm is exploiting her mother. How do you handle it?
Read the worked answer
Treat it as a complaint from the moment it arrives, regardless of whether the daughter is the client. Log it, acknowledge it in writing promptly, and investigate.
Handling:
- Confidentiality first. With Mrs A's capacity intact, the firm cannot share her details with the daughter without Mrs A's consent. Ask Mrs A whether she is content for the firm to correspond with her daughter, and record the answer.
- Investigate the substance, not just the tone. Revisit the suitability file, the capacity evidence, the meeting notes, and who said what. A complaint is also a control finding.
- Timing and redress. Issue a final response within the regulatory timeframe (eight weeks), setting out the firm's position and the complainant's right to refer to the Financial Ombudsman Service within the stated period. If the daughter is not an eligible complainant in her own right, say so clearly and explain why, without being dismissive.
- Do not let the complaint change the advice in either direction. The response to commercial pressure from a relative is the same as the response to pressure from a client: the suitability analysis governs.
- Consider a vulnerable customer referral and whether the firm's own conduct - beginning with a proposal that would have concentrated two-thirds of an 82-year-old's wealth in a five-year capital-at-risk product - needs to be escalated internally as a conduct issue, not merely defended.