Often people will appoint a trusted person to act as their attorney for health and financial matters if they lose capacity. When that person loses capacity (and for the period of time that they have lost capacity, as it is not always permanent), the attorney becomes entitled and responsible to manage the financial affairs of the person appointing them (the principal).
So what are the attorney’s responsibilities in relation to the investments?
The Powers of Attorney Act provides that (save for Enduring Powers of Attorney made before the commencement of the Powers of Attorney Act in 1998), the attorney can invest only in “authorised investments” but that if the principal had investments at the commencement of the power which were not authorised investments, then the attorney can continue with them.
The Act goes onto identify authorised investments as being investments which would be permitted for a trustee exercising a power of investment under the Trusts Act 1973, or as may be approved by the Tribunal.
While historically, the Trusts Act set out fairly rigid types of investments that trustees were permitted to engage in, the Trusts Act now simply provides (at section 21) that unless expressly forbidden by the trust instrument, the trust funds may be invested in any form of investment. Section 22 then sets out duties of the trustee, including:
- If their business or profession or employment includes acting as a trustee or investing money for other people, to exercise the care, diligence and skill of a prudent person engaged in that profession, business or employment when managing the affairs of another person; or
- In other cases, to exercise the care, diligence and skill that a prudent person of business would exercise in managing the affairs of other persons.
The trustee is obliged to comply with whatever trust instrument binds them, and must at least once in each year review the performance, individually and as a whole, of trust investments.
Section 23 goes on to preserve principles of law and equity insofar as they are not inconsistent with the trust instrument, including:
- The duty to exercise powers in the best interests of all present and future beneficiaries of the trust;
- A duty to invest trust funds in investments that are no speculative or hazardous;
- A duty to act impartially toward beneficiaries and different classes of beneficiaries; and
- A duty to obtain advice.
Section 24 sets out various matters that a trustee can take into account when exercising a power of investment, so far as they are appropriate to the circumstances of the trust. These include:
- The purposes of the trust and the needs and circumstance of the beneficiaries;
- The desirability for diversification of investments;
- The nature and risk associated with existing trust investments and other trust property;
- The need to maintain the real value of the capital and income of the trust;
- The risk of capital and income loss or depreciation;
- The potential for capital appreciation;
- The likely income return and timing of income return;
- The length of the term of the proposed investment;
- The probable duration of the trust;
- The liquidity and marketability of the proposed investment during, and at the end of, the term of the proposed investment;
- The total value of the trust estate;
- The effect of the proposed investment for the tax liability of the trust;
- The likelihood of inflation affecting the value of the proposed investment or other trust property;
- The cost (including commissions, fees, charges and duties) of making the proposed investment;
- The results of a review of existing trust investments.
Section 24 provides that a trustee may obtain and must consider if obtained independent and impartial advice reasonably required for the investment of trust funds and its management from a person that the trustee reasonably believes to be competent to give the advice.
So these duties have become the duties of an attorney when investing for a principal. An attorney can be responsible if it breaches its obligations in relation to the management of the fund. As an example, in the guardianship matter of HLB v Trust Company Ltd  QCAT 40 – where the appointed guardian has similar obligations to those of an attorney under a Power of Attorney – The Trust Company Limited was ordered to compensate their client for failing to comply with their obligations in relation to their management of the client’s funds. In that case, the funds were maintained in a fund paying a low rate of interest for approximately one year when they could (and should) have been invested in investments which were equally safe and having a far greater rate of return.
As a consequence, when managing the affairs of a principal, an attorney would often be wise to take advice from a qualified person and have regard to that advice when making investments.