Acting as attorney for property when your client is family

This article appears in the May 2022 issue of Advisor’s Edge magazine. Subscribe to the print edition, read the digital edition or read the articles online.

You can’t be both your client’s advisor and their power of attorney (PoA). The situation gives rise to a material conflict because you have control over the client’s finances. While a client who is your spouse or sibling represents a regulatory exception to this rule, best practice calls for mitigating the conflict.

Rules from both the Investment Industry Regulatory Organization of Canada and the Mutual Fund Dealers Association of Canada state that an advisor can’t act as PoA (or trustee or executor) for a client unless the client is a related person per the Income Tax Act (by blood relationship, marriage, common-law relationship or adoption).

In such a case, the advisor must follow the firm’s policies and procedures, disclose the PoA arrangement in advance and get the firm’s written approval.

The rules related to acting as attorney haven’t changed under the client-focused reforms. However, the reforms require that firms have policies and procedures to identify, disclose and address material conflicts in clients’ best interests.

Similarly, FP Canada’s rules and its ethics code require that financial planners disclose conflicts and mitigate them in the client’s favour.

Even the perception of a conflict should be avoided, said Paul Thorne, director of advanced planning with Sun Life Financial in Dartmouth, N.S.

“No one is saying advisors are doing bad things” by also acting as attorneys, he said. However, “the outside party is going to look at this and say, ‘That just doesn’t look right.’”

A December 2019 notice from the FP Canada Standards Council describes a conduct review in which a planner was acting as attorney for his mother. The planner opened a joint account with her and deposited funds redeemed from her individual non-registered account. He also changed the beneficiary on the mother’s RRIF from the estate to himself.

“The [planner] was provided guidance that a PoA is prohibited from making any testamentary changes, and that by opening a joint account and receiving redemptions, this could be construed as preferring his interests over the interests of others,” the notice said. Further, the conduct raised concerns about integrity and professionalism.

“The best practice,” Thorne said, “is that you should not be acting in both capacities” — as an advisor/planner and attorney. “You should look at options for acting as only one or the other.”

If you choose to accept power of attorney, whether the client is family or not, “your best course of action is to have someone else manage those accounts as the advisor or planner,” he said.

“Separating these roles will protect you, and it will also protect your client,” the FP Canada notice said.