Protecting the financial awards of clients is a key role of a deputy, and one of the hardest, says Eddie Fardell

One of the many issues that a financial deputy has to deal with is the investment of the client’s funds. This is always a tricky business. And is even more so in high-value damages cases which we principally handle.

Most of the deputyship cases we act in are settled on the basis of a periodical payments order plus a lump sum. Speaking as a deputy, I love periodical payments. Apart from the fact that they obviously last for the client’s lifetime, are tax free and are index-linked, there is also the important factor that they take away investment risk.

This has always been the case but it is even more important in these times of very low interest rates and financial uncertainty.

Artificial high

Having said this, we still have cases which are, for one reason or another, settled on a lump-sum basis only. For example, if only part of the damages are recoverable due to contributory negligence, then it may be necessary to forgo periodical payments as these will not be sufficient to provide for care needs. These are the really difficult cases.

I remember with affection and longing the days when the rate of interest paid on special account by the Court Funds Office was six per cent. This rate was kept artificially high for some time. At the beginning of 2009 this was still being paid at six per cent.

It is now, as all Court of Protection practitioners will know, being paid at the rate of 0.5 per cent.

When it comes to investing funds I am risk averse. If one can achieve the return required by taking no risk at all then life is easy. This was usually the case when the high rates were paid on special account.

It is a very different ball game now. On nearly all of our cases we need to look very carefully at what we need to provide for care, case management, therapies etc. The higher return one needs, then, generally speaking, the higher is the risk. This is where I start to feel very uncomfortable.

There was an article in The Times a couple of weeks ago entitled ‘Are the vulnerable at risk over the handling of their money?’ We all know that the press enjoy taking a pop at the Court of Protection and anything connected with it, but this was not from a red top.

A firm that carries out a significant amount of this work came in for criticism over how they had handled a damages award and how, apparently, a significant sum was left in a non-interest bearing account.

Cash is now an uncomfortable asset to hold. Even if one can secure a decent rate of interest, one has to have regard to the amount of compensation recoverable under the Financial Services Compensation Scheme in the event of a bank or other financial institution defaulting. This is limited to £85,000.

Where there is a large sum to invest, it is simply not practicable or cost effective to try and track down numerous accounts which can be opened. Apart from this there is not a wealth of accounts available to deputies.

Parking place

We tend to use, as a temporary parking place, National Savings Accounts. These hardly pay an exciting rate of interest – 1.5 per cent - but the funds are fully guaranteed and are therefore safe. The maximum investment in a National Savings Income Bond is limited to £1m, but use can also be made of the direct saver account, so long as the client is 16 years or over.

But this can only be a temporary fix. The return on these accounts is considerably below the rate of inflation, which means straight away the value of the award is being eroded. Depending on the circumstances it is often, if not usually, the case that one has to beat inflation to stay ahead of the game.

This all means that taking proper financial advice is one of the key issues facing a deputy. At the outset, I will always explain to my client that I am most certainly not a financial adviser. I will always try and involve the client and, if possible, their family in investment decisions. In fact, I will often sit the financial advisers down in front of the client and ask them to explain their advice and the rationale behind it.

It is often the case that it can be some time before this stage is reached. There are usually other important issues to take care of, such as care regimes and property purchase. This makes the initial protection of the award an even more important matter. If, therefore, funds are safely invested in this interim period, pending the more permanent investment of the lump sum, it does at least mean the client gets something back.

Great care needs to be taken in this aspect of deputyship work, both in initially protecting the damages award and in the longer-term investment. Slip up and we may well see more articles like the one in The Times.

Eddie Fardell is a partner and head of the Court of Protection team at Thomson Snell & Passmore www.ts-p.co.uk