Red Flags of Powers of Attorney (POA), Protection Mandates (PM) and the Trusted Contact Person (TCP)

There are so may red flags to watch out for when you’re a registrant dealing with clients. There’s red flags of cognitive decline and diminished mental capacity and once you identify those red flags, then there’s red flags of Power of Attorney, Protection Mandate and Trusted Contact Person abuse too. So many red flags!

It’s difficult to know which red flags to look out for, but since we’ve spent year working in the areas of fraud in the financial and securities industries, here are some common red flags that are important to pay particular attention to:

1. Change in account activity

Change in account activity is usually one of the first signs. In most cases, people are pretty consistent in their financial habits. An individual who is active in their accounts will likely remain active and continue to trade frequently. Then there are others who take a laissez-faire approach to their finances allowing the balances in those accounts to ebb and flow with the markets. A sudden or frequent changes to a client’s POA or Mandate followed by a change in account activity is a big red flag and one of the most common ones to look out for.

What to do?

Once you get important documentation like a POA or Mandate, you or the compliance or trade surveillance group should be monitoring that account a little more closely.

• Is there a change in the activity?
• Is the laissez-faire approach becoming a little more ‘active’?
• Is the POA suddenly coming into force (i.e. there’s been a legal trigger, like mental incapacity, allowing another control of the client’s finances?)

It’s important to keep in mind that people must be mentally capable to sign legal documentation. If the POA suddenly changes and then there is activity on the account, it is possible that there was existing diminished capacity and the client was unable to enter into the ‘contract’ in the first place.

2. Multiple conflicting POAs/Mandates

This is also a big red flag. If you have multiple POAs reaching out to you or there are multiple documents in the client’s file, it’s important to take a closer look.

What to do?

Review both documents doing a comparison. Which of the documents is more restrictive (i.e. not allowing the POA free-reign of the Client’s account)? If one document allows the POA to do whatever at any point, be more suspicious of that document and that POA, particularly if transactions start almost immediately after delivering the documentation.

3. The relationship between the Client and their POA/Mandate

Why does the relationship between the Client and the POA even matter to you? It is important to keep the term ‘elder abuse’ in the back of your mind. Elder abuse is becoming more common (see carp.ca) and the identification of elder abuse will continue to be important as the population ages and more people find themselves victims of elder abuse.

The POA or Mandatary could be abusive or domineering. They might be manipulating your elderly client’s into taking out money through threats of physical harm or through mental abuse.

What to do?

Consider whether you’ve seen any activity that feels unsettling in the relationship between the POA and elderly client. Is the POA speaking for the Client? Are they telling the Client what to say and how to say it? Are there signs of physical abuse? Observe the situation and trust your gut. There’s always the Trusted Contact Person (TCP) who can provide support but, if you suspect the TCP, there’s the Legal and Compliance Teams and your Supervisor who can guide you.

4. Large or unusual withdrawals being made by the POA/Mandate

Again, this is a big red flag. We spoke about usual transactions above, but large withdrawals can be a sign. Logically, the elderly client will need access to funds for the fundamental necessities of life (i.e. housing, food, bills, etc.) but they’re unlikely going on extravagant vacations or purchasing sports care – unless they are.

What to do?

The point is to dig deeper. Maybe the elderly client wants to deplete their assets and give extravagant gifts to their heirs or maybe it’s the POA/Mandatary gifting themselves something they feel is ‘owed’ to them. Remember that the purpose of a POA is not to enrich the POA, it is to provide financial stability to the incapacitated person and ‘step in their shoes’ and to act in their best interests.

Our courses on Powers of Attorney (POA), Protection Mandates (PM) and the Trusted Contact Person (TCP) and Older & Vulnerable Clients walks you through the details of red flags of financial abuse in POAs, Mandates and TCPs. This is one of the most important roles you play as a registrant, a gatekeeper of the capital markets and protector of your client’s interests.