01/08/2011

A Limited Power Of Attorney (LPOA) can be a very useful document for use in estate planning tool or for authorising share trading on your behalf by a broker.  It can also be used to authorise your adviser or broker to carry out non-financial functions such as receiving your investment paperwork.

Running a share portfolio service for clients where, even though the client may retain the selection of the investments the adviser has power to determine the timing of the transactions and to give effect to them, requires the operating company to hold an Australian Financial Services licence that authorises the provision of what’s called an Investor Directed Portfolio Service (IDPS). 

ASIC defines an IDPS as a financial service for acquiring and holding investments that involve arrangements for the custody of assets and consolidated reporting in which the investor makes all the investment decisions. Usually this comprises offering a menu of investment options. Share trading may be permitted as an investment option as part of the service.

A power of attorney is a written authorisation to represent or act on another’s behalf in their financial or business affairs, or in some other legal matter. The person granting the power is the ‘principal’ and the person who is authorised to make decisions for them is the 'attorney'. It enables the principal’s affairs to be managed by a person or company of their choice as their attorney when they are not able to do so or choose not to.

In a LPOA, the "limited" means that certain critical functions remain with the principal. In financial situations this typically means the principal retains control of account transactions like payments and cash withdrawals, or maintains the right to make investment decisions like choosing which shares they want to trade. 

An LPOA can be set up so that the client, as the principal in the agreement, retains the right to choose which shares they will buy or sell, and they make the payments for such trading. The attorney is empowered only for the collection of paperwork from the share registries for the trades that the client has executed.

Financial planners may be able to use the LPOA in this way without setting up a financial service for their company or affecting their financial services licence arrangements.

If you have any questions in regard to the above article, please contact TOWNSENDS BUSINESS & CORPORATE LAWYERS on (02) 8296 6222.