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The Assisted Decision Making (Capacity) Act 2015 – What it Means For You as a Financial Advisor

AUTHORs: Paraic Madigan, John Gill Services: Private Client DATE: 20/06/2017

The Assisted Decision Making (Capacity) Act 2015 (the “Act”) will fundamentally change how advisors assess capacity and how they engage with people who have mental capacity issues.

The Act will require a significant adjustment for those needing to assess capacity in the course of their work (including investment intermediaries, financial advisors, accountants, tax advisors, bank officials etc) as they will have to consider the mental capacity of the client relative to what is being done. The test for capacity is now a time and issue specific test (the “Functional Test”).

An individual’s capacity can no longer be assessed by a blanket “all or nothing” status approach, under which a finding of incapacity was often based on the person having an intellectual disability, rather than assessing the person’s decision making capacity. The Act represents a fundamental shift in addressing the issue of capacity. The emphasis has moved towards enabling persons to make their own decisions. The making of unnecessary capacity assessments may be in breach of the Act.

The Act also provides a statutory framework for a number of different types of decision-making intervention options and enables formal agreements to be made by adults, who lack or may shortly lack capacity (“Relevant Persons”) to appoint a trusted person (an “Intervener”) to assist them.

Advisors to a Relevant Person, who has availed of an intervention option, will need to understand the role of the Intervener and the parameters of their professional relationship with their client’s / customer’s Intervener.

What is the Functional Test?

Judge Laffoy, in the Fitzpatrick case [1], identified that the Functional Test was the appropriate test for capacity and the Act now puts the Functional Test for capacity on a statutory footing with the focus being to determine the capacity of the person to make a particular decision at a particular time.

The test requires a person’s capacity to be assessed on their:

(a) ability to understand;
(b) at the time the decision has to be made;
(c) the nature and consequences of the decision to be made;
(d) in the context of available choices at the time.

The test for capacity is, therefore, issue and time-specific.

The Act confirms that a person lacks capacity to make a decision if the person is unable to

(a) understand the information relevant to the decision;
(b) retain that information long enough to make a voluntary choice;
(c) use or weigh up that information as part of the process in making the decision; or
(d) communicate their decisions.

The challenges posed by the Functional Test for advisors

Under the Act, a person is presumed to have capacity until the contrary is shown, and the burden of proof (on a balance of probabilities) lies with the person asserting lack of capacity. Furthermore, if a finding of capacity or incapacity was to be challenged, an advisor would likely have to justify how they came to that view, based on the legislative criteria. Assessing capacity under the above limbs may be quite complicated and onerous.

For instance, a client, whose capacity is in doubt, may understand their actions of giving investment instructions, but may not understand the consequences of their instructions and thus not have sufficient capacity to give them. Therefore, the financial advisor must take steps to ensure that the client fully appreciates the consequences of giving those instructions, yet the making of an unwise decision does not necessarily mean a person does not have capacity. This could present difficulties for the advisor. This difficulty may be heightened in situations where the advisor does not know the client well but has a duty to assess their capacity (for example, a bank official).

Furthermore, the person must be able to retain the information long enough to make a choice, yet a short attention-span may not rule this out and the use of communication tools does not imply that the person is unable to understand the information.

The Functional Test also allows for fluctuations in capacity – for example, just because a person lacks capacity in respect of a decision on a particular matter at a particular time, does not prevent the person having capacity to make the same decision at another time. Therefore, advisors dealing with someone whose capacity is in doubt may need to assess the capacity of that person on an ongoing basis as circumstances require.

Capacity must be assessed on a person’s ability to understand their decisions in the context of available choices at the time of the decision and thus implies they should be aware (or be made aware by their advisor) of their alternative options and the role of the Intervener (if one has been appointed) should also be considered here.

Similar United Kingdom legislation includes a diagnostic test, whereby a medical practitioner will also assess a person’s capacity, but this has not been provided for under the Act, and thus it is not sufficient for an advisor assessing capacity to rely solely on a medical assessment.

Given the challenges presented for advisors in how to approach the issue of capacity and when applying the Functional Test, it is crucially important for advisors to identify an appropriate and consistent way to apply the Act’s provisions in their day to day work.

What decision-making intervention options are available?

The type of decision making intervention will depend on the level of the Relevant Person’s ability to make decisions. The Intervener may assist the Relevant Person in making decisions (assisted decision makers) or may jointly make decisions with them (co-decision makers). The Act also gives the courts power to make decisions on behalf of the Relevant Person or to appoint a decision making representative to make certain decisions on behalf of the Relevant Person (where the Relevant Person has no co-decision maker or in any event, does not have the capacity to make the relevant decision).

It is envisaged that different options may be used at the same time in respect of different decisions, which is clearly complicated for those taking instruction from, or advising, the Relevant Person. The advisor, acting for a client who has availed of a decision making intervention option, will need to understand what impact that has on their advisor-client relationship and the role of the Intervener.

Required actions

We have highlighted two areas of importance for advisors but clearly the practical impact of the Act on those who have to assess capacity of Relevant Persons in their day to day work will present the immediate problem.

It seems likely that the Functional Test provisions will be among the first provisions of the Act to be commenced in the near future and thus now is the time to put a framework in place to deal with these changes.

How we can help

  • Designing Act compliant additional features to be applied at client on-boarding.
  • Drafting compliant suites of assessment documents for staff who will be required to perform tests without recourse to centralised support.
  • Updating standardised suitability and appropriateness documentation to ensure that the Act is considered.
  • Review existing procedures and update accordingly.

Authored by Paraic MadiganJohn GillSiobhan Corbett and Lydia McCormack.

1: Fitzpatrick v. K (no 2)[2008] IEHC