INTERMEDDLING CONSULTATION

Background

We are aware that there is a lack of clarity in the market as to whether a Jersey investment manager, acting under an entirely discretionary investment mandate, can continue to manage a portfolio after the owner has passed away. Different firms have differing approaches.

Different law firms also provide differing advice as to whether it is permitted or not.

In short, there is certainly an issue that needs to be addressed. At Pinel Advocates, we have always been proactive in engaging with industry and helping to push forward change. Last year, we identified a problem with the intestacy rules in Jersey and, following our input, changes to the Wills and Succession (Jersey) Law 1993 are now underway. We hope to be able to influence similar change in relation to intermeddling.

In that regard, we arranged for the simple questionnaire below. We hoped to use the statistics to effect change, to collate all answers (on a no-names basis) and provide the statistics and general comments to relevant parties, such as the Law Officers’ Department.

RESULTS OF THE SURVEY

As we expected from our conversations with investment managers and other lawyers prior to the survey, there is a clear and definite split in the market as to whether an investment manager can continue to manage a discretionary portfolio after death of the client. We will look at what this means and what we can do next, but please see below the answers to the questions. The scenario we used can be found further down this page.

This is obviously the key question and the answers reflect almost exactly our experiences of dealing with investment managers and advisers to date.

• Over 64% of investment managers say that you cannot deal with the assets in our scenario after death (but before a grant of probate).

• Over 23% of those surveyed said that you can deal with the assets.

• Nearly 12% said that they didn’t know the answer.

This tells us very clearly that there is a problem. With the market significantly split on the issue, there is risk. On the one hand, if you stop dealing (as 64%+ would do), then could you face criticism from your client’s estate?

“Why didn’t you liquidate the portfolio before it crashed in value? I know that others in the market would have done so.”

But, if you follow the 23%+ in continuing to trade, are you not just at risk of a claim against you, but of committing a crime? The result of that, as we know from established cases, can be a significant financial penalty, but regulatory and criminal proceedings that may be likely to lead to the closure of your business.

As one of our respondees said “Damned if you do, damned if you don’t.”

Again, the answers to this question reflect our expectations. The market is split, in that

• Over 47% of respondees said that their answer would be different if the terms of business expressly allowed you to deal with assets after death.

• Nearly 42% disagreed and said that their answer would not change.

• Nearly 12% didn’t know if signed terms would affect the position.

So, we’re lawyers, we should know! Would it make a difference? The answer is that we don’t know.

It is very likely to help. If you have signed terms allowing you to deal after death, it would surely strengthen your position in dealing with any possible prosecution or regulatory challenge. It is, subject to it being deemed to be a legal position, likely to protect you against a claim from a client’s estate. However, does it solve the issue? No, we’re sure that it doesn’t.

Nearly 59% of respondees felt that they understood intermeddling rules.

However, that means that 41% of respondees did not feel that they could say that they understood the rules (35% saying no and 6% saying that they don’t know).

When considering any prosecution, the Attorney General will consider the training provided to employees, so this may be an area for businesses to focus on. That said, where the issue (and law) is unclear, perhaps the most important step is seeking legal advice immediately, whether the assets are in Jersey or not.

Question 4 - If we were able to change the law / guidance on intermeddling, what would be the ideal position for your business?

We received a great deal of feedback on this question, which was extremely helpful in formulating the next steps. Two points which arose multiple times were:

(a) a desire to deal with assets after death - even on a limited basis, for example for a short period of time, being able to sell assets in the portfolio (even if they could not be distributed until a grant of probate was obtained:

(b) clarity - rather unsurprising, given the mixed views in the market.

Other comments include those below:

“Remove the criminal aspect.”

”Best interests of the estate would be to continue to manage the portfolio.”

”To have clarity across the investment business sector, so all practitioners are adopting the same approach, leaving no ambiguity.”

”Any clarification would certainly help.”

”Alignment to the UK (ability to pay tax and funeral expenses)”

WHAT NEXT?

Whether investment managers decide to deal with a discretionary portfolio or not after the death of a individual owner, it is important that they update their terms of business accordingly, to ensure that that are clear. If they do intend to deal with assets after death, the more detail and clarity the better, perhaps limiting this authority in time or scope.

Pinel Advocates will engage with interested parties, including the Attorney General and Law Draftsman’s Office, in order to make them aware of the research and try to effect changes in law and guidance. However, that is likely to take time, as changes to intermeddling rules generally have been discussed for many years.

Pinel Advocates can provide in-house training for staff on intermeddling issues. For more information, please contact Joelle Masterman at jom@pineladvocates.com.

If we can leave you with one thought; if a client passes away, please pick up the phone to a lawyer in Jersey or elsewhere. At Pinel Advocates, we are always happy to speak (at no cost), to give you a quick “yes”, “no” or “we need to look in more detail”. We work with lawyers around the world who are able to assist on a similar basis.

THE SCENARIO

Your firm, in Jersey, acts as investment manager on a portfolio for an individual. It is an entirely discretionary management mandate and the instructions from the client are clear. You have acted for the client for many years and regular suitability reviews have been undertaken. There are no high risk factors.

You are told that the client has passed away.

You have received a copy of a death certificate, but no application for probate in Jersey has been made.