Preparing a portfolio for someone else

Investment planning generally assumes the investor remains capable of managing the portfolio, which is an assumption that fails eventually and sometimes suddenly.

The scenarios

Which are not remote.

Sudden illness or injury affecting capacity.

Cognitive decline, which is gradual and which affects financial capability early.

Death, leaving a partner or executor to manage or liquidate.

And a period of incapacity from which recovery occurs, during which decisions must still be made.

Each requires someone else to understand and act on a portfolio they did not build.

The specific risks

What goes wrong.

Assets that cannot be found, since accounts held with providers nobody knows about are effectively lost.

A complex portfolio that the successor cannot maintain, leading to inappropriate liquidation or to it being left unmanaged.

Panic selling by someone who does not understand the strategy.

Vulnerability to fraud, since bereaved and newly responsible people are targeted.

Decisions made under time pressure during administration.

And tax consequences of forced or badly timed disposals.

The document that solves most of it

A single summary.

Every account: provider, type, reference number and approximate value.

Every holding within them.

Digital access details and how to obtain them, which is an increasingly significant gap.

The investment policy: what is held, why, and what the objectives are.

Key contacts: adviser, accountant, solicitor.

Where the will, powers of attorney and other documents are held.

And explicit instructions on what should happen — whether the portfolio should be maintained, simplified or liquidated.

Updated annually and stored where a trusted person can find it.

Powers of attorney

The legal mechanism.

Documents allowing named people to make financial decisions if you lose capacity.

They must be set up while capacity remains — afterwards the alternative is a court process that is slow, expensive and stressful.

Providers generally require registration and their own procedures, which take time.

Which means having them in place before they are needed is the entire point, and this applies at any age.

Simplifying for succession

A genuine argument for simplicity.

A portfolio of two or three broad funds can be understood and maintained by anyone.

A portfolio of twenty holdings requiring judgement cannot.

Which is an argument that becomes stronger with age and that is worth acting on before capacity becomes a concern rather than after.

Consolidating accounts, reducing the number of holdings and moving towards multi-asset funds all reduce the burden on a successor.

The instructions to leave

Specific rather than general.

Whether the portfolio should be sold, held or transferred.

Whether the allocation should change for the beneficiary's circumstances.

What not to do — specifically, that a market decline is not a reason to sell.

Whom to consult before acting.

And a warning about unsolicited approaches, since these follow probate and bereavement.

Preparing a partner

Which is different from leaving instructions.

Involving them in the annual review, so the plan is understood rather than only documented.

Ensuring they know how to access accounts.

Ensuring the allocation reflects a risk level they could tolerate, since they will hold it.

Introducing them to any adviser.

And having the conversation about what the money is for, which determines what they should do with it.

A partner who has attended one review a year is in a completely different position from one who has not.

Beneficiary nominations

Which override wills.

Pensions in many schemes pass according to a nomination held by the provider rather than under a will.

Life insurance written in trust pays outside the estate.

Which means an outdated nomination — naming a former partner, for instance — takes precedence over whatever the will says.

Checking and updating nominations after any life change is quick and is among the most commonly neglected actions.

Protecting against exploitation

A growing concern.

Financial abuse of older and vulnerable people is substantial and frequently perpetrated by people known to them.

Protections: trusted contact arrangements offered by many providers; joint oversight rather than sole control; transaction alerts; limits on transfers; and involving more than one family member.

And ensuring that any power of attorney is held by people who can be relied on, with the arrangements reviewed.

The review to add

Annually.

Is the summary document current?

Are the nominations current?

Are the powers of attorney in place and registered?

Does someone else know where everything is?

Could the portfolio be maintained by someone who did not build it?

And is it becoming too complex for the person who will eventually have to deal with it?

General information only, not investment or legal advice. Consult a qualified solicitor about wills and powers of attorney, and a regulated financial adviser.