Are you a financial professional who helps clients make
decisions about their money? If so, are you certain that your
clients are capable of understanding the information you
communicate to them, and of making their own decisions? If you
aren't, you may be placing yourself and your clients at
risk.
Capacity is a legal concept. Capacity, with respect to financial
management, refers to your client's ability to make decisions
about their finances. These decisions may be risky or conservative,
reasonable or unreasonable, successful or unsuccessful. The final
outcome of a decision does not determine capacity. Instead, to
possess capacity, a client must only understand that they are
making a decision that affects their finances, and the decision
must reflect the client's own wishes, without undue
interference from others. If you ensure that these requirements are
met when taking instructions from a client, you reduce your
potential exposure to liability.
