Unlocking Financial Success: What is a Limited Power of Attorney?
Limited Power of Attorney (LPOA) is an authorization that permits a portfolio manager to perform specific functions on behalf of the account owner. In general, the LPOA allows the manager to execute an agreed-upon investment strategy and manage routine investment-related tasks without consulting the account holder.
Before signing an LPOA, the client should be aware of the specific functions they have delegated to the portfolio manager, as the client remains liable for the decisions.
Gaining Clarity on Limited Power of Attorney
LPOA authorizations have gained popularity as more investors opt for boutique money management firms and registered investment advisors (RIAs) over traditional brokerage firms.
Key Takeaways
- A limited power of attorney allows a portfolio manager to make routine decisions without contacting the account holder.
- The portfolio manager is usually restricted from withdrawing money from the account or changing the beneficiaries.
- An account holder may specify other exceptions to the limited power of attorney.
A limited power of attorney, as opposed to a general power of attorney, restricts the authority of the designated individual to a specific domain. In this case, the portfolio manager is empowered to execute an investment strategy as agreed upon with the account holder.
An LPOA gives the portfolio manager the authority to buy and sell assets, pay fees, and handle various necessary transactional forms.
Certain critical account functions, such as cash withdrawals or changes of beneficiary, remain exclusive to the account holder. A client can clearly state which other powers they wish to retain at the time the account is set up.
Discovering the Types of Limited Power of Attorney
There are different variations of the limited power of attorney that may be used in specific circumstances:
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Springing Powers: An LPOA with springing powers becomes active only if triggered by a specified event, usually the death or incapacitation of the account owner. This is often used alongside a will or family living trust.
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Durable and Non-Durable: Durable LPOAs grant the portfolio manager continuing authority to perform designated functions even if the client dies or becomes incapacitated. Most LPOAs are non-durable, meaning they become void when the client dies or becomes disabled.
Navigating Limited Power of Attorney Forms
Clients typically fill out a power of attorney (POA) form when opening an account with a portfolio manager. Most forms offer the option to choose between a limited power of attorney or a general power of attorney.
A limited power of attorney restricts the authorization to a specific domain, such as investment management.
The client must designate an attorney in fact, usually the portfolio manager. Other portfolio managers authorized to make investment decisions on behalf of the client must also be detailed on the form. Once completed, the form must be signed by both the client and the designated attorney(s) in fact.
Clients who are uncertain or uncomfortable about the functions they are authorizing may consider seeking an attorney’s review of the POA form before signing it.
Related Terms: General Power of Attorney, Registered Investment Advisor, Investment Strategy, Beneficiary, Attorney in Fact.
