What is Limited Power Of Attorney - LPOA
Limited Power of Attorney (LPOA) is authorization for a portfolio manager to perform specific functions on behalf of a client in that client’s account. An LPOA gives the portfolio manager discretion to perform functions, such as trading authorization, disbursement authority, fee-payment authority and permission to have forms sent straight to a broker (proxy statements, tender offers, etc.). Before a client signs an LPOA, they should be aware of the specific functions they have authorized the portfolio manager to perform, as the client will be liable for the decisions made by the manager.
BREAKING DOWN Limited Power Of Attorney - LPOA
The "limited" in LPOA refers to the fact that certain critical account functions are still only available to the account holder, such as cash withdrawals, a change of beneficiary or other significant account actions. Clients need to clearly state which powers they wish to retain.
LPOA authorizations have become more prevalent in the past decade as many investors move their accounts from standard brokerage firms to boutique money management firms such as Registered Investment Advisors (RIAs). LPOAs allow the manager to execute their investment strategy for the client without continually having to contact the client to approve the order before it gets executed.
Limited Power of Attorney Types
- Springing Powers: An LPOA that has springing powers only becomes active if it is triggered by a stipulated event. Springing power LPOAs are typically used with a will or family living trust. Basically, this type of LPOA only comes into effect when a client dies or becomes incapacitated and can no longer manage their accounts. It cannot be triggered if the client is capable of handling his or her own affairs.
- Durable and Non-Durable: Durable LPOAs give the portfolio manager continuing authority to perform certain functions, even after the client dies or becomes incapacitated. The majority of LPOAs are Non-Durable, which means they become void when the client dies or becomes disabled. (For further reading, see: Advanced Estate Planning: Durable Power of Attorney for Finances.)
Limited Power of Attorney Forms
Clients typically complete a Power of Attorney (POA) form when they open their account with a portfolio manager. Most forms give clients the option to choose between an LPOA or a full power of attorney. The client must provide details about their attorney in fact, who is usually the portfolio manager. Additional managers who intend to make investment decisions on behalf of the client must also have their details provided on the form. Once completed, both the client and the attorney(s) in fact must sign the form.
Usually, portfolio managers help their clients complete POA forms. Clients who are unsure about what functions they are authorizing or have a complicated account structure may want to get an attorney to review the POA form before signing it.