Weaving the web of aged care

It is time for planners to bring aged care advice into sharper focus and initiate conversations with their clients around cost, structures, and implications for other areas of advice such as super and estate planning, Malavika Santhebennur writes.

Australia’s ageing population has brought discussions around pre-retirement and post-retirement strategies and policies into sharper focus for financial planners and the Government. In fact, planners and advisers have long focused on wealth accumulation, pre-retirement and post-retirement planning. 

However, what has perhaps fallen off the radar for financial planners is aged care advice. According to the 2015 Intergenerational Report, Australians are projected to live longer and continue to have one of the longest life expectancies in the world.

By 2054-55, life expectancy at birth is expected to be 95.1 years for men and 96.6 years for women, compared to 91.5 years and 93.6 years today.

These statistics illustrate the need for the Government and financial planners to view retirement income self-sufficiency and aged care affordability in the same breadth. Aged care advice is not just an investment decision or strategy. It involves interweaving finances, superannuation, family home considerations, estate planning, and medical assessments. It is also an area of advice where planners would need to bear in mind the emotional upheaval clients undergo as they face the prospect of placing their parents or elderly relatives in an aged care facility.

Reforms to aged care which came into effect from 1 July 2014 meant everyone who occupied an aged care facility would be expected to pay a basic daily fee regardless of income levels. In addition, they would then be means-tested and asked to contribute an additional amount to cover the cost of care, depending on their income levels. 

Despite the costs and complexity involved in aged care, according to Investment Trends, Australians tended to delay contemplating aged care for their parents and relatives until it was too late. Fewer than one-in-10 of those 40 to 50 years or older who did not have any parents or relatives in aged care had started contemplating aged care and aged care advice, according to the October 2016 Investment Trends Retirement Income Report based on a survey of 7,000 Australians aged 40 and over.

Research director, Recep Peker, said this number increased the moment someone had a relative in aged care.

“So the big issue for the industry as a whole to solve is how do we create awareness across the broader population on planning for aged care at an earlier age?” Peker said.

“When you just talk to Australians aged 40 plus who haven’t yet retired and ask them what are the sorts of areas they need advice on, the proportion saying aged care is actually quite small.”

Awareness that financial planners offered aged care advice was also low, with only one-in-10 saying they would turn to a financial planner for more information, with the majority turning to the government or the medical profession for assistance. 

Story Wealth Management managing director and senior financial planner, Anne Graham said: “A lot of people don’t know what financial planners do anyway let alone the aged care part. We make sure that our clients know that we offer it. When we do our annual review meetings, it’s an item on our agenda: ‘are you aware that we offer these services, in the event that your parents need aged care at some point?’”.

Aged care hasn’t caught on

On the financial planner side, Peker said the proportion of planners that provided aged care advice was not insignificant, with three-in-five financial planners saying they were able to provide and presently provided aged care advice to their pre-retiree and retiree clients. 

“But this number has been static over the last few years, and although there’s been an intention among more planners to get into aged care advice, that hasn’t materialised,” he said, adding four-in-five planners held a desire to provide aged care advice by 2019.

Challenger head of technical services, Andrew Lowe said in his observation, only a minority of advisers provided a significant amount of aged care advice. He has also observed that some advisers continued to refer off their clients’ aged care advice needs to a specialist within their network of associates, either within their dealer group or within a broader group of advice practices.

“I suspect that a part of that is associated with the closeness that many advisers have to their client base in terms of age and certainly a lot of advisers have focused for a long time on wealth accumulation, pre-retirement planning, post-retirement planning, and have been incredibly busy doing all of those things,” Lowe said.

“And certainly, if your specialisation happened to be pre-retirement planning and you had a business that was very successful at pre-retirement planning for clients, stepping outside of that expertise, that specialisation and providing aged care advice at the other end of the spectrum completely might not be the most appropriate use of your resources at a particular point in time.”

Planners’ own relatives entering an aged care facility has triggered them to provide aged care advice, Lowe added.

Both Lowe and Graham said rising demand for aged care from clients could trigger advisers to increase provision of aged care advice.

While Graham’s firm offered aged care advice to clients, the firm did not widely promote the service as the practice mainly serviced clients who were planning for retirement or were already in retirement.

“Often we get enquiries about aged care for our clients’ parents or the spouses. It’s quite a sporadic thing for us: we might get two or three clients in one month and then nothing for another couple of months and then half a dozen for the next month,” Graham said.

The firm did not advertise the service heavily partly due to resourcing. The firm does offer comprehensive service to some of its clients for their aged care advice needs.

“I think to offer it more broadly and to promote it, I’d have to make sure that we were able to deliver on our promise and we’re not focused on that at the moment,” Graham said. 

Promoting the service more broadly would require re-arranging some job descriptions and upskilling some of the support team on the requirements around providing aged care advice.

Cost and complexity

The ageing population, the astronomical costs, and the complexity of aged care could well lead to a rise in demand for aged care financial advice, thus presenting an opportunity for advisers to demonstrate value. 

Lowe said advisers had a role in changing client perception that aged care was very expensive, and structuring recommendations in a manner that made aged care affordable for clients.

“It’s about working through scenarios which demonstrate that clients can actually afford the type of care that’s going to significantly benefit them,” he said.

“We come across advisers looking at different ways of deciding about the retention of what was the family home or the sale of that former family home. And so considering the different ramifications for either sale or retention of the family home can be complex but it’s a vital part of the advice process.”

Yet the fact that aged care facilities were expensive was not just a perception or a myth. If one added up the figures arising from the various layers of fees, the cumulative number could boggle the mind.

The reforms to aged care advice rules that came into effect on 1 July 2014 sought to ease the burden on the government’s budget, according to Aged Care Steps’ director, Assyat David.

“The legislative changes are motivated around ensuring that where clients have got the financial means to do so, they should be contributing more to their aged care costs,” David said.

“And that’s a major planning issue that advisers need to take into account, that they need to have clients prepared for that rather than thinking that when they get to old age, the government will look after them,” she said.

Money Management had previously reported that the Federal Government should not only address some of its Budget superannuation changes but also Australia’s aged care regime. Brisbane-based adviser and aged care advice specialist, Robert Ross said the changes implemented in July 2014 meant the amounts demanded were staggering.

He said aged care facilities were demanding refundable accommodation deposits (RADs) amounting up to $550,000 for a room smaller than their kitchen in their family homes. Further, it could take up to a year after the death of the person before the estate received the money back, with the aged care facility paying the estate an interest rate of just three per cent.

“If the consumer cannot pay for the room but can pay for, say, half of it ($275,000) the balance due ($275,000) will be charged interest at the rate of 6.5 per cent or $17,875 per year,” Ross said.

“This interest payment is called a ‘daily accommodation payment’ (DAP). If they don’t pay the DAP it will accumulate as a debt against the $275,000 they did pay. When they die that unpaid DAP balance will be deducted,” he said, and questioned how the regulatory system allowed for interest rates of 6.5 per cent in the current low rate environment.

Lowe acknowledged aged care costs were expensive, and noted clients whose homes were worth $500,000 to $1 million could find out that their RADs were proportional to those amounts.

“I’ve absolutely had the feedback from advisers that clients baulk at large RADs and I very much emphasise that this is an accommodation payment and accommodation generally is expensive in Australia. 

“So yes, these are accommodation payments and they can be expensive. The key element though that I’d emphasise for RADs is the ‘R’ in RAD: that is the refundable nature of that in those circumstances, and most clients get that but it’s worth re-stating that this is a payment that will be refunded upon you exiting that particular facility,” Lowe said.

“There’s a lack of earnings that the client is eligible in respect of the amount itself but the amount will generally be payable back either to them on exit or to their estate if they were to die.”

An editorial in Money Management last year suggested the aged care industry should be subject to the same regulatory scrutiny as financial planning, superannuation and banking industries. 

Practices including arbitrarily imposed layers of fees and management of large sums such as RADs, in addition to the various elements of aged care including health management, wealth management, and estate planning meant it had become too complex an issue to be overseen by health department bureaucrats.

Product or strategic? 

While there have been calls from some quarters to classify aged care advice as a financial product, David did not agree because she said it was predominantly strategic advice. Advisers tended to assist clients in understanding what their options were around funding fees, cashflow implications, estate planning implications, and pathways around selling the home, renting it or keeping it.

“Because it is more strategic advice, there isn’t any actual regulation per se that’s required by ASIC [Australian Securities and Investments Commission] in the sense that it’s a bit like estate planning, or a bit like other kinds of strategic advice,” David said.

“It’s almost like trying to put together an apple with an orange or make an apple into an orange because in essence the licensing regime is built around product categories. I think that the way that the licensing regime has been put in place has very much been built around product recommendations, not strategic recommendations.”

The Financial Planning Association’s (FPA’s) head of policy and government relations, Ben Marshan said aged care advice did not need to be a specific licensing area under ASIC unlike superannuation or life insurance advice.
Marshan had suggested last year the government could introduce legislation requiring aged care advice to be regulated by the corporate regulator in the same way as financial product advice. But he said he had now “tempered” his position.

“I don’t necessarily think it needs a specific licensing condition and as far as professional financial planners go and the services they’re providing I’ve got no concerns in that area at present but I think it’s something that the regulator and other professionals need to just keep an eye on to make sure that that remains the case,” he said.

“Aged care advice is very broad so I don’t think you can necessarily narrow it down to ‘I go to ASIC and get a single licensing condition on my AFSL [Australian financial services licence] to provide aged care advice’.”

Because aged care advice included different elements such as superannuation, investments, holistic advice, insurance products, estate planning, and social security, it would not be conducive for aged care advice to have a specific, narrow licensing condition, Marshan added.

How should they be monitored? 

While Marshan emphasised the need for ASIC to monitor the nature of aged care advice being provided by advisers to ensure less scrupulous planners did not have the opportunity to take undue advantage of consumers, David highlighted the need for aged care advisers to be adequately trained and accredited.

While David said there needed to be minimum requirements put in place around training and education, she said it should be self-regulated by the industry rather than introducing a legal legislative requirement.

“That way then you can have the right standards put in place around aged care but I certainly think it’s an area that does require specialist training in that space,” David said.

If aged care were to be included in the new Corporations Amendment (Professional Standards of Financial Advisers) Bill 2016, Graham said it would be more appropriate to include aged care as just an elective.

“There are so many other aspects of financial planning that require attention. You’d probably look at the 80:20 rule when determining education standards: you make compulsory education related to 80 per cent of what an adviser might do and then you might have aged care or other specialties as electives,” she said, adding it would be more appropriate to incorporate aged care as part of a masters’ program.