1. The Long-Term Care Market and costs for clients
2. When to speak to clients about Long-Term Care
3. How to structure a Long-Term Care advice proposition
4. The difference and uses of regulated and unregulated advice
5. How to calculate costs and ways of paying
PRESENTER: In this learning module on Akademia we’re going to be looking at long-term care planning. Our tutors are Jan Holt of Just Retirement and Richard Sheppard of MetLife. Let’s run through what they’re going to be covering.
First of all, we’ll be discussing the background to long-term care and the current market; residential care, the cost of care, and the client’s perspective on these issues; the cognition challenge, dementia and decision making; what advisers need to prepare for; the care advice process; powers of attorney; when and how to deal with clients’ changing needs; regulation and unregulated advice; how to build this business from an adviser point of view; when to use outside specialists; the Society of Later Life Advisers and PFS accreditation; costing solutions; the difference between health and social care; gap analysis and ways of paying; using property and other assets; the use of annuities and when to ring fence; current available products; and finally the overall market opportunity.
I began our discussion by asking Jan Holt to outline the facts of the current market for long-term care advice.
JAN HOLT: We’ve actually got in the UK around about 2.8 million people with some kind of care related need; however, when it comes to maybe the provision of some more formal care, then around about 433,000 are in residential care, and a similar number actually receiving care within their own home. But I think when it becomes quite apparent what the future might hold is when you look at, we know the demographics that we’ve got now, more people over the age of 65 than we have under the age of 16, and when you consider the forecasts here, what they say is that if you’re a woman aged 65 you’ve actually got a one in three chance that you will need residential care at some point in your lifetime, and for a man the odds are one in five. However that’s just residential care. So if you’re a 65-year-old woman, then if you don’t go into residential accommodation then you’ve got a 50/50 chance that you will actually need domiciliary care.
So it’s quite staggering really in terms of the numbers of people who are sitting there with some future care need, and possibly not prepared for that, and possibly not even aware of it.
PRESENTER: Whatever the facts are, it’s huge, is it not Shep?
RICHARD SHEPPARD: Oh it is. It’s scary. And this is the impact of longevity. And the regulator’s become aware of this, and they launched a recent paper earlier in 2016 around how we are going to advise our ageing population, because their needs are different, they do evolve, and it does become a very challenging situation, and it becomes heart breaking as well.
PRESENTER: Jan, we’ve got a slide called potential growth in the care market, and that really demonstrates the huge effect that this is going to have.
JAN HOLT: It does, and this is just backing up the statistics that we just talked about, and effectively over the next 20 years we’ll see the number of people in residential accommodation double to around about 800,000. So it’s a growth area, and the need for financial advice in terms of helping people understand how to access and pay for care I think has never been more critical. So potentially what that also means is an opportunity for advisers.
PRESENTER: Indeed, because what we’re actually talking about is financial solutions to some of these issues and problems.
RICHARD SHEPPARD: Yes it is. I mean Jan will talk about the way that you move into the care environment, but from my experience it’s not always a planned entrance process. It’s primarily driven by an incident or an accident that causes it. So for certain things…
PRESENTER: The fall.
RICHARD SHEPPARD: The fall that somebody will have, mum, dad.
PRESENTER: It’s usually the fall is it not?
RICHARD SHEPPARD: Exactly, and then a plan evolves. But it’s a reactionary plan as opposed to a plan that is thought through and managed. And this is really where we need to become very nimble as advisers and product providers. And because of the numbers, we’ve talked about lots and lots of stats already, but there are over half a million people in the UK aged 90 and above, half a million. And if you just consider that say half of them will pass away before they hit their 100th birthday, you know, in 10 years’ time we’ve got a lot of centenarians. They have different needs and demands, and it’s a consideration that we’ve got to start thinking of; hence the regulatory paper about advising our ageing population.
JAN HOLT: Yes, and I think that raises an interesting point, because there are two things that you need to have in mind when you think about the implications of moving into care. The first is how much is that going to cost? And the second is how long am I actually going to be in that care setting for? So we’ve got a slide here that actually looks at both of those things. So this is looking at average care costs in England, but reasonably representative of costs on average across the whole UK. So if you’re in a nursing care then it’s going to cost £828 a week on average, and if you’re in a residential home with no nursing care then it’s on average £603, and I think we’re going to explore that in a little bit more detail a bit more specifically later on. But then there’s the how long, because the median stay in care home is 1.6 years; however we also know from research that about 27% of people will actually live for more than three years in care, and one in eight will actually live on beyond eight years in residential care.
So when you start to add up sort of £600 or £800 a week, every week for eight years, then the impact on somebody’s estate, and any plans that they had to pass on some of their wealth to their beneficiaries, starts to become quite significant; hence the need for good financial planning here.
PRESENTER: Indeed, there is a tendency for some people to think that the local authority will step in and pick up the whole tab, and so on and so forth. And those costs you were talking about are for England only because the regimes in Scotland and Wales and Northern Ireland are different we need to say. Nevertheless this is, if you think of the family pot as it were, this is quite a substantial sum of money that people need to be thinking about.
RICHARD SHEPPARD: It is. You know, we talk consistently in this profession around one in three, one in eight, we just never know, or we shouldn’t know who the one is. And that’s where planning comes into play. The other consideration is if there is going to be state support and assistance, how on earth is that going to be funded with the austerity measures, or as Theresa May pointed out recently, it’s not austerity, it’s living within our means under the current taxation regime. So if we’ve got an increasing demand with an ageing population, from a state perspective how do we continue to afford all of this? And it becomes a circular question, where do you start, where do you finish, at what point do you start making decisions? Taking control with an adviser of your own outcomes is one that I think is certainly going to become more appealing.
PRESENTER: When we talk about long-term care, it’s not just a case of saying here’s a lump of money, go into an old people’s home is it, there’s more to it than that? Because there are different things that different people will need as they get older Jan.
JAN HOLT: Absolutely, and I think this is a challenge for advisers, because typically it’s not neat and tidy. You know, somebody won’t present themselves to say we’ve just placed dad in a very nice residential care home, we’ve got £500,000 of investable assets here, can you help create a plan? Typically, usually at least six month prior to that conversation there’s been other touch points in terms of the need for help. So typically it will kick off with maybe just some information. So, you know, dad’s starting to falter a bit at home, not sure whether he’s in the right place, can you help us or help guide us towards some information? Then we tend to move into a need for care advice. But this isn’t about how the care is paid for; it would typically more be the sort of scenario that you talked about earlier. So mum’s had a fall, hospital are discharging her but they’re not, you know, she’s not going back to her own home. This is likely to be quite urgent and quite specific: I need to find residential accommodation, can you help?
Now for both of those two things typically advisers may well struggle to be able to help their clients or the children of the person who needs care, because these are things that I think come under the banner of what I would call unregulated advice, so not the things that advisers do on a day-to-day, week-to-week basis.
PRESENTER: And just using that phrase will cause some alarm bells to ring in advisers. Shep, I want to go back in a sense a step a little because from a client’s perspective what sorts of care are people likely to need? What are the sorts of conditions that people end up having to look after? Because we’ve now established there are two clients: there’s the people who need the care and the people who are responsible in a sense like the children.
RICHARD SHEPPARD: There is, and if we go back to the central funding issue to start with, there are a number of myths around central funding and assistance you’re likely to get. And it really is to do with the type of care you need that dictates that first and foremost. It’s not whether you’re wealthy or not. That’s not the start point. It’s the type of care you need. So if you do suffer a fall and you enter into hospital and you’re discharged, if you have a genuine nursing need then that falls under healthcare. That’s centrally funded. However, if you do suffer a fall, and that triggers or accentuates or identifies other issues, such as early onset dementia, Alzheimer’s etc., then that may well fall under social care. Social care is not part of central funding. That is means tested. And when it comes to social care that’s the aspect that we need to be prepared to, if we’re dealing with wealthy clients, they may fail the means testing element, and they will have to contribute themselves.
So identifying first and foremost the type of care that’s required, then leads us to the next one. Interestingly, there’s some stats that I’ve seen from Just Retirement that Jan showed us earlier on, and I believe we have a slide, around the type of medical conditions, the prevalence of the conditions in care home residents. You know, if you look to the left of the slide, it’s a phrase that maybe we shouldn’t talk about on camera but incontinence, you know, 7 in 10 suffering from that condition. The last thing, my parents have both passed away, the last thing I would have thought my mum would want me considering and caring for and assisting with is dealing with an issue of that nature. Dealing with a dementia, dealing with a heart condition was far easier than dealing with the incontinence – from a pride perspective and dignity.
PRESENTER: Dignity comes into play here.
RICHARD SHEPPARD: And that’s part of the unregulated aspect I think isn’t it Jan?
JAN HOLT: It is, and it also comes back to this how long is somebody going to be in care for? Because actually what isn’t on the slide are some of the other reasons that people move into care would be because of arthritis for example. So arthritis, incontinence to some extent, dementia, are not things. They’re not things that necessarily shorten your life expectancy dramatically, but they will almost certainly lead to a need for some kind of support.
PRESENTER: Again, from a client’s perspective, Shep, what are people expecting as they move into retirement? And this discussion is really important because as advisers sit and talk with their clients, both sets of clients, now we’re talking about the people who may need the care, and the people who may ultimately be responsible for supporting that care, the caring, what do the stats show about what they expect in retirement?
RICHARD SHEPPARD: It’s something that doesn’t necessarily always come out as part of the adviser communication with the client, but we did some research which we published in a report called The Exposed Generation, and it looked at key specific areas. One of the diamonds that came out of the dust of this whole dataset was exactly that question: what are you expecting to happen in retirement? And it was a freeform multi-choice answer, and it was quite interesting. I refer to it as the wheel of fortune, if we look at the slide here you’ll see that the top answer 37% were worried about expecting this unanticipated health or care cost. So it’s there, it’s top of mind. There’s some other aspects in there as well, which again should be considered when it comes to the advice framework. Divorce: how we framed that question I’m not too sure but there is an expectation.
PRESENTER: Do you expect to get divorced when you retire?
RICHARD SHEPPARD: And 5% were brave enough to answer yes. Which in reality…
PRESENTER: Tip of the iceberg.
RICHARD SHEPPARD: Let’s not maybe explore that. But there’s another aspect in there, halfway down in the output, was one in three just short of expecting to bail out their children, so again a consideration. If they’re bailing out their children, if they later then require that cash to pay for their own care, how do we build that into our plan? And then we’ve got tax bills that are unexpected as well. So there’s a number of expectations which we can drill out through The Exposed Generation research. So the concern is there, the expectation is there, we need to confront it.
PRESENTER: There are an enormous number of hooks from an adviser’s point of view to be able to begin these conversations isn’t it? But as I know as I’ve got older, and certainly most people would agree, you begin to forget things. You begin to not be as adept at decision making as maybe you should be. Really it’s an important discussion to have with clients at an earlier age. Should you be having this sort of discussion when you’re 45?
RICHARD SHEPPARD: I think so, the earlier the better. Many advisers will, at this point watching this video will think do you know what, I’ve got this covered with a power of attorney. Power of attorney doesn’t cover everything. There are key conditions and key triggers for a power of attorney to work, and it’s a complicated area which we’re not going to discuss today. I’m just going to be fairly shallow about this and fairly blunt, because to me life is fairly straightforward. You’re fit and healthy, you start to lose it, you suffer a condition such as Alzheimer’s or dementia and then you die. And it’s this bit where you start to lose it, the cognition starts to go. Interesting according to some research published earlier in 2016, the age at which your financial competency starts to diminish is 60. Aged 60 your financial competency starts to diminish. When a typical adviser is aged on average around 58 is a consideration as well. But the whole issue of cognition change is something that we need to look at.
We work closely at MetLife with the Alzheimer’s Society, and we’ve got some stats here which hopefully are going to appear on the slide, which look at the condition of dementia and the way that that is diagnosed at different age brackets. So if you’re dealing with a typical 65 to 69-year-old, the plan that you put in place and considerations you take onboard, you’re going to be dealing with a client who according to the stats looks like it’s OK, because they’re going to understand, they’re going to be aware, because only one in 56 females and one in 67 males are diagnosed with this condition. But if you age that through, if you’re typically healthy at 69, there’s no reason why you shouldn’t survive five years, let alone through to your 85 to 89 bracket, and look at the way that the numbers change.
And if you are regularly communicating with a client, and you are dealing with their affairs, planning as we go forward, at some point they may well become in a male example aged between 85 and 89, the client that you’re dealing with might be the one that suffers from Alzheimer’s or dementia. Is the plan that you put in place five, 10, 15 years earlier the control that they wanted, the delegations they gave? And this is where a power of attorney really needs to be considered. Not just in terms of the individual client you’re speaking with, but the others that are named. Because what if the individual that’s named as the power of attorney is the one and your client is OK? How does that then work?
PRESENTER: Yes, because then the power of attorney, giving the competence to somebody who doesn’t have the competence, then you’re in real trouble.
RICHARD SHEPPARD: It becomes challenging. I have to say it’s a very complicated area, and I think we will see this very much evolve as the stats that we talked about and the ageing population comes to play.
PRESENTER: My friends, people of my age seem to be quite proud that they’ve organised powers of attorney after a little nudge or two from me I have to say. They’ve always sorted that out with their solicitors. Is that so? Are we asking advisers, financial advisers to stray somewhat into a legal area, or are you saying that they should always use a solicitor in these instances?
RICHARD SHEPPARD: Well again that’s for individual circumstances. But to me a financial adviser is very much the individual who controls the financial affairs, and assists with the financial affairs, and they should work in partnership with any solicitor etc., and I’m sure Jan would agree with that.
RICHARD SHEPPARD: Yes, I do agree. And how an individual chooses to make power of attorney is entirely up to them. They could do their own online, but I think a key question that advisers should ask is have you one in place for yourself, and are you acting as attorney for somebody else is useful to know.
PRESENTER: Part of the discussion that a financial adviser should have. And of course…
RICHARD SHEPPARD: Sorry Tony, the answer to that question shouldn’t be I haven’t got one and I don’t want one.
PRESENTER: Indeed, absolutely yes, should never be that.
RICHARD SHEPPARD: In my opinion.
PRESENTER: And mine too. I couldn’t be more forceful than I can there. And the FCA obviously recognises that this is a difficult area, what has it said?
RICHARD SHEPPARD: Well they brought out a paper fairly recently in regulatory terms. If you think back to February 2015 the paper on consumer vulnerability, certainly if you’re losing competency then you become vulnerable. But this paper not just talks about losing competency, this talks about vulnerability in the whole. And it looks at fair treatment of all customers, and that being central to core conduct certainly from an advisory perspective. And I would certainly encourage any viewers of this interview and video to re-read that occasional paper number eight that was published back in 2015, because there are some really interesting reminders. And I’ll say at this early point, I know we’ve got some more things to discuss but when it comes to dealing with vulnerable clients it is commercially acceptable, regulatory acceptable to actually say do you know what I’m opting out, and I’m going to draw a line under. It might go against what the heart says, but from a regulatory perspective if you do not feel competent as a business, as an individual, qualified enough to deal with people in these circumstances, this customer vulnerability paper gives you the option to say I’m out.
PRESENTER: That’s a very important point from a business perspective.
RICHARD SHEPPARD: Correct.
PRESENTER: When I spoke to you earlier you talked about maybe speaking to people over the lunchtime period if they’re not so good in the morning and not so good in the evening.
RICHARD SHEPPARD: Yes.
PRESENTER: I just thought that was a very simple and interesting thing for an adviser to do. I don’t want to see you at nine o’clock on the morning, I am used to seeing people at eight o’clock in the morning and whizzing about and so on and so forth. But if I think back to my older relatives you never saw them first thing in the morning, you only saw them later in the day as it were.
RICHARD SHEPPARD: I mean you’re putting the customer at the core. We all do that, you know, it’s part of our mindset, putting the customer and the client at the core of what we do. We’re also considering the client’s circumstances. The brain for certain individuals will work better at different times of the day. This doesn’t mean now that we’re bringing in 10.30pm calls to clients, but if a client is more financially sharp, mentally sharp at midday, maybe that is the time at which to speak with them. Because competency and cognition can change throughout the day, again further research, and we’ve seen that through…
JAN HOLT: Yes, and capacity can be decision specific, it can move in and out. And it’s interesting talking about some of these softer skills when working with vulnerable clients, another initiative I think that can be helpful here for firms is Dementia Friends. So an initiative that is aiming for creating a more dementia aware and friendly society, I think can pay dividends in the workplace too. Certainly the Dementia Friends session that I attended had people there because they worked in businesses that offered services to older people, and their bosses had asked them to go along. Now since then Dementia Friends has actually evolved their programme to include dementia friendly assistance for organisations. So firms can do onto the Dementia Friends website and look at how they can access things like webinars and information, rather than have to send everybody out to a lunchtime session. So it can be quite helpful.
PRESENTER: It strikes me as if you’re an adviser you’ve got to have a feeling for this sort of business. But it’s not for everybody. A lot of people are good people business but not so many are maybe as good at older people business.
JAN HOLT: The reality is most firms, client banks are ageing, and so it’s gearing up for that and thinking about what are the wider things that we need to do to help them as they age?
RICHARD SHEPPARD: But again Tony, as you say certain individuals, and I may well have fallen into this bracket five or six years ago before we went through it personally with my family, you know, dealing with that type of individual is just something that you’re not comfortable with. And this is where the consumer vulnerability paper allows regulated advisers to say do you know what, I’m not going to trade with you, because I don’t feel competent, I don’t feel comfortable and I don’t feel that we can facilitate it. It’s a tricky one, it’s a tricky one.
PRESENTER: If advisers do decide to do it, what do they need to prepare for? Now Jan, you began talking about this not being a neat and tidy activity, and three stages as it were in terms of.
JAN HOLT: Yes, so information we talked about. So that’s a challenge to deliver information cost effectively. And at that point you may well be considering handing off that client, or signposting them to some places like Independent Age, Age UK, you know, a whole variety of charities who offer some very good information. So that could be stage 1. Stage 2 where it comes to care advice, so how do we organise care, how do we work out whether we’re going to qualify, or our relative is going to qualify for some state support, that I think starts to veer off into unregulated advice. So I have a couple of slides here I think to illustrate what I meant by that.
So the first slide I’m not going to dwell on, it just looks at a whole range of advice topics that most firms would be generally fairly comfortable with, and some of these may or may not come into the conversation about planning for care. But if we move to the chart that looks at unregulated advice, there will be many advisers or people operating in firms who might start to come across clients who need care, who would look at most of these things and think well we’re either not quite sure what some of them are, or we don’t feel that we are fully competent to help our clients with all of these things. And yet some of them are really important.
So I just wanted to pick out two or three. I mean the first one is the NHS care funding. Now you talked earlier about that distinction between social care and healthcare, but how do you know when the NHS should pay? How familiar is an adviser with the process for, and the ability to qualify for NHS continuing healthcare funding? So it’s a question of even if you don’t know about it you need to be aware of it, because that could make the difference between somebody actually spending down their estate or not if they qualify. Section 117 after care, most people may not be familiar with that, but if I tell you that it’s the ability of using sections under Section 3 of the Mental Health Act, or detained in Section 3 of the Mental Health Act, then your after care will be free of charge.
Now most people will be surprised to hear that, but you might not be surprised that apparently the number of requests from relatives for sectioning under Section 3 has gone up quite significantly in recent years, because of course…
PRESENTER: People have known about it.
JAN HOLT: Yes, because this is a way to get free care – and then local authority care funding, so do advisers understand the assessment process? And there two parts to that. There’s an assessment for whether you have an eligible care need, and then there’s a financial assessment to work out who’s going to actually fund that care need. So they’re just three of the things here that actually could benefit somebody financially. So if you don’t consider that you’re competent to deal with all of these unregulated areas, then you have to at least note that they’re important and find ways of helping your client access this advice.
PRESENTER: And it’s that quite difficult one whereby the local authority may pay half the costs for a specific care home, but if you were able to inject another few hundred pounds a week the quality of the care home would appeal to that dignity that you would want for your older relatives.
RICHARD SHEPPARD: Yes definitely. Again if you take our professional qualification and experience out of this, when it comes to dealing with a parent and choosing the care home, the stages of the process that you talked about, you know, there are various things that you might wish to do. Again being fairly blunt about this, the first thing you do once you receive the call that there has been an issue, you then move into care mode for the parent, and then you think about right where do we go next? Maybe the first step of exploring care homes is to step over the threshold and do the sniff tests. As blunt as that sounds, but yes it sounds OK. And OK there are certain core standards that need to be met. The one thing that I struggled with when it came to our personal affairs was putting my mum into an average care home. And I would challenge the audience: do you want your parent in an average care home?
PRESENTER: And therefore would you want that for your client?
RICHARD SHEPPARD: So that then leads us into OK what do we need to pay for, how do we justify all of that, and how do we quantify it?
JAN HOLT: Yes, and of course you could skip straight to stage 3, which is the care fees planning. So you could actually say to the client can’t help with one and two, with information and care advice, but when you.
PRESENTER: But you need to go and find out about these things.
JAN HOLT: When you’ve established that you’re a self-funder then come back and we’ll talk, could do that. The other option of course is you could develop specialisms so that you help your client through the entire journey. And then I guess the third option is that you could outsource some or all of the parts of this process.
PRESENTER: And you obviously know of adviser businesses who are able to in a sense pick the bits that they do well and outsource the other bits, and that’s a common business structural route to go.
RICHARD SHEPPARD: It is. I’ve been speaking with advisers that, and there was one and I won’t give away too many clues, but we got to a point talking about the cognition challenge and they admitted, they volunteered the information that they do not deal with clients once they start to show signs of cognitive deficiencies. Because they didn’t feel confident in their internal processes and procedures that everybody would follow a track. So they opted out. And there is that route, and they hand them off to more prepared advisers. The customer does and the client does actually sit at the core of it.
PRESENTER: And in your experience does it cause a real re-learning of the way that you approach clients as well? Is this different from normal adviser conversations?
JAN HOLT: Well it’s interesting because when you look at some of the things that firms can do that take, or advisers can do that take them beyond regulatory minimums in terms of the need or the requirements to advise in these areas, one of the key things would be to become a later life accredited adviser, so that’s through the Society of Later Life Advisers. Now that’s not examination based. You do have to meet a core need of certain qualifications, but it’s an assessment process that’s in two parts. Part is self-audited, so you complete a questionnaire about how you run your business, how the support framework that you operate within works. But then the second part is a face-to-face assessment of your skills. And it’s not just those hard technical skills; it also looks at the softer skills. So what language do you use, how do you present information to people whose cognition may well be changing.
RICHARD SHEPPARD: When you’re dealing with somebody who’s suffering with Alzheimer’s or dementia you don’t talk louder and slower, you adopt a different technique.
PRESENTER: That’s only foreigners – I’m going to get shot for that one. The PFS and accreditation, is there a route there?
RICHARD SHEPPARD: Certainly there’s work towards their own individual element of qualification. Jan, you’re more familiar with this than me.
JAN HOLT: With the PFS you can actually be on their register, their find an adviser-type register, as a later life specialist. But that’s a slightly different process to Society of Later Life Advisers. That requires you to do additional, an additional 10 hours of CPD every year focused on later life advice, and to undertake the PFS online orientation course on later life planning. So there are two slightly different routes there, and I think many people see the PFS accreditation as a stepping stone towards full later life accredited status, which I guess the SOLLA standard is seen as the gold standard if you like for operating in this area.
RICHARD SHEPPARD: CFA is the qualification which is still, it’s still valid in many eyes.
JAN HOLT: Yes, you can advise in this area if you’ve got CFA or the equivalent certificate in long-term care insurance, or the old G80; however, there’s an interesting view from the regulator that says just because you don’t have those qualifications doesn’t then give you the option to recommend other things than long-term care insurance. So what they’re saying is you should probably, if you can’t look at long-term care insurance products because you aren’t qualified to, then rather than just head off down the route of creating investment portfolios, you probably need to think about referring your client to somebody who can.
RICHARD SHEPPARD: My final comment on this, Tony, would be around just circling back to the slide that Jan had around unregulated advice needs, and that is a phrase that as you mentioned earlier on, it’ll send a shiver, that unregulated tag sends a shiver down advisers’ spines. This is about dealing with a client. This is about opening the conversation, broadening the conversation to what is relevant to them now and may well become relevant in the future, ensuring that they are well versed. And certainly as an adviser we are and you are well versed about what their overall affairs are, and then really making sure that you put them on the best pathway towards the best outcome in their later life towards their death bed, because it’s going to happen.
JAN HOLT: And actually that’s an interesting point, because if you are going to outsource to somebody who’s providing those unregulated advice services, you would probably want to do a little bit of vetting or indeed due diligence on that third party. So you could look at what qualifications have they got, what’s their history, their background, their credentials.
RICHARD SHEPPARD: And their style.
JAN HOLT: Their style, you could trial that service to see how it actually operates. But there is also through the Society of Later Life Advisers a SOLLA care standard, which is specifically aimed at these unregulated advisers. So you could look at whether they’ve undertaken any, again any, what takes them beyond their regulatory minimum. And in this case there is no regulatory minimum so what are they doing to make sure that your clients are going to get the best outcome.
PRESENTER: Because a financial adviser that I’ve trusted all my life, I would expect them to hand me on to somebody that they trust as well. I now want to move us to the area of costs. We’ve touched on it briefly, it is quite horrendous. If a financial adviser decides to do this, what help is there to work out what the potential costs will be, Shep?
RICHARD SHEPPARD: Well from my standpoint you go right back to basics and it’s looking at accommodation costs. So we’ve talked a lot about moving into a care home and assistance – the evidence and the research from The Exposed Generation talks about it being a concern, and the biggest expectation going into later life. And we’ve got some resources that are available to us that are familiar to many, it’s called the BBC. On their website if you go onto the BBC website, or even if you just search via any internet search engine BBC care calculator, it will give you an idea. I’ve put a copy of their website on a slide hopefully which you can see. And what this will allow you to do is this will allow you or your client, they don’t need an adviser to look at this, and it will allow them to get an idea as to how much typically if they go down a social care need and they pass the means testing route, how much their local authority, their local council will pay towards this care, 24/7 care.
The second slide that I’ve shown you here is the process that you will go through. So they’ll ask you a series of questions, and what’s quite interesting here is that you get the opportunity to put in a postcode of where you would like to be residing. So for example in modern day many parents, their children have disappeared. They’ve disappeared to wherever they went to university, their friends, their family, etc. So what they might want to do is not look at where they currently reside, but where they would like to reside nearer the family. Alternatively I suppose they might think well if the kids have moved away, or their kids haven’t moved away, then I want to move and have that divide as well. So you can do that.
PRESENTER: There’s a particular beach in Barbados that won’t appear I can tell you.
RICHARD SHEPPARD: And you put in various assets that you have, the property, the assets and your earnings, for earnings read any pensions income, and then it gives you the results. So if we flick to, I live in Surrey, I won’t give you my postcode but I use this for where I live. And it tells me that if I qualify then Surrey council, my local council will pay £687 on average towards 24/7 care, which is nice. The problem is that I don’t think I could get a care home that I would be comfortable and I would want my parents, or as an adviser I wouldn’t necessarily want my clients to do into. So that’s going to create a gap. So let’s say it’s £1,500 a week for a care home which is acceptable. How do I then start to bridge that gap? First of all I now know what the gap is, and I can start to build a plan towards it. And then as an adviser based on the knowledge I have of the client, of their affairs, of their attitudes, of their capacity for loss, I can then just start to build in this gap analysis and start to gap fill with products and income division.
JAN HOLT: Yes, and establishing that shortfall is critical. And to take the BBC calculator one step further, at Just Retirement we’ve actually developed a little, it’s kind of like a little mini cashflow for care. So you plug in all of that information about what the cost of the care home is going to be, the client’s income, the client’s other assets, so property and savings and so on. And it then starts to run through at what point might you become eligible for state funded care. At what point would all of your other assets be exhausted, which order you would use to pay for care. So really helpful, because ultimately what people will want to know is can I be certain to be able to afford these care costs for as long as I’m possibly going to live. So that will be the overarching question in everybody’s mind.
PRESENTER: What do you want Shep, I presume is to move into this more luxurious care home, but only for two years and then live for eight.
RICHARD SHEPPARD: Well I mean that is a, I talk about this a lot, and I try and make a little bit of humour out of it, but the reality isn’t humorous at all. Because if you are three years into your later life in a care home that you love, just because you run the bridge club, if you run out of money and can’t pay the bill, they won’t let you stay.
JAN HOLT: The other thing for advisers to think about here of course, because we talked earlier about they’re likely to be dealing with possibly attorneys or the children of the person who needs care, establishing the client/adviser relationship here is critical. And acting in the best interests of the person who needs care, and not the interests of the people who’ve got one eye on where mum or dad are going to live, and one eye on what might be left for them. And that is so important that people don’t lose sight of the individual who needs care as the person whose needs must be met.
RICHARD SHEPPARD: I’ll just throw in one final stat if I may, and it’s to do with the American model that we’re sort of moving towards, following in the shadow of. The Americans, there’s a higher proportion that are scared of running out of money than they are of death. They’re more worried about running out of money in retirement than they are of dying. And I think that could be a reality that hits the UK as we go forward.
PRESENTER: In which case we’ve identified what it is that’s required, this gap, this fund that’s needed, the money that’s required in order to keep you in the state which you need to be in as it were. How are you going to pay? Where’s this funding for this income coming from?
RICHARD SHEPPARD: Well straight and simple you could just draw it all out of your asset portfolio. State pension and beyond, money in the bank, in deposit, in investments, and you could draw it down. The problem with that is that could have a potential life expectancy on the funds that you have. So the idea and the ideal would be to secure that gap in terms of a guaranteed income. But also building in alongside that certainty some flexibility if the mind does change, if incidents happen, if you need a new hip and you can go on the NHS waiting list and it could be three months, six months, nine months. If you’re wealthy and you’ve got cash available, why don’t you pay for it? Why don’t you draw money out? So keeping that certainty but also underpinning some flexibility in there as well. A key consideration.
JAN HOLT: The other way, well you could look at using the property. So many people do that, so they could look at whether they are eligible for a deferred payment agreement, which is a local authority arrangement that would allow them to offset their care costs against the value of their home. A little bit like an equity release plan; however eligibility for a DPA for many clients of advisers could be limited because if you’ve assets worth more than £23,250 then essentially you’re not going to get one of these. So beyond that other ways of using the property could be equity release. So particularly we focus a lot on residential care, but many people now, there are as many people having domiciliary care as there are in care homes. And so for those people they could be funding that partly through use of equity release.
Quite often people will put the property up for rent and try to use the rental income in order to pay for the costs of residential care. Or they just sell it and then that creates cash that can then be utilised in order to pay. So then we’re back to where you started really, which is well you either spend down your assets and hope for the best, or you create some kind of certainty. And you can do that through, well one method is you could use an immediate needs annuity which would pay. You put a proportion of the assets available into this annuity, and then that pays tax free income provided the payment is going to a care provider registered with the Care Quality Commission, and that lasts as long as the client does, so like any annuity pays for life.
PRESENTER: That may not use up all your assets, you might have ring fenced, may not, I can understand how expensive they would be, but nevertheless there’s a degree of what you would call ring fencing before you even get to that.
RICHARD SHEPPARD: Yes, definitely, and it’s identifying. The first stage really is to start the conversation, to record the conversation on the file, and make sure that everybody who is in the process is aware of what the aspirations and goals are, and then you need to actually identify what the problem is. So the gap analysis, for me that is an absolutely no brainer, I’ve done it myself. I’m only 50 but I’ve done it myself. I have some goals and aspirations in my later life, of course if I get there. So why not plan? The longer you have to plan the more likely you are to reach it. As we mentioned earlier on sometimes you don’t have time. So once you do have that immediate call, finding that income gap using the products that are available.
Pension freedom is fantastic for that, because it does allow access to an awful lot of potential wealth subject to a tax issue. But there are products such as the one that we offer, which allows the client the underpin of a guaranteed income, but they can dip in and cash in at certain points if they need to. And really it’s making sure that all of that is really rounded off, as Jan mentioned. It’s about keep broadening and broadening the conversation piece. In the old days we used to look at this very much as a silo mentality. So the property was the inheritance, the pension was my income and the savings were for the fun. Now it’s very much looking at everything in the round. This holistic financial planning, as bored as we are coming with that phrase, it really is what is required.
PRESENTER: Enough products out there? You mentioned immediate needs annuities, are there enough policies, ideas, different schemes out there to be able to provide all the things that people need Jan?
JAN HOLT: I think most advisers would say probably not. I think the market has been desperate to see two things in this space: innovation and more competition. And it’s difficult. I think with lack of clarity on what the Government intends to do with them having deferred or delayed implementation of part of the Care Act 2014 now until at least 2020, then that will have put some of the innovation on hold. So it is difficult, but there is…
PRESENTER: This is not the only time in history that we’ve lived with this need for flexibility because we don’t have all the answers.
JAN HOLT: No, and there are solutions there. So solutions do exist to meet that need for certainty that Richard’s talked about.
RICHARD SHEPPARD: And again this is going to sound very flippant, but are we talking here about requiring a product which provides a guaranteed amount of income until you die with the potential if you die earlier than you expected to pay back to the estate, isn’t that value protection under an annuity?
JAN HOLT: Yes.
RICHARD SHEPPARD: And if you want freedom and choice and flexibility in the meantime, isn’t that what a unit link guaranteed product that we potentially offer, and other solutions that are available? So the solutions are there, maybe they’ve not been, maybe we need to look at how we dress them up slightly.
PRESENTER: Maybe they’re not given the right names, may just need to look out there on that bookshelf of things that are available and change the names of them to help people in these circumstances. Often as we’ve talked about before it’s the language that people use.
RICHARD SHEPPARD: Yes.
PRESENTER: As we move towards a close to this discussion, which people must appreciate could run and run, your conclusions. From an adviser’s point of view, there’s potential conflict is there not between me and my son’s adviser, or my grandson’s adviser?
RICHARD SHEPPARD: Yes definitely. You need to remember who your client is, and act in the best interests of our client and what your client is looking to achieve. So that’s a conversation piece. The other issue that you need to concern yourself with is if you are using power of attorneys to protect the client’s interests in later life, who does power go to? What’s your relationship like? And I talk about wrapping your arms further and wider around the family. It happened in the old days but now we tend to deal with the client and that generation. And it’s just worth challenging yourself as an adviser how well do you know the people to whom the control or even the wealth would go to? It’s a very tricky decision, but we talked about it earlier on. You don’t need to play, you don’t need to play. You can make the active decision to opt out of this market. I think that would be an incorrect decision, because of the opportunity. And without us as financial advisers, and without our profession, I think the UK is going to struggle as we age.
PRESENTER: But it’s the requirement for you to feel confident in your own competence.
RICHARD SHEPPARD: Confidence and competence yes.
PRESENTER: Jan, just wrap up for us the big picture that Shep just mentioned there.
JAN HOLT: So if we could close on a final slide, so more statistics but I think quite a useful one, because this shows us that the value of privately funded care in the UK amounts to just shy of £11 billion every single year. Now I know the size of the immediate needs annuity market, and it’s tiny as a fraction of that. So what that suggests to me is that the rest of that £11 billion is not being actively managed by advisers to provide for the ongoing cost of care; it’s actually people who are spending down assets and hoping for the best. So I think there’s a phenomenal opportunity here for advisers to proactively discuss care services with clients, with children of ageing clients, and let’s get some of this money being spent down in a more controlled fashion so that we get the best outcome for the person who needs care, and then potentially some benefit for their dependents and beneficiaries, so hugely rewarding opportunity, and potentially a very profitable one too.
PRESENTER: On that note, Jan and Shep, thank you very much.
RICHARD SHEPPARD: Thank you.
JAN HOLT: Thank you.
PRESENTER: Do stay with us for a reminder of the learning outcomes.
In order to consider the viewing of this video as structured learning, you must complete a reflective statement to demonstrate what you’ve learned and its relevance to you. By the end of this session you’ll be able to understand and describe the background to long-term care and the current market; residential care, the cost of care and the client’s perspective on these issues; the cognition challenge, dementia and decision making; what advisers need to prepare for; the care advice process; powers of attorney; when and how to deal with clients’ changing needs; regulated and unregulated advice; how to build this business from an adviser point of view; when to use outside specialists; the Society of Later Life Advisers and PFS accreditation; costing solutions; the difference between health and social care; gap analysis and ways of paying using property and other assets; the use of annuities, when to ring fence; current available products; and the overall market opportunity.
Please now complete the reflective statement in order to validate your CPD. And don’t forget to watch out for the other Akademia learning modules.