Industry consenus would tell you that the long term care market is almost completely redundant. However, the need for cover is still acute, argues Nicky Cave
Many say the long term care (LTC) market is beyond resurrection, but how can it be? After all, a recent Help the Aged survey of 942 adults showed that almost two thirds of 45 to 65-year-olds have made no provision for future care. Over half were planning to cover care-home costs with their basic state pension, and the same number thought their personal savings would cover the cost.
True cost
However, when the true cost of care is explained to them, and they realise what little state support is going to be available, they would want to readjust their expectations and make some provision for the future?
One may think so, and yet several insurers have pulled the plug on their pre-funded LTC contracts leaving just one player in the market, Partnership Assurance, and no obvious signs that anyone else intends to join the firm in the foreseeable future.
How can this be? Well obviously a factor will be that the current system for care is a very complex one and of course the commonplace 'life's too short/it won't happen to me' mentality will feature but, as this is predominantly a financial planning issue, some responsibility must lie with the IFA community, even if it is just one of education and managing client expectations rather than making a sale.
However, in April this year, 18 months after the regulation of LTC advice was introduced, only 1,286 advisers in the UK had attained the CF8 LTC qualification, which in itself is only an indication of basic knowledge and competency and in no way measures practical application or experience. This represents something like 1% of the advisory population.
If agreeing that CF8 is a basic requirement to talk knowledgably on this subject, this means that either 99% of advisers' clients are receiving no advice at all about funding LTC costs or the advice they are receiving is being provided by advisers not adequately qualified to give it. This is simply unacceptable.
Regulation was supposed to protect the client and, indeed, was something welcomed by the advisers already active in this area, but it seems it may have done more harm than good.
This is because buried deeply in the Financial Services Authority's (FSA) Training & Competence Handbook it states that anyone new to giving LTC advice has up to two years to attain the CF8 qualification.
You cannot even advise a client about a £10-per-month life insurance policy without getting qualifications in advance, and yet LTC solutions can often mean a client spending tens of thousands of pounds.
Also, the FSA has only regulated LTC products (if you read the smallprint) and not the advice itself.
Understanding
So why is this potentially harmful? There are numerous examples where investment bonds have been set up by advisers who have minimal understanding of the care market to generate income for meeting their client's care costs.
On the face of it, this may be a good solution for the client but the immediate-needs annuity has not even been put forward for consideration or, if it has, not in a balanced and unbiased fashion.
Recent statistics show that about 40% of clients wanting to generate an immediate income for their care costs, when presented with all possible options, do choose the immediate-needs annuity product as the solution.
However, if an adviser is not CF8 qualified they will not be able to advise on the annuity option and so many simply do not.
If a client's investments end up being spent in their entirety on care costs then, with the benefit of hindsight, an immediate-needs annuity could have protected a good percentage of their estate and someone, somewhere may start pointing that all too familiar finger of retrospective blame. In fact, a number of legal practices believe this will be an area for future litigation.
Worse still, what if the client had been eligible for NHS continuing care but the adviser did not tell them this? Or what if the adviser was oblivious to the existence of immediate-needs annuities and recommended that the client bought a standard-purchased life annuity instead, where the yield would be significantly lower? This, too, is happening.
Being realistic though, most advisers simply do not want to get involved in the LTC market. Many will perceive their client bank as having no need for this type of advice and many will, quite frankly, not want to be bothered with studying for yet another qualification.
This is where the industry is missing out and this is where we need to start seeing much more collaboration between advisers.
It is probably worth making the distinction between the pre-funded market and the immediate market.
Pre-funded means people planning in advance to minimise the impact on their estate of potential care costs.
The problem here, as supported by the Help the Aged survey and other research, is that 'you don't know what you don't know' and so if a client is taking steps to mitigate Inheritance Tax or is investing money for future security, they probably do not know that care costs could be a significant threat to the estate. It must, therefore, be the responsibility of an adviser to draw people's attention to this.
There is no reason why this cannot be done on a fairly broad and generic basis as long as the adviser refers the client to a LTC specialist if more detailed and specific advice is required as a result. If advisers are not comfortable with the basics, specialist firms offer training courses to put this right.
Immediate-needs annuities, on the other hand, mean those clients can be faced with meeting their own care costs here and now, whether in a care home or in their own home.
Often it will be the parents of a client, rather than a client themselves, that is faced with the problem and as soon as this situation presents itself, a specialist should be brought in immediately.
Working together on a split fee/commission basis will see the client made aware of all options. It will cover the non-CF8 adviser for negligence-by-omission claims or inappropriate advice being given as detailed earlier, and both parties will be financially remunerated.
Flexibility
More than that, a specialist will be equipped to challenge local authority decisions, which may benefit the client financially. They may also be able to agree a fee increase limitation with the care provider, and also give advice on choosing a home and many more aspects that will be invaluable to the client.
A specialist who does nothing but care advice will not cross-sell and should refer any investment or other business back to the original adviser.
In conclusion, the market could flourish if advisers team up with specialists and use them as a valuable resource. The results may not be measured by traditional product sales but, instead, by improved client awareness of all their options and the implications of each.
A final word of warning, however. In selecting a LTC specialist to work with, it is probably worth looking beyond whether they simply hold CF8, as experience counts for a great deal in this market.
Look at their website; seek a reference from other advisers that have introduced business to them; and be sure the relationship can be a cohesive one, whereby a joined-up, professional service can be presented to the client, are all important factors that could contribute to the resurrection of this market.
Nicky Cave is managing director of Eldercare Solutions and director of care services at Ayot Mead
