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State of fees to come

For almost 10 years now, long-term care planning for the more mature sector of the population has been talked about, written about and debated intermin ably in both Houses of Parliament. Yet it has remained a niche market in UK financial services.

The reasons for this are legendary but, for the first time since the dawn of the LTC market in the UK, it does seem that the market is set to broaden.

All the pieces in the jigsaw have finally come together. We have the prospect of regulation, along with the introduction of Cat standards.

The Government has now set in stone the actions which will be taken in response to Sir Stewart Sutherland&#39s royal commission recommendations. The new Health and Social Care Bill will address the issue of free nursing care and local authority loans to help with funding care, along with many other elements of the new care deal for the elderly.

The end result will be that consumers will feel better protected and better informed about the role that long-term care insurance can play in financial planning.

There will also be the stark realisation that there is no point in clinging on to old hopes that the State will provide because there will now be clear guidelines in place to demonstrate that the State will be there only to support the most needy.

The state will also be more fair, in that all nursing care will be free. But along with this commitment, the state will be saying that the rest of the care costs will be paid for by us and no one else.

The foundation of insurance has been removal of risk. Long-term care poses a financial risk to many of the population. The royal commission report, With Respect to Old Age, stated that one in three of all women over 65 will need some form of residential care later in their lifetime. The ratio for men was quoted as one in five.

The average cost of a private room in a nursing home in the UK amounts to just under £20,000 a year. This financial risk is a much grea ter threat to an individual&#39s personal lifestyle than the application of a market value adjustment on an investment plan and yet, in the last 10 years, there have been fewer than 35,000 long-term care plans bought.

So the case for there being a need to plan has been established and, with the prospect of extended consumer education through the Cat-standard initiative, the stage has been set for IFAs to embrace long-term care planning as a centrepiece of their financial planning approach for the future.

The baby boomers of tom orrow are potentially the biggest new market which the IFA community should be preparing for. Home ownership is more or less the norm, high levels of comfort and independence are the expectation and there is a willingness to pay for quality.

Yet that self-same group are the ones who will suffer most financially if they have failed to protect themselves against the cost of care in later life. It is also the case that this group tends to look for someone else to blame when things go wrong. Might it be their IFA?

The baby boomers are not the only group who need help with planning, however. The other group is just one generation older and, sadly, this group all need urgent financial advice but often it will not reach them.

There are roughly 40,000 people a year who enter residential care facilities and fund that care out of their own pockets or should we be saying bank accounts?

ABI data points to the fact that fewer than 600 point-of-need long-term care plans were sold in the first nine months of 2000. Funding nursing home fees is a major financial exercise and yet it would seem that many very elderly and vulnerable people miss out on independent fin ancial advice at a time when it could be most valuable for them.

The call for regulation of long-term care insurance will emphasise once more to the nursing home industry that provision of financial advice to their prospective residents is not something for the matron or the finance director to become involved with. It is the domain of the IFA but, at the same time, it is up to IFAs to ensure that their services are understood and accessible.

So where do we start in this brave new world? It has to be training but not just in terms of the way impaired life annuities can be paid gross or how assistive device benefits apply to a particular plan. The training has to start with showing you, the IFA, how to explore the customer&#39s attitude to risk, strangely enough.

In this context, however, we are not looking at investment risk but the potential of asset loss. This principle applies just as easily to the baby boomers as it does to their parents. Once the size of the risk is determined, the construction of a solution is relatively easy. Long-term care insurance is not so different from other types of financial products. It is des ig ned to solve a problem.

With the prospect of other markets narrowing, it could be that long-term care insurance will not just be solving the problems of the baby boomer group. It could be that it is solving a problem for some IFAs, too.


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