Not another commission

In September 2018, after a report from South Australia’s Independent Commissioner Against Corruption (ICAC) uncovered abuse in the aged care system, Prime Minister Scott Morrison launched the Royal Commission into Aged Care.

At the beginning of March this year, some two and a half years later, the final report of the Royal Commission was released with recommendations to improve wait times for care, as well as to improve governance and regulations.

The report was damning – it highlighted the abuse vulnerable patients suffered from staff, poor working conditions for staff and gaps in the system where care was unavailable.

However, what it failed to do was put a significant focus on the personal financial and funding aspects of the service.

AGED CARE RC OUTCOMES FOR PLANNERS

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Fortunately for advisers, they were less in the crosshairs than with the Hayne Royal Commission, but the media coverage of the Aged Care Royal Commission still shaped the public’s perception of aged care.

This meant advisers have had to deal with clients who might now be having second thoughts about entering the system.

Melinda Measday, HLB Mann Judd wealth management director, said there was now more awareness of what went into aged care and this affected how clients perceived it as an option for them.

“It’s more of a considered approach to what someone’s options might be, before the Royal Commission the family may have thought an aged care facility was the best place for their relative,” Measday said.

“Now there’s just a few more conversations before that determination is reached, because perhaps we’re a little less trusting of that aged care option.”

For example, an adviser might have a client and it might be time to put her in an aged care facility, but she’s feeling hesitant and uncomfortable by the idea.

“It’s always part of the conversation: ‘oh, they don’t seem like very nice places, but what do we have?’,” Measday said.

“Every family is different and every person is different but you’re weighing up whether they are safe, comfortable and happy at home or whether they would be more safe and comfortable in aged care facility.

“It all comes down to how good the home care package is, depending on what they can afford, as well as their own state of mind and level of anxiety – it’s a very personal thing.”

However, director and adviser at Wattle Partners, Drew Meredith, said he felt the Royal Commission had little impact on the advice that financial planners were giving when it came to considering client aged care options.

“What is clear, however, is that significant change is ahead and there will be further questions about the funding and means testing of care,” Meredith said.

“It is likely this will result in greater complexity and a broader range of options being available to consumers, which ultimately will be an opportunity for financial advisers.

“Similarly, this added complexity will increase the importance of actually specialising in the sector, not just dabbling in aged care when clients need advice on it, as without this it will be difficult to add value.

“It is probably a growing opportunity for specialist advisers depending on what recommendations are put into action.”

Louise Biti, Aged Care Steps director, said even though the Royal Commission had a broad-ranging remit, it was largely focused on people’s experiences within residential care.

“That was where it focused on and it ran out of time at the end to unpack the financial aspects in detail,” Biti said.

“The Government gave its budget update in May and that includes a significant reform agenda for aged care.

“The Government announced a five-year programme to reform the aged care system but, at this stage, there aren’t real financial planning outcomes coming from that, everything that is going to be an expenditure is being funded by the Government.”

There were no changes to consumer contributions or costs at this stage but Biti said that would only be a short-term measure.

“What the Government really needs to do is to get the system on a better legislative platform around what is the purpose and role of aged care, what service needs to be provided,” Biti said.

“They need to work with the aged care industry to address some workforce issues, service delivery issues, and the design and structure of what is residential aged care.

“Once they have a system that people are recognising as delivering to expectations and delivering quality care, then they are going to have to address the cost issues.”
Biti said there would be a budget reform and it was her expectation that aged care would become more expensive for consumers.

“In a couple of years’ time, a budget will have a reform for what it costs consumers and that’s going to be more expensive – and it has to be more expensive – and people will be asked to contribute more,” Biti said.

“From a financial planning implication today, it’s something that we as consumers also need to take responsibility for.

“It seems to be such an attitude at the moment that it’s up to Government to fix, fund and solve, but we as consumers need to take more responsibility for our lives.”

In the meantime, however, there were still ways advisers could make their clients aware of the Government services, said Samantha Geelan, Empower Aged Care senior financial adviser/aged care specialist.

“At least it should be the case that financial advisers are letting their clients know there is Government support to keep you at home and they can get access to it a lot of quicker.”

This includes more funding for 10,000 home care packages, which the Government increased by just under $500 million in this year’s Budget. Since the 2018/19 Budget, the Government had invested $2.7 billion in 44,000 new home care packages.

“This was one of the outcomes that came from the Royal Commission, they acknowledged with home care that most of the time people reach out to get it they don’t receive it in time,” Geelan added.

FASEA REQUIREMENTS 

Although the Royal Commission into Aged Care had no direct impact on advice, all advisers needed to deal with the requirements from the Financial Advisers Standards and

Ethics Authority (FASEA) and aged care was no exception.

Aged Care Steps released a whitepaper ‘FASEA requirements for aged care advice’ on how the new standards applied to aged care advice.

Biti said FASEA just bedded down into a codified structure what were already expected requirements.

“Even without FASEA, you’re a financial planner and you’re talking to a client about retirement and planning ahead and what does that look like, how you make your financial resources last throughout retirement and what are your expenditure needs through retirement – that’s just what financial planning is about,” Biti said.

“Standard six says you must consider the long-term broader interests of the client, which means if you are giving retirement advice and you don’t consider the frailty period, then you are not meeting your code of ethics requirements.”

Biti said advisers had the responsibility to upskill to the level that was required for the level of advice they were giving.

“This doesn’t mean every single adviser needs to become an expert, but every single adviser needs to have a reasonable level of understanding and awareness.

“They need to make a decision about whether they want to go beyond that and start to build up the competency to give the advice and what level of education they need.

“Or whether they’re going to create a partnership with somebody else who is the expert that you refer to them to.”
Measday said her firm had opted to enter into an arrangement with an estate planner several years ago who was able to handle those specialist responsibilities for their clients.

“Bringing him into our team enable us to open the conversation about whether a client has enduring power of attorney (EPOA) set up and medical guardianship.

“A lot of clients took up the offer of meeting them and updating their wills and EPOA – that has remained a big part of the conversation and has opened up conversations about the frailty years.”

Under FASEA, Meredith added, financial advisers were also required to consider the broader interests of their clients which meant identifying the risks and potential for aged care needs well ahead of when they may be required. 

“It means advisers can’t really just ignore this as a potential issue going forward and need to either educate themselves or find specialists they can refer to.”

However, while the FASEA requirements had led to more interest in providing aged care advice, it could still prove problematic as many advisers lacked suitable expertise or appropriate training in the subject.

“Standard six says you need to put your clients’ best interest first, but one of the unfortunate aspects of it not acknowledging that is an area of expertise outside the standard scope of financial planning,” said Geelan.

“They need to get that additional training and treat it in the same sort of area of speciality like with UK pension transfers.

“It isn’t for the faint-hearted, there’s a whole area of expertise and emotional component you need to understand as well.”

THE THREE STAGES OF RETIREMENT

In the pre-retirement, active and quiet years, it was important that clients and their advisers started planning. This meant planning for three stages: the active phase, the quiet years and the frailty years.

Aged care was primarily needed for the frailty years – when people needed the most support – but it was important to have these conversations with clients as early as possible in the advice process.

“It’s a normal financial planning concept – having conversations with clients to collect facts, both financial and personal facts,” Biti said. “Understanding the person and then helping them understand what their choices are going to be when the transition points come.

“Financial planners should be starting to have those conversations and mapping retirement out – not as one homogenous period – but as three phases.

“They need to have conversations with the client about what is most important to them to be able maintain throughout that period – what would and wouldn’t they sacrifice?

“Then it’s about the decisions about where they live. The house needs to come into the conversation as a resource.”

Even from the early stages, Measday stressed the important of having an enduring power of attorney (EPOA) and medical guardian set up.

“That way there is someone that can step in and make decisions if they can no longer make decisions themselves,” Measday said.

“It’s never nice to think about when you get to the stage where you are unable to make complex financial decisions or simple ones, so it’s important to have someone set up that’s trustworthy that can step in for you at some point.

“In my experience, it’s more successful when a parent can start handing over financial reins to one of their children while they’re still able and capable of doing that.

“It’s an easier transition for us as financial planners to get know and deal with the next generation, rather than doing that after there’s some health crisis.”

Measday said, in her experience, she had mostly been helping older generations not with losing capacity but more of a “twilight period”.

“In the morning, they might be okay, but in the afternoon they might not be –it’s not so black and white,” Measday said.