CPD: Aged Care Advice – the consumer protection challenge

Understanding of the complexities of aged care advice, viewed through a consumer protection and compliance lens.

Introduction

The burgeoning aged care sector is one that financial advisers – directly or indirectly – will increasingly come into contact with. As our population ages, and longevity improves, most advisers will have a number of clients who are either using aged care services themselves, or who are making decisions about aged care on behalf of their parents or grandparents.

Planning for, and eventually funding, aged care costs can incredibly complex, involving life changing financial decisions in areas such as:

• superannuation
• taxation
• health care
• Centrelink
• cashflow, and
• estate planning.

The need for expert advice is clear.

But advice relating to funding aged care services is currently unregulated, leaving a variety of unqualified and potentially conflicted stakeholders – think estate agents, aged care service providers and finance brokers – free to provide services called ‘aged care advice’. Critical to their ability to do this to avoid giving financial product advice, and at first glance, as aged care services are not classed as a financial product, this seems reasonable. And yet as we will explore below, making recommendations about funding aged care from one or more vehicles that are classed as financial products may well see a line being crossed.

In this article, we will explore aged care advice through a consumer protection lens, including:

• the nature of aged care services
• funding options and considerations
• the definition of financial product advice, and
• consumer protections available to retail financial advice clients.

What do we mean by ‘aged care’?

A common expression when discussing aged care is to say that someone is ‘in aged care’, the use of which implies we are talking about people living in dedicated aged care residences. Yet residential aged care is only one of three main categories of aged care assistance, and while the number of Australians in residential aged care is growing strongly, it still represents a minority of aged care being provided.

Types of aged care

According to the Australian Institute of Health and Welfare^[1], there are three main types of aged care:

• Residential aged care provides accommodation and care at a facility on a permanent or respite (temporary) basis. Permanent care is intended for those who can no longer live at home due to increased care needs, while respite provides a break from normal living arrangements.
• Home support (Commonwealth Home Support Programme) provides entry-level support at home for people as well as their carers. Services available through home support include domestic assistance, personal care, social support, allied health and respite services.
• Home care (Home Care Packages Program) provides different levels of aged care services for people in their own homes. It is targeted towards people with needs that go beyond what home support can provide. Ongoing services are available to keep people well and independent (such as nursing care), stay in their home (through help with cleaning, cooking and home maintenance) and remain connected to their community through transport and social support.

Usage of these services

Australian Government data^[2] as of 30 June 2023 revealed:

• around 193,00 Australians were using permanent or respite residential care, and
• 258,000 were using home care.

Over the 2022/23 financial year, over 816,000 people received home support.

In line with our ageing population, these numbers will increase dramatically, with experts projecting the above numbers to almost triple by 2050, when it is estimated 3.5 million Australians will be accessing the various types of aged care service³.

Self-funding aged care

Aged care funding rules are complex.

While the Government fully subsidises aged care costs for people whose main income source is the aged pension, a number of social security thresholds and tests come into play, meaning that the sale of the home becomes a critical financial decision. It also means that the same person can pay different amounts for aged care services depending on how their finances are structured, making expert guidance imperative.

Costs vary, based on the level of care required and the type of care a person is assessed as eligible for.

• A Home Care Package consists of the federal government contribution (the subsidy) and the individual’s contribution.
  1. Fees includes a basic daily fee, an income-tested care fee and additional fees. Fees vary by level of care needed.
• Residential aged care can involve several types of fee, including:
  1. Basic daily fee paid direct from the government to a provider
  2. Means-tested care fee (government subsidised)
  3. Accommodation (government subsidised)
  4. Extra services and additional services fees (not subsidised)

While accommodation fees can be paid on an ongoing basis (like a rental), many choose to pay in advance, via a Refundable Accommodation Deposit (RAD). The RAD is fully refundable to the resident when they leave the provider or is returned to the resident’s estate if they pass away.

While the average RAD in Australia is around half a million dollars, they can vary greatly depending on the individual provider and location. RAD’s exceeding $2 million are not unknown.

How do people pay for their RADs?

The financial stakes are obviously very high, and it is clear that to fund their aged care costs, especially RAD’s, most individuals will need to access amounts from within their savings and wealth holdings, which could include:

• their home
• investments including investment properties, shares, and managed funds
• term deposits, and
• superannuation.

Most of these options clearly involve financial products, and with 2024 Aged Care Taskforce report^[4] recommending those with the means make a bigger contribution towards their own aged care costs, structuring and accessing funds from these options will become an even more critical issue, making expert advice increasingly essential.

Unlicensed aged care advice – how it exists

The Corporations Act 2001 does not specifically capture advice regarding aged care accommodation as financial product advice.

Section 766B of the Act^[5], defines the meaning of financial product advice, personal advice and general advice thus:

“Financial product advice means a recommendation or a statement of opinion, or a report of either of those things, that:

1. is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products; or
2. could reasonably be regarded as being intended to have such an influence.”

Section 763A of the Act^[6] defines a financial product as:

“A financial product is a facility through which, or through the acquisition of which, a person does one or more of the following:

1. makes a financial investment
2. manages financial risk
3. makes non-cash payments.”

At the moment, Refundable Accommodation Deposits are not regarded as being captured by the definition of financial product, allowing aged care advice to be given without an AFS licence, provided the advice is restricted to information and advice about fees and services in aged care, and, if financial products are discussed, that discussion is restricted to factual information only.

While a person providing credit advice and products must hold an Australian credit licence, advice about buying or selling property – including the family home – is exempt from both the Australian Financial Services (AFS) and consumer credit licensing provisions.

Similarly, the provision of information about Centrelink is not limited to licensed financial advisers

All of which means there are plenty of ways an individual can set out their shingle as an

‘Aged Care Adviser’ without the need to be a licensed, registered financial adviser.

The question is, given the increasing number of people needing aged advice, and with Australia’s 16,000 financial advisers already stretched and overworked, is this such a bad thing?

Consumer protections forfeited under the current framework

A number of consumer protections are afforded to individuals when talking to licensed financial advisers about financial products.

On the product side, protections include:

• the design and distribution obligations (DDO) regime, which requires financial product issuers to identify a target market for their financial products and take reasonable steps to ensure that distribution of those financial products to retail clients is consistent with that target market
• various obligations that AFS licensees must comply with (as responsible entities of schemes with retail investors must hold an AFS licence), including the requirement that licensees have an appropriate internal dispute resolution system to deal with complaints from retail clients, and membership with the Australian Financial Complaints Authority (AFCA)
• entitlements to receive financial product and service information disclosure such as a Product Disclosure Statement (PDS) or a Financial Services Guide; and
• a range of protections under Ch 5C of the Corporations Act that apply to registered schemes (where registration is generally required when retail clients are scheme members), including the duty for the responsible entity of a registered scheme to act in the best interests of scheme members.

On the advice side, retail advice clients also benefit from significant additional protections under the Corporations Act when receiving financial advice, including requirements for advisers to:

• act in the best interests of their client (s961B);
• ensure their advice is appropriate (s961G);
• give priority to their client’s interests where there is a conflict of interest (s961J); and
• in many cases, and potential QAR changes notwithstanding, give a retail client a statement of advice (s946A).

Financial advisers are also required to have Professional Indemnity Insurance, affording clients a measure of confidence when seeking financial remedies if advice contains errors, or the adviser was negligent.

Why these protections are especially important with older clients

By definition, the vast majority of people entering residential aged care are older (the exception being some young people who live in aged care in the absence of dedicated facilities).

Indeed, 76.5% of people in residential aged care are aged 80 and over^[7].

This brings a range of issues into focus, including diminished mental and physical capabilities, and conditions like dementia.

Elderly Australians are more likely to use instruments such as Enduring Powers of Attorney, which can put important financial and care decisions in the hands of those holding those powers.

While this is normally caring and loving family members, it does raise the spectre of elder financial abuse. The cost-of-living crisis, rising housing costs, and evolving family structures have made the ‘impatient inheritor’ phenomenon real, and many older Australians may find themselves under pressure from their younger family members, to either sell their home and other assets. The application of the various income and assets tests means these decisions can have major ramifications for the cost of aged care, and in turn the quality of care that is affordable.

Is unlicensed aged care realistic?

Mindful that many accountants may find themselves advising clients about aged care, the CPA issued a Guidance Note^[8] to its members on the topic. The note is instructive as it highlights the types of questions asked about aged care, and the ways to provide guidance without straying into the realm of financial advice.

The questions they believe their members could expect include:

• What options are available for aged care?
• What are the potential costs?
• What alternatives are there for paying the Accommodation Payment?
• Should I retain sell or rent the family home?
• Will my social security entitlements be affected by my choices?
• Will I have enough cash flow to sustain aged care costs?
• Are there any strategies to reduce costs?
• Could it impact my estate planning?

The Guidance Note goes on to describe the types of advice that can be provided on an unlicensed basis:

While the CPA guidance is absolutely correct, it does beg the question as to how realistic it is – in the context of discussions about how to fund a RAD of $500k or more – to provide effective advice that doesn’t involve discussions about financial products, or doesn’t recommend a course of action such as selling the family home.

Even in the event that an aged-care adviser can stay on the right side of the law, one has to question how effective that advice can be, given the factors that should be taken into account.

The complexity of aged care leaves most clients confused

2021 research by National Seniors Australia^[9] revealed that planning for aged care was relatively uncommon and there was a great deal of confusion about aged care costs and their own obligation to contribute.

According to their research, approximately one-third of Australians 65 and older use some form of age care services, only 14% of seniors had planned for aged care costs. In the majority of cases, this was because respondents didn’t know enough about them to actually plan. Indeed, a previous National Seniors report^[10] showed 80% of people did not understand consumer contributions to aged care.

While the Government pays for the lion’s share of aged care costs, people still have to pay for services depending on their income and/or assets. There are many fees and charges, co-payments and deposits that are in place which people are understandably ignorant about until they need to access care.

The danger is that many care recipients will be caught off guard by these unplanned costs and may either struggle to access the right level and quality of care, or they feel pressured, and rush into making big financial decisions without truly independent, expert guidance.

So back to the question, is unregulated aged care advice a problem?

Not all decisions relating to aged care are financial ones, but those that are involve major, life-changing amounts. Complex decisions about the interplay between home ownership, Centrelink, superannuation, estate plans, and cash flow need to be made, and many of these decisions will be hard to undo.

While it is legally permissible to offer aged care advice outside the realms of licensed financial advice, it seems likely that such advice would be very superficial. It would also not be accompanied by the various consumer protections afforded people when dealing with financial products, and with licensed financial advisers. Arguably, these protections are more important for older, possibly more vulnerable, Australians than for others.

Calls to regulate aged care advice are frequent. As far back as 2016, The Council on the Ageing (COTA) argued that aged care financing should be considered a financial product, thereby requiring advisers to obtain a financial services licence from ASIC.

“Aged care financing is not a financial product and is not governed by ASIC. We are pressing for that to change. We will pursue whoever is next in government to change that provision,” COTA chief Ian Yates said at the time^[11].

More recently the topic was in the news when Aged Care Steps called for the sector to be regulated, and announced an industry consultation to bring more focus and attention on the issue.

The firm said that though aged care advice is an inherently complex area, unlicensed and unregulated businesses and services are increasingly providing this financial advice on aged care. According to them, the result is superficial, often conflicted advice, no regulatory oversight, and a lack of essential consumer protections, which could place the client at substantial risk and lead to decisions that are not well-informed¹².

“The variety of care options, rush to make immediate decisions, cost of advice, complicated fee structures, conflicts of interest, and raw emotions are just a few of the challenges people face when accessing aged care advice,” said director Louise Biti.

“This situation underscores the need to reassess the regulatory framework governing aged care advice, ensuring that where financial options and outcomes are considered by an ‘advice provider’, the advice is holistic rather than solely strategic, legally compliant, and consumer-focused, she said.

Summary

The aging population is driving an increased demand for aged care services, presenting significant financial planning challenges. Funding aged care is complex, involving superannuation, taxation, health care, Centrelink, cash flow, and estate planning. Despite the need for expert advice, aged care advice is currently unregulated, allowing unqualified stakeholders to provide guidance without a financial services license. This situation poses a consumer protection challenge, as decisions about funding aged care often involve financial products.

The three main types of aged care in Australia are residential aged care, home support, and home care, with usage projected to rise significantly. Self-funding options typically involve substantial financial assets, necessitating expert advice. Current unlicensed aged care advice lacks the consumer protections afforded by licensed financial advice, raising concerns about the quality and safety of such advice.

Calls for regulatory reforms are increasing, with the aim of ensuring all aged care advice is comprehensive, legally compliant, and prioritises consumer interests.

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References:
[1] https://www.aihw.gov.au/reports/older-people/older-australians/contents/aged-care
[2] https://www.gen-agedcaredata.gov.au/topics/people-using-aged-care#Aged_care_use_by_age
[3] https://www.aph.gov.au/About_Parliament/Parliamentary_departments/Parliamentary_Library/pubs/BriefingBook44p/AgedCare#:~:text=Significantly%2C%20by%202050%20an%20estimated,of%20services%20available%20to%20them.
[4] https://www.health.gov.au/resources/publications/final-report-of-the-aged-care-taskforce?language=en
[5] https://classic.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s766b.html
[6] https://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s763a.html
[7] https://www.gen-agedcaredata.gov.au/topics/people-using-aged-care#Aged_care_use_by_age
[8] https://www.cpaaustralia.com.au/-/media/project/cpa/corporate/documents/tools-and-resources/financial-planning/guidance-note-advising-on-aged-care-20-feb.pdf?rev=3b8d33bb25aa45c0bf43571e5ed833c7
[9] https://nationalseniors.com.au/uploads/Planning-for-care-costs-24.8.21.pdf
[10] https://nationalseniors.com.au/uploads/09183073PAR-RBD18-ResearchReport-AgedCareLiteracy-Web.pdf
[11] https://www.afr.com/companies/healthcare-and-fitness/call-for-aged-care-financial-advice-to-be-regulated-by-asic-20160617-gpllly
[12] https://www.ifa.com.au/news/34086-aged-care-steps-flags-worrying-trend-of-unlicensed-aged-care-advice