Good take-up of ‘Ask an expert’ offering during Financial Planning Week.

Results from the 13^th annual Financial Planning Week indicate that the need for access to quality financial advice is stronger than ever, with more than 90 questions submitted to the FPA experts and over 10,000 visits to the ‘Ask an Expert’ page.

Financial Planning Week, which concluded last week, is an initiative of the Financial Planning Association (FPA) that aims to encourage, empower and educate all Australians about the positive difference that trusted financial advice can make to their lives.

Superannuation and retirement planning emerged as key areas of concern for Australians during Financial Planning Week, attracting the highest number of questions and engagement online. Another major demographic seeking financial advice was young people planning for their first home or kicking off a savings plan.

Mark Rantall, CEO of the FPA said: “The interest from people of all ages and walks of life goes to show that quality financial advice is universally beneficial, whether you are entering retirement or looking to open your first bank account.

FPA research shows that just 61% of Australians receive quality financial advice, despite the massive impact it can have in consumers’ lives. Access to quality financial advice is truly a national issue, which is why we are so pleased to see Financial Planning Week achieved its goal of engaging Australians in benefiting their financial futures through trusted advice.”

Financial Planning Week comprised a number of activities to connect Australians with quality advice online and via social media.

The FPA community of financial planners was heavily involved in the initiative. More than 70 financial planners volunteered to answer queries for the ‘Ask an Expert’ site, while topic experts blogged on key issues relating to retirement, saving, superannuation, debt and life insurance.

“FP Week benefitted not only consumers but our members as well, with a 200% increase to the FPA’s ‘Find a Planner’ page during Financial Planning week as compared to the weekly average. In fact, half of the FPA’s 10,000 member practitioners received page views to their ‘Find a Planner profile’ during Financial Planning Week,” said Rantall.

FPA member, Renee Hush took part in Financial Planning Week and wrote a blog on the most popular topic of the week, superannuation and retirement.

“As Certified Financial Planners, we continue the work of Financial Planning Week in our everyday lives, promoting the importance and impact of financial advice through our work with clients. It has been a great experience dealing with members of the public who do not generally seek advice but see the benefits it can offer to their lives. I support the FPA in these initiatives and will continue to promote increasing access of qualified financial advice for all Australians.”

Research commissioned by the FPA in August revealed that only one in three (34%) Australians know where to find a financial planner they can trust. Yet, the results of Financial Planning Week are evidence to the fact that when it is made available, financial advice is highly valued by Australians of every demographic.

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This was the message conveyed to the more than 500 Lonsec subscribers attending the recent Lonsec Adviser Roadshow held in Perth, Adelaide, Brisbane, Sydney and Melbourne.
 
Lonsec continues to operate with the largest retail research team in the Australian market, with more than 35 investment research professionals across managed funds, specialist products and investment consulting, Lonsec CEO, Amanda Gillespie, told attendees.

New appointments to the research team reinforce Lonsec’s commitment to quality research, she said.

Simone Gavin has joined Lonsec as a Senior Investment Analyst and is involved in the review of funds across all sectors, with primary focus in Australian equities, global equities, and global emerging markets. Simone has 13 years’ experience in financial services, including more than four years with Standard and Poor’s managed funds research team.

Nicholas Thomas has also joined Lonsec as a Senior Investment Analyst, and will be responsible for undertaking managed funds research, with a focus on equity sectors. With 13 years investment experience, Nicholas was most recently a Senior Research Analyst at Russell Investments, where he was responsible for researching Australian and Asian equity funds.

Edward Rickard and James Kirk have joined Lonsec as graduate investment analysts.

While research remains Lonsec’s core focus, Ms Gillespie said that Lonsec had responded to adviser needs in an evolving financial services environment, and augmented its core research with a number of strategic non-funds research activities. These include the creation of a new research pillar – Strategic Research, a retirement solutions service from Lonsec’s Investment Consulting team, the launch of an expanded ETF research suite, the transition to specialist data and analytical tools provider Financial Express and the launch of the Lonsec super comparator tool.

“The financial services environment is one of change. We are experiencing continual regulatory change, massive demographic shifts and a rapid pace of technological change that is impacting the way advice is delivered. Lonsec aims to provide advisers with the research and the tools they need to meet the needs of the end investor in this changing environment.”

The retirement income pressures created by the ageing baby boomers, and the significant opportunity it presents to advisers who rise to the challenge, was highlighted at the Roadshow by Wade Matterson, Practice Manager at Milliman.

He said existing analytical approaches are overly simplistic, do not measure risk adequately and have the potential to draw incorrect conclusions. To be effective, he said, the adviser toolkit needs to include the concept of ‘risk buckets’ in its framework.

Jeremy Pree, Lonsec General Manager Business Development, posed the question: Is an average balance of $400,000 enough? Mr Pree’s presentation reinforced that retirement strategies are not a ‘one size fits all’ solution.

While income is a key requirement in retirement, he said many retirees will still require a growth option to ensure a retirement income to sustain them through longer life expectancies. He outlined a number of listed investment options that can provide income solutions as well as the potential for capital growth.
 
The need for an advice-driven solution rather than a product-led solution is vital in an industry anchored to the accumulation way of thinking about the world, according to Lukasz de Pourbaix, Lonsec’s Head of Investment Consulting. Investor goals and risk tolerance change in retirement, and retirement strategies have to meet these evolving needs.

To manage investor expectations, the current disconnect between investor goals and risk profiling needs to be bridged. A goals-based approach, along with clearer measurement around the likelihood of achieving objectives, can assist in managing client expectations and personalising the investment strategy to client goals.

Later this year, Lonsec will be coming out with more material to assist advisers in implementing a goals-based approach for retiree clients.

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Too often articles and information published on aged care focus on how to reduce the accommodation bond. Many clients (and their families) will also express a reluctance to pay the high bonds required.

The opportunity to initially agree on a low bond can give you a stronger negotiating position to create a positive outcome with fee trade-offs or higher investment earnings. But I would argue that too much focus is placed on trying to reduce assessable assets to limit the maximum bond payable.

Bond negotiations
The most important aspect of aged care is securing a place in the facility of choice. Strategies that reduce assets or undervalue assets reported may only result in losing the place, or never receiving an offer from the facility of choice.

Most facilities set a target bond range for new residents. This can be influenced by a range of factors, one of which may be how much the client has in assessable assets. It can be difficult to obtain an estimate of the bond from the facility without first providing asset details for the client.

The only rule in legislation in relation to the level of bonds is that after paying the accommodation bond the client needs to be left with at least $40,500 in assessable assets. But what does this mean in practice? And what can go wrong? After all, the rule is designed to ensure that aged care is affordable and the fees for each resident are based on their level of assets and income.

The steps for keeping bond negotiations in perspective are:

Step 1  – What will it take to be offered a place?
Step 2  – Can the person afford this bond?
Step 3  – Does the fee represent value for money?

To see how these steps apply in practice, let’s review the case study below for Faye.

Faye’s dilemma – case study
Faye has become too frail to continue living in her home. She has an Aged Care Assessment Team (ACAT) approval to move into low care. Her daughter Caroline would like Faye to move to a residential facility near her home so it is easy to visit Faye each day.

Caroline has spent time investigating options in her local area and has decided on a facility five minutes from her home. It has a very good reputation and is quite new.

Now, comes the difficult part with negotiating the bond.

This is a new facility and is carrying significant levels of debt used to fund the purchase of land and the building construction. The accommodation bonds are set at a minimum of $500,000 but range up to $650,000 depending on circumstances such as the resident’s level of assessable assets and the size of the room.

Faye’s only assets are her home in a regional town which is valued around $360,000 and $40,000 in the bank.  Her home contents are valued at $5,000 and she does not own a car.

The ACAT team left Faye a copy of the Department of Health and Ageing booklet and pack – 5 Steps to Entry to Residential Aged Care. This pack included the Centrelink asset assessment form which Faye completed and sent to Centrelink.

Centrelink will verify the information in the form to calculate her level of assessable assets and the maximum bond she is eligible to pay. The maximum bond is calculated as the assessable assets less $40,500 (figure relevant for entry up to 19 September 2012).

Faye lives alone so her home is counted as an assessable asset for the bond calculations. This puts her assessable assets at $405,000. She receives a letter from Centrelink stating the maximum bond she can pay is $364,500.

A week later, Caroline receives a phone call to say that a place has become available and an appointment is made to discuss the opportunity for her mother to move in. Caroline takes the Centrelink letter to help with her negotiations.

However, this may not result in the outcome Caroline is hoping for. The facility is firm that the minimum bond is $500,000. To admit Faye, they would need to accept a lower bond. As a result, the facility withdraws their offer and offers the place to another potential resident who has a greater level of assets.

This outcome is not dissimilar to someone selling a house. If the seller wants a price of $500,000 and the potential buyer can only borrow enough to pay $364,500 the seller does not have to accept this price. They can choose to either drop the sale price to accept the offer or discontinue negotiations and look for a new buyer. The same has happened in this case.

Just because the legislation sets Faye’s maximum bond at $364,500 does not mean the facility has to admit her for this bond level. It just means that if they choose to admit her they do so under an agreement to accept the lower bond.

What could Faye and Caroline have done?

Let’s go back to the steps outlined earlier in this article and review how they may have applied to Faye.

Step 1 What will it take to be offered a place?

When researching suitable facilities it is important to gain an indication of the bond level required and to understand what flexibility exists in negotiations.

This can be difficult as many facilities are reluctant to quote a bond until they have an indication of the person’s assets. The best strategy is to have an open and honest discussion with the facility. In reality, if Faye had disclosed the level of assets when she put her name on the waiting list she may never have received the call with the offer of a place.

Tip: newer facilities are likely to be carrying higher levels of debt. This generally means higher bonds and less flexibility to accept a lower bond.

Step 2 Can the person afford this bond?

Clearly in this case, Faye does not have sufficient assets to pay a bond of $500,000. Her family may need to consider whether they can afford to contribute part of the bond if they want to get her into this facility. But do they still have this opportunity when she already has a Centrelink assessment?

If an offer of a place is made and accepted, the person will be asked to sign a Resident Agreement. This is a legal contract between the facility and the resident. It sets out a range of issues including the agreed bond. The bond therefore needs to be paid by the resident, in this case Faye. It cannot be paid directly by anyone else to the facility as the facility is unable to enter into contracts with anyone but the resident.

One solution may be for the kids to gift the money to Faye and deposit it into her bank account before she moves to the facility. She can then request a new assessment from Centrelink based on a change in her circumstances. This strategy is not guaranteed to work as we have seen cases where Centrelink have denied a request to reassess assets within a short period of time.

Gifting money into Faye’s account will increase her assessable income and assets but she has 14 days to report the change to Centrelink for pension purposes. If the bond is paid within this time it will not impact her age pension payments.

If children are looking at contributing all or part of the bond, the best option may be to not fill in the Centrelink assessment at all, or at least not until after the gift is made to the parent. The Centrelink assessment is optional to obtain, although some facilities will require it before entry.

If the facility agrees, instead of obtaining a Centrelink assessment the person can sign a statutory declaration stating they have sufficient money to pay the requested bond and will be left with at least $40,500 after paying the bond.

Step 3 Does the fee represent value for money?

While Step 2 has worked through a solution to ensure she can afford to pay the bond, Faye and her family should determine whether the bond represents value for money to them.

What other options might exist for facilities that will accept a lower bond? Are those facilities comparable or is the lower bond coming at the cost of a desirable feature? This is a personal choice and is very similar to how we choose where we will buy a house.

Supported residents
Legislation did not really help or protect Faye, but there are some protection mechanisms for people with very low levels of assets.

Every government-subsidised aged care facility is required to take a minimum number of supported residents. This quota is 15-40% of all subsidised places depending on the socio-economic demographics of the area.

Supported residents are those who have less than $108,266.40 (current to 19 September 2012) of assessable assets when moving into aged care. These people still need to be left with $40,500 of assets after paying a bond and may incur a lower retention amount (if the bond is less than $38,760).

It is important to understand that the quota applies across all places in the facility. If the facility has both low care and high care places the facility may only take supported residents into high care places. It can therefore still be difficult to secure a low care place even if you are a supported resident.

Helping clients understand bonds
It should also be remembered that bonds are not all bad. Helping clients to understand the implications of bonds may help them to be comfortable with paying the bond.

• Bonds are government guaranteed
• Bonds are exempt under the Centrelink/Veterans’ Affairs income and assets tests and can help to maximise age pension and minimise daily care fees
• The bond is not a true fee, but rather is a refundable deposit. Each month the facility can deduct $323 (up to a total of $19,380 over a five year period) and the rest of the bond is refundable when the resident leaves or passes away
• Bonds are held in trust by the facility – this can help to protect the estate.

The average new bond is continuing to increase and facilities currently hold over $11 billion in bonds. Bonds are payment for the right to live in the facility and residents have security of tenure for the rest of their lives.

Building your business
There is widespread recognition that clients are ageing at a rate we’ve never experienced before. Older clients and their families are thinking about their future aged care needs and are looking for services to guide the process.

This provides professionals (including financial planners, lawyers and accountants) who service clients of all ages with business growth opportunities to help clients and their families navigate through aged care decisions, to ultimately give them lifestyle choices in the latter part of their life. It also provides a great opportunity to market to pre-retirees who are the children making the decisions for their parents.

Can you afford to miss out on this opportunity?
If not, register for a one-day workshop on Strategic Advice Steps for Aged Care to unlock your business potential. This workshop goes beyond the basics to show you how to provide advice to your clients and develop the skills to build an effective aged care advice business.

The next dates are:

• Sydney – 22 October
• Melbourne – 5 December
• Sydney – 17 December

Book early as numbers are limited. To register email to info@agedcaresteps.com.au with details of which session you are interested in, or express your interest in attending a session in another state.

Aged Care Steps enables professionals to participate in the rising dominance of the aged care market. We provide end-to-end support to set up business, grow business and provide client solutions. Aged Care Steps is supported by its parent company, Strategy Steps. For further information contact us at info@agedcaresteps.com.au

Note: The accreditation for this CPD article is no longer current. Please visit our CPD section for current CPD quizzes. 

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