Equity Release And Long Term Care: The Key Things Advisers Should be Aware Of
What should advisers be aware of when delivering financial advice in this area?
From a regulatory perspective, advice falls into two categories: non‐regulated care advice that seeks to deal with the front end of consumer journeys such as helping them access the care they need, and in securing appropriate state support, or regulated paying for care advice in respect of a personal recommendation as to the best way an individual should pay for their care if they have to following a local authority financial assessment.
While some financial advisers offer advice in respect of both, many find it difficult to deal with the non‐regulated aspects of care advice either because they don't have the detailed technical and practical knowledge required to do so (in part due to the fragmented and complex nature of the UK systems in play) or because their business models make it difficult to deliver this advice cost‐effectively. When it comes to regulated care funding advice, there are several ways someone can pay for their care ‐ some of which involve the use of residential property, and for many the optimal outcome will involve a combination of both property and non‐property assets and income. For the financial adviser this means they will need to take a holistic approach and develop expertise in a number of areas including the growing later life lending market and care.
When it comes to the use of equity release and care funding, it isn't just about whether a Retirement Interest Only (RIO) mortgage or conventional mortgage is more appropriate than, say a lifetime mortgage or home reversion scheme. It's about the reasons for any type of later life lending in the first place and the need for joined up and timely information, guidance and advice.
Consumers need help at the beginning of their journey to understand whether this lending is even appropriate. For example, are they eligible for (free) NHS Continuing Health Care designed to meet all their eligible care needs? Are they eligible for local authority funded care? Will their local authority offer a deferred payment arrangement by which their care can be funded at a capped and lower rate of interest? What about benefit entitlement?
Once these (non‐regulated care advice) issues have been addressed and it has been established that the consumer will have to fund some, or all of their own care, only then should how best to pay for care (regulated care advice) be considered. If equity release is deemed the best route, an adviser then needs to address the issue of what a client should do with the monies released to ensure their funds, if possible, last as long as their need for care.
Consumers shouldn't be left to work out what to do with the monies released for themselves, increasing the risk of running out of money when alternative strategies may have been available to ensure payment of care fees for life. It's important consumers are made aware of all the options available to pay for care, and can make an informed decision on that basis in respect of which of these, or combination of these are best in their circumstances.
So, do you have any suggestions regarding how advisers can manage the risks that you've highlighted?
Where a later life lending adviser does not have the knowledge or qualifications to advise across all these issues, it's critical that consumers are signposted to someone who does and that the advice given is joined-up, given by the right person, at the right time and in the right order.
In recent years, financial advisers have looked to address this issue by developing a joint working relationship with independent care navigation firms such as My Care Consultant. By dealing solely with all aspects of non‐regulated care advice on a daily basis, and developing expertise through dealings with both theory and practical application, we are uniquely well placed to provide advice in respect of the more immediate and urgent needs of those looking for care. Consideration should be given first to care options to ensure affordable, suitable care is in place, then to benefit entitlement to help accurately establish the care fees shortfall, and then to eligibility for NHS CHC or Local Authority funded care. Once self‐funding status and shortfall is confirmed, only then should all ways of paying for the shortfall be assessed. This might mean handing‐off to another adviser, either directly or via a care navigator, if the original adviser doesn't have the appropriate qualifications or experience to advise on all ways of paying for care. If this results in Equity Release being identified as the most appropriate way of generating money to pay for care, then how that money is applied/invested should then be considered.