The route to giving long-term care advice

Charlotte Moore looks at the qualifications IFAs need to be able to advise on long-term care.

The recession has made life much tougher for professional financial advisers. Investors, spooked by the stock market’s gyrations, are sitting on their hands. So those who help others to invest have to look elsewhere for income.

Owain Wright, head of care distribution development at Partnership, says: “Many financial advisers had their core advice areas decimated and so they have started to look at other areas.”

One growth area that has long been neglected is the long-term care market. With the number of people aged 85 and over set to more than double by 2033, this is a market advisers cannot afford to neglect.

Few in this oldest of the old part of the population manage to carry on living independently in their own homes, with most having to go into care. This is a major expense that should be planned for in advance.

Even though the size and growth rates of this market should pique the interest of a professional financial adviser, many have steered clear.

Wright says: “Advising those who have to pay for their own long-term care costs has been viewed as a fairly technical area and also one where you are advising elderly and vulnerable clients. Those two factors have made many advisers wary of this area.”

The FSA was concerned about the vulnerability of this section of society and wanted to protect them from being mis-sold the wrong type of insurance products and so decided to introduction a special qualification for advisers.

Exam standards

The qualification needed is known as the CF8. The Financial Services Skills Council had the delegated responsibility of creating exam standards and drawing up the contents of the exam and the learning outcomes.

Once they had done this, various approved bodies could look at the standards and create the exam. The Skills Council approves the exam to make sure it complies with the standards and the learning outcomes. The CF8 qualification is currently offered by the Chartered Institute of Insurers.

The exam covers the basic rules and regulations about who should and should not pay for long-term care, known as CRAG. It addresses the differences between England, Wales, Scotland and Northern England.

The exam also explains the differences between the state benefits your client will or will not be receiving and which they are entitled to. It covers the different funding methods; the adviser can not just sell them one product, the whole range of different options must be discussed.
Wright says professional advisers are unnecessarily spooked by the qualification’s syllabus. “An adviser looks at the syllabus and thinks: ‘I don’t know anything about state benefits or social care legislation.’

“But the exam is not difficult; it is much easier than you think. Of all the exams that I have taken, I think CF8 has the least amount of material to learn and once you have learnt the material then it is really straightforward. The advice area is actually easier than the exam.”
Once you get past the technical hurdles, long-term care is a fairly simple financial problem – how to create income from some assets, says Wright. He thinks the exam sets a good barrier to entry. “I think it is excellent that advisers really have to know this area before they can go out and start advising.”

Study

Taking the exam is fairly simple. You have to be an already qualified professional financial adviser and you can opt to either study the materials at home or go into classes and then take the exam.

Wright thinks a growing number of professional advisers will overcome their fears to take this qualification. “IFAs are looking at new advice areas and it is not an area they can afford to ignore.”

As well as a growing part of the population, this is also an area where few currently seek advice. “Around 80% to 90% of those who self-fund their own long-term care do not look for any advice at all in this area. That is terrible, it is a huge cost and they just do not know where to turn for advice,” says Wright.

Holistic service

Fay Goddard, chief executive of the Personal Finance Society, thinks the qualification covers too narrow a field.

“Rather than just focusing in on selling long-term care insurance to solve this problem, I think advisers should be offering much more holistic advice. If you are advising someone of this age group it should be about more than just long-term care insurance.”

Goddard believes the qualification is out of sync with the reality of the long-term care market. “The FSA had concerns over pre-funding contracts that paid into a bond and that is a good part of the reason they stipulated the additional qualification.”

Goddard says given that many of the insurance products it covers are virtually obsolete means many advisers look at the exam and think: ‘Why bother?’

“I think that it should be reviewed and extended to a broader syllabus and it should be upgraded to a higher level,” says Goddard.

She does think, however, the first part of the qualification lays a good foundation for advisers. “It is very important for them to understand just what provision the state makes for long-term care and provide them with a good background into the legal and social care framework.”

Wright takes a more pragmatic approach. “The exam could be more difficult. But what is worse? Getting not perfect advice or getting no advice?

“In the 15 years I have been advising in this area, the most common call I still get is from the family solicitor telling me they sold the family home to fund long-term care and they are now down to the last £30,000. It gives me a sinking feeling in my stomach every time.

“The solicitor wants to know what advice I can give and I just wished they had called before because they have needlessly gone through all those funds because you did not take advice,” says Wright.