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Chances are many of your clients will need some form of long-term care during their lifetime. In fact, someone turning age 65 today has almost a 70% chance of needing some type of long-term care service and support in their remaining years, according to the Administration for Community Living, U.S. Department of Health & Human Services. And while one-third of today’s 65-year-olds may never need long-term care support, 20% will need it for longer than five years.
While many clients may feel they will be able to pay for their long-term care needs out of their current assets, the rising cost of care and uncertainty of the ultimate cost could impact the client’s goals. In addition, failure to plan for long-term care needs can impact the advisor as much as the client. Advisors can be left helping clients make decisions that they haven’t anticipated, reducing the assets managed for the client. Let’s look at some benefits of having a long-term care conversation with your clients.
As the population ages, there has been a renewed focus on long-term care planning, including insurance and protection planning. Long-term care is now an essential conversation that many clients expect to have with their advisor. This conversation gives you an opportunity to anticipate client needs and identify solutions, which, in turn, reiterates your value to your clients and deepens your relationship with them.
Clients who don’t have a long-term care plan and have a long-term care event will often need to spend their assets to fund their need. Clients with significant long-term care events can spend down their entire investable assets. That’s why advisors who are not talking with clients about long-term care needs are at risk of losing client assets. Therefore, it is beneficial for both you and your clients to have a conversation about their long-term care plan and consider adding insurance to minimize the need to draw down significant assets for care events.
As you discuss long-term care and protection planning issues with your clients, you may uncover other unmet insurance needs that they have – even if they are not ready to move forward with long-term care insurance. The exercise of walking your clients through the planning process and understanding their unique needs can help you find new ways to add value to the relationship and grow your business. It may also result in referrals.
Long-term care planning can be a sensitive issue for some clients. In many cases, the client feels uncomfortable because there is not a well-defined plan in place. By putting less emphasis on the unpleasant nature of an actual long-term care event and more emphasis on what can be done to prepare, clients often feel relieved or even empowered.
While having a conversation about long-term care, it is important to avoid debating whether your client will need long-term care. The truth is, it’s impossible to know. The best way to tackle the problem is to consider multiple scenarios and build a plan that is most likely to produce an overall favorable outcome.
Here are some strategies to keep the conversation on the right track:
Clients may not have a realistic understanding of the cost of long-term care and services. According to a Genworth survey, the national median cost in 2021 for assisted living is $4,500 a month; the cost for a semi-private room in a nursing home is $7,908. This cost can vary significantly by region. Reviewing a client’s balance sheet and looking at how costs in various scenarios would impact their finances is an effective way to help them understand how different types of long-term care products could fill the gap when care is needed.
A technique that is effective for protection planning conversations is the “fire drill” exercise. The purpose of the fire drill is to encourage clients to consider multiple possible long-term care scenarios, rather than focus on whether they need care or not, and to build a plan that they feel comfortable implementing.
In this exercise, the advisor begins by presenting several long-term care scenarios to the client, and helps the client identify what assets or insurance they will use to fund each event. Three scenarios that the advisor generally walks through are: a short-term event lasting one year, an average event lasting 3 years, and a longer-term event lasting 6 years or more. As the advisor and client review the resources needed for each event, they can find a reasonable strategy for handling unexpected long-term care events.
This exercise helps clients understand how a best-case or worst-case scenario would impact their financial situation. Using the various scenarios from the “fire drill” exercise, you can walk clients through which accounts would need to be used first, second and so on to fund costs of a care event.
After the accounts are identified, the advisor has opened a conversation on possible gaps in the long-term care funding and can then discuss solutions to address the gaps.
This is an exercise that can easily be built into your planning routine and one that can be repeated periodically with current clients as you review their plan or continue the conversation around the need for long-term care.
While talking to clients about long-term care planning may seem intimidating, it can be done with a client focus and without sounding aggressive. Clients may also be more receptive to the conversation than you think. Many of them have likely witnessed their own parents or relatives go through major care events with varying levels of financial preparedness. These experiences often make individuals and families more willing to plan to ensure they are prepared with a well-thought-out strategy and plan that provides a level of care in which they are comfortable.
For more information about long-term care planning client strategies, contact David Pergande at david.pergrande@hilltop-securities.com or 214-859-1479.
To learn more about Momentum Independent Network, contact Wealth Management at WealthManagementinfo@hilltopsecurities.com or 833-4HILLTOP.
The paper/commentary was prepared by Momentum Independent Network (MIN). Momentum Independent Network Inc. is a registered broker-dealer and registered investment advisor that does not provide tax or legal advice. MIN and Hilltop Securities are wholly owned subsidiaries of Hilltop Holdings, Inc. (NYSE: HTH) located in 717 N. Harwood St., Suite 3400, Dallas, TX 75201 (214) 859-1800, 833-4HILLTOP. Member FINRA/SIPC
For professional use only.
The information contained within this document may change without notice and has been obtained from sources believed to be reliable, however accuracy is not guaranteed.