Long Term Planning

How do you protect your clients’ assets under management?

by Sue Devlin

Investment advisors work hard to grow both their client base and the total assets under management. Even so, there’s always attrition as some clients leave and others die, which is normal and to be expected.

But there’s also another type of loss that has a negative impact on advisors’ income by siphoning off client assets—namely, the cost of nursing home care. The figure looms larger every passing year and is now pushing $150,000 a year in Massachusetts.

It’s equally significant that 70% of those reaching 65 years of age will require some type of long-term care at some point in their lives. Yet, only about 10% are currently covered by a long-term care product that can defray at least some of the cost.

Divert & Diminish

This situation has potentially serious financial implications for clients and their advisors—both will feel the pain. Clients will see their assets shrink as funds are diverted to nursing homes, while declining management fee revenue will impact advisors.

To clarify the picture, consider two client profiles:

• Retirees, age 55-75, who have accumulated assets and who have worked or are working with financial advisors on a retirement income strategy.
• Individuals, 45-60, who are still working, have excess income flow and are actively saving and planning for retirement.

When advisors have a client base with 50% fitting these profiles, it’s reasonable to assume that anywhere from 33% to 50% of their revenue stream could be at risk.

Fortunately, such a scenario can be avoided. Here are two client profiles that demonstrate what can happen to help keep both advisors and their clients whole by shifting a limited amount of client assets to a long-term care insurance plan:
• A 60-year-old female
• Repositions $100,000 as a single pay long-term care plan with 80% return of premium
• On day one there’s a $5,264 per month benefit; $408,000 total available pool
• At age 80, the monthly benefit is $9,805 and a $737,000 total pool
• A 50-year-old male
• $10,000 annual premium for 10 years for a long-term care plan with 80% return of premium
• On day one there’s a $6,150 per month benefit; $477,000 total available pool
• At age 80, $14,927 per month benefit; $1.1 million total available pool

The LTCi Solution

These scenarios illustrate how long-term care protection can assure clients that their assets will not be eroded by costly nursing home care if they should need it.

And, at the same time, financial advisors can protect their management fee revenue from being lost when assets are diverted to pay nursing home expenses. It’s a win-win strategy for both clients and advisors.

This is also an opportunity for life advisors to market the benefits of this strategy to financial advisors and their clients. ◊

One response to “Long Term Planning”

1. Drudy Andrews says:

   February 28, 2017 at 9:43 am

   I find this to be an excellent article but would prefer that the focus not be on nursing home expenses. The large majority of claims paid are for home care since most people prefer to remain in their home as long as possible. Home care can be even more expensive than nursing home care if care is needed around the clock.
   The type of policy exampled in this article will pay for home care, assisted living and nursing home care.
   I prefer to focus on the ability to receive care at home and if other types of care are needed that is also covered.