LTC Bullet: Sue Financial Planners for Bad LTCI Advice?
Wednesday, June 30, 2010
LTC Comment: Sue the bum? You decide after the
*** HEALTH ALERT from John Goodman of the National Center for Policy Analysis (www.ncpa.org): "Economists on the left and right are expressing concern -- in some cases alarm -- over the fiscal health of the U.S. government. Currently, we are running a deficit equal to about 10% of GDP; but the government is still able to borrow at 3%. No other country in the world could do that. And we may not be able to do it much longer. We may be living in the calm before the storm. As in the case of Greece -- and possibly all of southern Europe -- international investors may decide that we have neither the will nor the ability to pay back our debtors. In that case, the government's borrowing costs will soar. How bad are things? How much of the problem is health care? Can we tax our way out of it?" Continue Reading ***
*** THE RAHN CURVE. "Government spending can promote economic growth if money is used for core 'public goods' such as rule of law and property rights. But the burden of government spending in the United States and other industrialized nations is far higher than needed to finance such activities. Citing scholarly studies, this video examines the Rahn Curve, which graphically illustrates the negative impact of excessive government spending." Check it out here. Hint: to get the most out of this video, pause it when on-screen text details appear. ***
*** JUXTAPOSE this New York Times story with the desperate financial condition of Medicaid/Medicare, the biggest funders of acute and long-term care for the elderly, and it's clear private LTC insurance has a bright future. Milt Freudenheim, "Preparing More Care of Elderly," NYT, June 28, 2010: "With a nudge from the new health care law and pressure from Medicare, hospitals, doctors and nurses are struggling to prepare for explosive growth in the numbers of high-risk elderly patients. More than 40 percent of adult patients in acute care hospital beds are 65 or older. Seventy million Americans will have turned 65 by 2030. They include the 85-and-older cohort, the nation's fastest-growing age group. Elderly people often have multiple chronic illnesses, expensive to treat, and they are apt to require costly hospital readmissions, sometimes as often as 10 times in a single year. . . ." ***
LTC BULLET: SUE FINANCIAL PLANNERS FOR BAD LTCI ADVICE?
LTC Comment: Should financial advisors be held professionally and legally accountable for giving bad advice about long-term care planning? Yes!
That's the case I made in a September 2001 article titled "Long-Term Care Due Diligence for Professional Financial Advisors" in the Journal of Financial Planning.
Harley Gordon, Founder and President of the Corporation for Long-Term Care Certification, made a similar case in a 2004 article titled "The Coming Wave: Professional Liability Lawsuits for Failure to Recommend a Plan for Long-Term Care," which we republished with permission here.
Now comes the following communication addressed to me by a party I'll leave nameless. Likewise, the identities of all concerned are withheld. Let's just examine the issues and questions this message raises without getting into the personalities. Rejoin me below for our comment.
Email received June 18, 2010
I recently ran across your article "Long Term Care Due Diligence for Professional Financial Advisors" from the Journal of Financial Planning in September 2001. I have been facing a nightmare situation caused by just the event you described in your article.
My mother, [name withheld], met with [name withheld], CFP, of [firm name withheld] in May of 2005 and he told her to "get rid of it [LTCI policy], you don't need it." His philosophy was that the government will take care of poor people that can't afford it and rich people can pay for it. At the time of this ill advice, [my mother] was 73 years old. Prior to this meeting, I had been paying on a Long Term Care Insurance policy through State Farm for my mother for several years. We had a benefit of around $250K with a 5% increasing benefit rider. We were only paying around $130 a month.
After meeting with my mother and evaluating her assets, [unnamed financial planner] determined her net worth to be $219K. Her income was around $1,900 while her expenses were just about that. [Planner] specifically told my mother that she didn't need the Long Term Care Policy and that she needed to cancel it. My mother was not even paying the premiums, I was. We came to this Financial Planner because he was highly recommended and very successful, so we thought he must know something we didn't. Following that meeting, I cancelled my bank drafts for the premiums, and my mother wrote a letter to State Farm requesting the policy be cancelled at her Financial Planner's advice.
Fast forward 5 years: Two weeks ago my mother was diagnosed with the debilitating disease Alzheimer's. The disease came on fairly suddenly leaving our whole family reeling. Suddenly, [my mother] needs constant supervision, and we've been forced to put her in an Assisted Living Facility. We lack the financial resources we will need to continue her current level of care over the years as her disease progresses.
Based on reading your article I contacted financial planner [name withheld] and asked him "why did you tell my mother to cancel her LTC policy?" His response was that he "would never recommend that my mother cancel her LTC coverage."
In addition, he said that my mother's situation showed that she could never retire and would eventually spend all of her money. However, I believed he breached his fiduciary duty to my mother three specific times:
1) Failed to review my mother's LTC coverage before recommending coverage. We had a Golden Egg on our hands. I was only spending $132/mo for LTC coverage written by State Farm. He tried to say that he has seen many good LTC companies go out of business. He doesn't have a clue that my mother's policy was with State Farm.
2) Failed to perform a cost analysis of my mother's LTC policy. Since our 2005, meeting we would have spent $8,500 and have a policy we would use now that would pay for Alzheimer benefits of $312,500. This would represent return of investment of +3740%. My mother had assets worth $220K. Based on the financial planner's projected life expectancy of 87, I estimate she would have still had $175,000. She will have $0 in the next couple of years. A Certified Financial Planner has a duty to be knowledgeable and competent. He has demonstrated a severe degree of incompetence by failing to identify that the #1 asset my mother had was our LTC policy.
3) Breached his duty as a Certified Financial Planner when he lied and said that he never recommended this to my mother. Two days ago I found a letter that my mother sent to State Farm requesting the cancellation based on the advice of her financial planner. Our meeting with him was May 5th and the letter to SF was June 22nd. Since I work as a forensic expert I had a forensic computer diagnostic company authenticate that my mother's letter was prepared on June 22nd, 2005 and was never changed. We also have verification that State Farm received the letter on June 22nd, 2005 instructing them to cancel. They have subsequently destroyed the letter.
We are currently exploring venues to seek action against [the unnamed planner] for his gross negligence in this obviously damaging recommendation. What suggestions would you have in how to handle this case? [The planner's] advice to "get rid of the policy" will result in the financial ruin of my mother. Good sound financial planning would not have resulted in the recommendation to cancel the policy.
Steve, where is the accountability? Why didn't this guy just take a baseball bat to my Mom's head? If we have to make her a ward of the State she will go into a very low care facility that will surely not provide the level of care that she would receive with her State Farm policy. . . .
In closing, he is also trying to say that anything they say is only a "suggestion" and that they can not be held financially responsible for his advice. If a surgeon cuts off the wrong leg, is he let off the hook just because he has his client sign a statement denying all liability? Steve, has the statute run on my Mom? He gave us the advice in May of 2005, but we didn't really know about her financial ruin until she was diagnosed with Alzheimer's in June of 2010. We desperately need your help and would appreciate any recommendations on a course of action to take. I've informed him that I will seek Arbitration as her investment agreement requires. If you have any recommendations on the course of action I could take, I'd really appreciate your input.
LTC Comment: There you have this gentleman's unvarnished plea on behalf of his mother.
I responded thus:
"Sure sounds like you and your mother got some bum advice. Here's what I can do. With your permission, I'll remove all names and identifying information from the letter and publish it, with my commentary, as an example of what can happen. I'll also ask my readership of several thousand, including media, state and federal legislators, financial planners, lawyers, LTCI agents, etc., if any of them know any recourse you might pursue."
He responded by asking me to proceed, which I have done.
Query: Do this man and his mother have any legal recourse? Any of you lawyers in our readership out there want to take a crack at this? If so, just reply to this LTC Bullet and we'll pass your information on to the damaged parties.
In the meantime, beware you "planners" who fail to cover the LTC risk for your clients. Many more chickens like this one will be coming home to roost.