Aveo may be taking a big punt too early
Thursday, 17th August, 2017
WITH regulators and various state and federal governments breathing down the collective neck of the retirement village industry it was little surprise that Aveo was in damage control when it released another record profit.
It followed bombshell revelations made in a joint Fairfax Media-Four Corners investigation in late June that laid bare concerning business practices including punitive fees, churning of residents, complex contracts, misleading marketing promises and questionable safety and emergency services.
The media investigation also showed that the regulation of the sector, which is state based, is lax and in dire need of reform.
To try to bat off the slew of regulators and government inquiries set to engulf the company and the sector, Aveo boss Geoff Grady told investors he would simplify its newer Aveo Way and Freedom contracts and shorten the buyback term to provide certainty to residents. He said the company had also strengthened its complaints-handling processes.
Agreeing to simplify the contracts is a positive step but but it doesn't go far enough. Aveo has a portfolio of 140 contracts that cover an estimated 9000 residents and these changes don't cover those residents. The changes won't help them.
The company didn't address the hefty exit fees it charges residents when they leave or die. In the case of its Aveo Way contract the exit fees are 35 per cent over three years and its Freedom Aged Care contracts exit fees are 40 per cent after two years. This means if a resident pays $600,000 for a Freedom unit, if he/she leaves or dies after two years the exit fees are $240,000. Most retirement village operators charge exit fees, which have also come under scrutiny.
Grady released the results, which doubled to $253 million, provided a positive outlook for 2018 and told investors that the regulatory risk to the company and its business model was low.
It is a big call.
But it helped put a rocket under the share price, lifting it more than 10 per cent, which helped it claw back some of the losses it has suffered in the past few weeks.
Time will tell how much impact the recent regulatory and government scrutiny will impose on the sector.
What is known is that the media investigation prompted an investigation by the Australian Competition & Consumer Commission and resulted in the Turnbull government calling for state and territory consumer affairs ministers to meet on August 31 to discuss ways to protect some of our most vulnerable in society.
On Monday politicians from both sides of politics put a motion in Federal Parliament for the Turnbull government to commit to a national approach to regulating the sector and adopting a consistency on contracts and consumer protection.
The motion moved by opposition whip Joanne Ryan was backed by a number of politicians including Liberal backbencher Tim Wilson.
Ryan told Parliament she decided to raise the motion after hearing a horror story of Christine and David Robinson, in her electorate. "Their negative retirement community experience is not an isolated one and speaks to a broader issue that demands national attention and action," she said.
The Robinsons moved into a Retirement Communities Australia retirement village in Point Cook, after David had a quadruple bypass. "They were promised a life of leisure and a peaceful retirement. However, when they got there the reality was much bleaker: phones didn't work, toilets were overflowing and the amenities were rarely in service. "
"They were promised a life of leisure and a peaceful retirement. However, when they got there the reality was much bleaker: phones didn't work, toilets were overflowing and the amenities were rarely in service. "
But the problems arose when they tried to leave, Ryan told Parliament.
It would take them 16 months to extricate themselves from the contract. "When it came to selling their property, they weren't allowed to advertise or go through their own agent. Because this was a new retirement village, the owners directed potential buyers to new units, while Christine and David were left paying maintenance fees."
The property was allegedly sold for $340,000, but after various fees were deducted the Robinsons received $294,000, according to a letter seen by Ryan. "To this day, the Robinsons have not been able to get a thorough explanation of the two fees," Parliament was told.
Another politician, David Feeney, raised the horrifying case of Gwyneth Jones, who lives at Aveo's The George village in Sandringham.
"She was forcibly admitted to psychiatric care after repeated run-ins with management at Veronica Gardens. Freedom of information documents show a plan to have her evicted that predates her admission to the hospital. It was only with the assistance of disability advocates that she was able to stop the eviction ..."
Feeney said that after the media exposé, he had a meeting with residents at another Aveo village, Veronica Gardens, where he was told about the misconduct and mistreatment they had endured at the hands of Aveo. "Residents also voiced their concerns over issues such as complex and confusing contracts, excessive exit fees and the practice of churning residents," he said.
Liberal MP Tim Wilson also spoke about the need to fix the sector and stamp out not just physical but financial abuse of the elderly.
Aveo might feel confident that regulatory risk is low but, given the concerns about the size of exit fees and other fees. It might be a tad early to take such a big punt.
Comment by Adele Ferguson