The government has rejected amendments to the Care Bill that would require councils to refer people with long-term care needs to regulated independent financial advisers.
Without this amendment, under Clause 4 councils need only refer people to "independent advice" for instance charities and other organisations.
In a committee session on the bill, Baroness Greengross, chief executive of International Longevity Centre and Lord Lipsey, president of the Society of Later Life Advisers tabled amendments for regulated financial advice.
Despite this, health minister Earl Howe concluded there was no need for the bill to set this out specifically as other kinds of advice may be more relevant.
He said that taking independent advice is a matter of personal choice and this is important because some advice may be subject to a charge.
However, Howe acknowledged there would be "individual circumstances" in which it would be appropriate to recommend financial advice, such as weighing up financial options including selling the home.
He added: "The fact that an organisation or individual is regulated is in itself no guarantee that the person has knowledge or experience of wider care and support issues; for example, housing or other care-related options.
"The local authority should advise about the importance of independent regulated advice and signpost the adult to offer a choice of where they can obtain the best and most relevant advice. Again, we intend to cover such issues in statutory guidance."
Janet Davies, managing director of Symponia described the decision as "misguided and just plain wrong."
She said: "Yes, of course charities know a about their main subjects - they have an important and valuable part to play. But very few (if any) can actually say - and have PI cover to back it up - "I recommend you take this route".
"To rebuke the holistic services offered by advisers working within the care fees planning arena just because there may be a charge is insulting. You can't possibly put a price on safeguarding a lifetime's worth of accumulated assets."
Chris Horlick, managing director of care at Partnership said: "We have seen much progress from a Draft Bill that did not even mention financial advice to the Care Bill which places a duty on Local Authorities to provide information and advice on how to access independent financial advice.
"So, while yesterday's debate in the House of Lords may at first have seemed to be a setback, it did serve once again to highlight the importance of regulated financial advice."
Horlick added Partnership was "further comforted" by Earl Howe's statement on statutory guidence, as this would be a powerful measure for Local Authorities to follow, and there would be opportunity to engage with government on this issue.
