Fiduciary Rule Prompts Advisers to Consider Reverse Mortgages

Last week, the Department of Labor expanded the fiduciary standards for financial services professionals who provide compensation-based advice. A game-changer for the financial services industry, the effects of this long-awaited rule could prompt more advisers to consider the use of reverse mortgages in retirement income planning, suggest one expert.

The Labor Department’s fiduciary rule, which was released last Wednesday, will force financial advisers, even more so than in the past, to provide the best retirement advice that is in the best interest of their clients.

In some situations, that could mean recommending the use of housing wealth via a reverse mortgage to support a retirement income plan, said Jamie Hopkins, associate professor of taxation at The American College in Bryn Mawr, Pa.

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“Although a fiduciary standard might not explicitly touch on housing wealth, there will be added regulatory muscle to consider all of a client’s available assets in the development of their specific plan,” Hopkins wrote in a recent InvestmentNews article. “Ignoring home equity and the leverage it potentially represents could raise red flags that the retirement adviser may not be doing everything possible to provide guidance in the best interest of the client.”

The new rule arrives at a time when the Baby Boomer generation is both entering and nearing retirement. This demographic, whom Hopkins notes are “hungry for retirement advice,” typically have three major sources of wealth to utilize: Social Security, retirement plan savings and home equity.

At the same time, the average married couple entering retirement will have roughly $192,000 in home equity, but only $92,000 in non-equity assets, according to the U.S. Census Bureau.

Advisers, however, may be overlooking the value of housing wealth, instead devoting considerable time to strategies aimed at maximizing Social Security and calculated the best approaches to withdrawal of retirement plan assets. But as recent research has shown, a reverse mortgage can be a viable retirement income planning strategy for retirees.

“Perhaps the most interesting strategy is the use of a reverse mortgage lie of credit, but the reverse mortgage needs to be incorporated into a comprehensive income plan,” Hopkins writes. “For instance, it can be set up at age 62 but only used when the retiree’s investible assets have experienced a down year.”

Read the InvestmentNews article.

Written by Jason Oliva