Interview Series: Lessons Learned From a Direct Mail Campaign Gone Wrong

After suffering the effects of a direct marketing campaign gone wrong, American Advisors Group CEO Reza Jahangiri spoke with RMD about how one mistake can impact the entire way a reverse mortgage lender does business.

The direct mail piece was sent by a third party and not only cost AAG financially to resolve the matter, but also impacted the company from reputational standpoint, said Jahangiri. Faced with an increasingly challenging regulatory environment, the company decided to shift away from direct mail and instead put resources behind national television advertising to ensure AAG had better control over its brand and remains compliant going forward.

RMD: How did the whole non-compliant mailing start? Was it done in-house?

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RJ: We had retained a third-party marketing company to handle our direct mail in 2008. We improperly relied on them to ensure compliant pieces were going out and that was a big mistake. I remember having a specific conversation with the direct mail vendor; he told me that he had an attorney reviewing all the mail pieces being sent out. Was I a sucker. Any reverse business can learn a simple lesson from that experience; the originator is ultimately responsible for what lands in consumers hands, therefore, do not blindly rely on third party marketers. It may sound like an axiom now, though, at that time it was very common practice to rely on third-party vendors in connection with marketing.

Always review the marketing materials (mail, web, radio or TV) your lead generators are utilizing for compliance. AAG now has legal counsel reviewing every bit of communication that goes out the door.

RMD: A couple of states have publicly come out against what looks like the same mailing. Have all the complaints come from the one mailing?

RJ: Yes, all our compliance issues stemmed from the same mail campaign that was in effect between the second half of 2008 and first half of 2009. The only difference was that anything that was mailed in the first half of 2009 was sent to every state we conducted business in for review and included enhanced disclosures.

One state agency in particular approved the direct mail campaigns we had sent them for review during that time frame. Several months later, a different regulatory body in the same state contacted us about the exact direct mail campaign that was approved and wanted to take action. This should give you a sense of the landscape we are dealing with. One hand does not know what the other is doing. In a market that is becoming tighter in scrutiny and changing daily, it is best to err on the ultra conservative side. Even if some states are approving or not finding fault with your marketing materials, it does not mean that others (or even the same state!) will not have a problem with them.

Additionally, most states require you to disclose compliance matters within a specified time frame. If you fail to meet those requirements, it will create further compliance issues for your company. This can really create a firestorm dynamic. You need to make sure that your disclosures are up to speed, especially now that almost all states are on the NMLS platform. We had a few hiccups on this front initially and learned the importance of having strong disclosure systems in place very quickly.

RMD:Besides the negative publicity, how else has it impacted your business? Has it made it harder to grow your business?

RJ: There are many repercussions in connection with marketing compliance issues. The obvious are the direct costs associated to resolve such matters. If you take into consideration the time involved in dealing reactively to compliance matters, along with the direct costs to resolve them, they can be substantial. Though, the reputational costs are the most expensive, both from the consumer and industry perspective.

Every company deals with growing pains. We needed to enhance our marketing compliance systems and add more focus and resources to that side of the business. We needed to change our model, look for better marketing methods and strive to become one of the industry leaders in terms of regulatory compliance and ethical standards of advertising.

The good news is that we learned from our mistakes and now have some of the most comprehensive systems in connection with marketing compliance in the country. One of my favorite quotes comes from Nietzsche, “That which does not kill us make us stronger.” As a result of these experiences, AAG is stronger than ever.

RMD: Has the experience changed AAG’s approach to marketing reverse mortgages? Did the problems drive you to TV as the main channel for marketing?

RJ: As the regulatory landscape was changing in a post-global financial crisis world, it was becoming clear to us that direct mail was going to be a challenging customer acquisition method. The balance between having a mail piece that is both compliant and generates a response that makes sense, has become more difficult. There are still many companies that send out mail pieces that are blatantly out of compliance and hope to fly under the radar. We see them often. In the long run, this kind of practice is not good for the company or industry.

We looked for alternative marketing methods and decided to build our customer acquisition base around television. Since we were looking to scale a large centralized multi-state sales floor, television was the choice we felt was most strategic for us. Broad reach, high quality and scalable. Additionally, it is the most effective way to build a national brand. The downside is obviously the cost of entry.

It certainly has been a huge success for us.  We still have multi channel marketing efforts, though our television campaign with Senator Thompson is the center of our strategy.  The former Senator has added a level of credibility that allows us to really build on our brand and scale the business.

RMD: Are you still using direct mail?  If so, how has it changed from before.

RJ: We do not use direct mail anymore to procure new customers. We only send mail to our current database. We mail our customers to say happy birthday!

RMD: Any advice for other lenders about creating a compliant marketing channel?  Are there certain things that need to be done?

First and foremost, know what is going out the door with your company name attached to it. Review the marketing material with your own eyes. Again, don’t rely on third parties no matter what they tell you.  Build an approval system no matter what the size of your company. A senior level person in the organization should have the final look and approval on all marketing campaigns, if not the owner.

I highly recommend having a compliance attorney who is well versed within the industry review all marketing campaigns, including your collateral material, website and all state specific and federal disclosures attached to them.

Do not take lightly your duty to disclose any compliance matters you have had to the states you are licensed in. The NMLS platform has made a lot of this more streamlined, though, many states still require a mailed copy of any compliance issues the company has within a set timeframe. States appreciate transparency and will make you pay if you don’t abide by the principal of full disclosure.

Know a good person for our Interview Series? Email Elizabeth Ecker.

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  • John draws out some excellent points and Mr. Jahangiri is very gracious with his responses. There are many great lessons in what is shared.

    Over the years, there have been third-party marketing firms that advertise reverse mortgages as equity products not debt or mortgages. Even though they also claim to be compliant, those claims are only as good as those making them. While there may be some very ethical direct mail marketing companies, it is up to the lender and the originator to ensure the marketing materials are not only compliant but also not easily susceptible to consumer lawsuits.

    Wanting to try out a lunch presentation five years ago, I approached a direct mail firm at a NRMLA convention on an ethical standards basis. The owner bristled when I suggested that it was a real headline risk if it was ever discovered that there an originator with financial felonies obtained driver license information, social security numbers, and other sensitive information from seniors. He rebuked me saying that everyone deserved a second chance. Learning his thoughts on ethical standards, I passed on engaging his services for concern about other ethical issues especially in his marketing approach which we might not see eye to eye on.

    Simple wording can be the difference between lawsuits and severely minimizing them. Remember it is not just a lost lawsuit which hurts; even if successfully defended, the lost time and the cost of defending them can be exorbitant. Recently one tax expert has become so upset with borrowers being led to believe that reverse mortgage proceeds are tax-free that he has begun advising those who ask about the issue that if they do pay tax as a result of forgiveness of debt to consider suing the originator and the employer for providing false and misleading tax advice.

    The concern should not just be regulators but also consumer lawsuits. Being conservative is an excellent word to the wise.

  • John draws out some excellent points and Mr. Jahangiri is very gracious with his responses. There are many great lessons in what is shared.

    Over the years, there have been third-party marketing firms that advertise reverse mortgages as equity products not debt or mortgages. Even though they also claim to be compliant, those claims are only as good as those making them. While there may be some very ethical direct mail marketing companies, it is up to the lender and the originator to ensure the marketing materials are not only compliant but also not easily susceptible to consumer lawsuits.

    Wanting to try out a lunch presentation five years ago, I approached a direct mail firm at a NRMLA convention on an ethical standards basis. The owner bristled when I suggested that it was a real headline risk if it was ever discovered that there an originator with financial felonies obtained driver license information, social security numbers, and other sensitive information from seniors. He rebuked me saying that everyone deserved a second chance. Learning his thoughts on ethical standards, I passed on engaging his services for concern about other ethical issues especially in his marketing approach which we might not see eye to eye on.

    Simple wording can be the difference between lawsuits and severely minimizing them. Remember it is not just a lost lawsuit which hurts; even if successfully defended, the lost time and the cost of defending them can be exorbitant. Recently one tax expert has become so upset with borrowers being led to believe that reverse mortgage proceeds are tax-free that he has begun advising those who ask about the issue that if they do pay tax as a result of forgiveness of debt to consider suing the originator and the employer for providing false and misleading tax advice.

    The concern should not just be regulators but also consumer lawsuits. Being conservative is an excellent word to the wise.

    • “Recently one tax expert has become so upset with borrowers being led to believe that reverse mortgage proceeds are tax-free that he has begun advising those who ask about the issue that if they do pay tax as a result of forgiveness of debt to consider suing the originator and the employer for providing false and misleading tax advice.”

      I’m supposing this is Mr. Veale, having read a number of his entries in the forum on that topic tho I had not heard of him suggesting a lawsuit — can you confirm and/or provide any further details?

    • “Recently one tax expert has become so upset with borrowers being led to believe that reverse mortgage proceeds are tax-free that he has begun advising those who ask about the issue that if they do pay tax as a result of forgiveness of debt to consider suing the originator and the employer for providing false and misleading tax advice.”

      I’m supposing this is Mr. Veale, having read a number of his entries in the forum on that topic tho I had not heard of him suggesting a lawsuit — can you confirm and/or provide any further details?

    • “Recently one tax expert has become so upset with borrowers being led to believe that reverse mortgage proceeds are tax-free that he has begun advising those who ask about the issue that if they do pay tax as a result of forgiveness of debt to consider suing the originator and the employer for providing false and misleading tax advice.”

      I’m supposing this is Mr. Veale, having read a number of his entries in the forum on that topic tho I had not heard of him suggesting a lawsuit — can you confirm and/or provide any further details?

    • “Recently one tax expert has become so upset with borrowers being led to believe that reverse mortgage proceeds are tax-free that he has begun advising those who ask about the issue that if they do pay tax as a result of forgiveness of debt to consider suing the originator and the employer for providing false and misleading tax advice.”

      I’m supposing this is Mr. Veale, having read a number of his entries in the forum on that topic tho I had not heard of him suggesting a lawsuit — can you confirm and/or provide any further details?

    • “Recently one tax expert has become so upset with borrowers being led to believe that reverse mortgage proceeds are tax-free that he has begun advising those who ask about the issue that if they do pay tax as a result of forgiveness of debt to consider suing the originator and the employer for providing false and misleading tax advice.”

      I’m supposing this is Mr. Veale, having read a number of his entries in the forum on that topic tho I had not heard of him suggesting a lawsuit — can you confirm and/or provide any further details?

    • “Recently one tax expert has become so upset with borrowers being led to believe that reverse mortgage proceeds are tax-free that he has begun advising those who ask about the issue that if they do pay tax as a result of forgiveness of debt to consider suing the originator and the employer for providing false and misleading tax advice.”

      I’m supposing this is Mr. Veale, having read a number of his entries in the forum on that topic tho I had not heard of him suggesting a lawsuit — can you confirm and/or provide any further details?

    • “Recently one tax expert has become so upset with borrowers being led to believe that reverse mortgage proceeds are tax-free that he has begun advising those who ask about the issue that if they do pay tax as a result of forgiveness of debt to consider suing the originator and the employer for providing false and misleading tax advice.”

      I’m supposing this is Mr. Veale, having read a number of his entries in the forum on that topic tho I had not heard of him suggesting a lawsuit — can you confirm and/or provide any further details?

  • While I understand AAG’s experience with direct mail was painful, I think it’s a mistake to conclude that DM can’t be both compliant and effective. As a DM creative consultant, I always insist, in our client contracts, that the client must have an attorney familiar with the client’s industry review our work. This is designed to protect both us and the client. We value the attorney’s role as a member of the marketing team, and expect to discuss any possible legal problems with the attorney, so we can resolve them — and still have strong, results-producing direct mail.

    David R. Yale, Creative Director
    David R. Yale, Direct Marketer
    http://www.controlbeaters.com

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