Reverse Mortgage Industry: We Have a Financial Planner Problem

After speaking with several financial planners for a recent article on RMD, it became clear the industry faces a serious problem… Financial planners have little to no knowledge about reverse mortgages.

When asked if they had recommendedor would ever recommend—one of these loans to their clients, the first few planners responded negatively, but were largely unable to explain why they gave the response they did.

In most cases, conducting an interview was impossible, because they didn’t know fundamentals of reverse mortgages.


This raised an interesting question: If a financial planner’s job is to advise people on how to plan their finances for the future, how can they give someone good advice if they’re not fully versed on of all the options out there?

Their lack of knowledge could pose a disservice to seniors who may need the product, but are not given the choice.

One financial planner mentioned a limited understanding of the product, focusing primarily on what he “knows” about the “industry’s abuse against seniors.”

While it’s true there have been cases where seniors were taken advantage of, it’s not true of the reverse mortgage industry in general, and it shouldn’t color financial advisors’ perceptions of the product. Instead, it should just remind them to be knowledgeable and informed in their recommendations to their clients.

This advisor, along with another, said cost analyses they’ve run on reverse mortgages never break even, and their situation models are always in favor of either selling the home and using the proceeds toward rent, or taking out a home equity loan/line of credit.

Neither of these options, however, are available for seniors with poor credit. When I mentioned that issue to them, they just said none of their clients have ever fallen into that category. If they were to encounter a situation where a senior happened to be a prime candidate for a reverse mortgage, they probably wouldn’t be prepared on how to advise them.

While the planners I spoke with up to this point seemed entrenched in their negative preconceptions, one conversation pointed to the possibility of turning the tide.

This particular financial advisor had some knowledge of reverse mortgages after looking into the product for her elderly aunt, and was willing to learn more. Through both email and phone correspondence, the questions she asked sparked a dialogue about the loans.

She ultimately decided against a reverse mortgage in her aunt’s case, and had never recommended one to any of her clients, saying the origination fees were too expensive.

I ended up sending an email to the advisor, asking for her thoughts on the HECM Saver program, which has much lower upfront costs due to a lower insurance premium. She called me about an hour later, after looking into the Saver, and said she had previously been completely unaware of the product.

After doing some research, though, this financial planner acknowledged the “plus side” to the HECM Saver, i.e. the lower insurance premium. She said she would “definitely” look at the program if she were considering a reverse mortgage.

While she couldn’t be considered reverse mortgage’s biggest advocate by any stretch of the imagination, progress was made in educating at least one financial advisor…. all with one email about the HECM Saver.

Whether the HECM Saver is the key to reaching this group of individuals isn’t clear, but there is certainly a lack of understanding about the role reverse mortgages could play in the future of retirement planning.

It’s easy to point the finger and blame those who choose not to learn about the program, but maybe the industry needs to turn that finger around and ask, when was the last time I reached out to a financial planner and let them know about the Saver—or reverse mortgages in general?

For me, it was last week. How about you?

Written by Alyssa Gerace

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  • Alyssa,

    In the article which was posted here on RMD and was credited to you about the AOL Finance article dated 8/31/2011, the person asking the question answered by the article wrote:  “‘What is your opinion about reverse mortgages?  So MANY FINANCIAL PLANNERS are pushing this sort of thing, but I heard that fees are steep.’” (Words in all caps changed to all caps by me.)

    We all know your stated perception is closer to the actual situation than the picture given by the alleged person asking the question.

    dduck12 wrote telling us to refer to the endorsement Mr. Evensky made on reverse mortgage as cited in the RMD article Elizabeth wrote which was posted on September 18, 2011, titled “Could new research change financial planners’ views of reverse mortgages?”  It certainly would have been nice had that article been available to help you introduce the product last week.

    Most financial advisors and planners get so many calls and visits regarding products that they are generally numb to learning about another one.  Most competent planners meet with their peers to find out what is working for them and why.    

    Although some do not like dduck12, there is little question that referring financial planners to the endorsement of someone of the stature of Mr. Evensky could open doors.  I am not so sure if an endorsement by Mr. Lucia will mean that much to planners.  Not only is he not as highly regarded as Mr. Evensky by other CFPs but worse he has compromised his unbiased opinion by becoming the paid spokesperson for a reverse mortgage lender.

    • >>Most financial advisors and planners get so many calls and visits
      regarding products that they are generally numb to learning about
      another one.

      Ditto.  The ones I’ve worked with came to me with open ears and good quality questions, because they were advising a close friend or family member.  But “good luck” trying to introduce the program when they’re not looking for it.

      • Mr. Denton,

        Unfortunately that is normally how it works.  That is exactly how I got interested in HECMs otherwise I would have blown them off.

  • Just talked with an editor for Financial Planning magazine, sounds like they’re doing a piece on reverse for November issue.  Sent plenty of info on Saver, so hopefully that finds its way into the piece.

    The Saver really opens the door to a lot of financial planning strategies that were previously closed to HECM Standard.  The door remaining to be opened is to each financial planner’s perception.  This industry was built on educating consumers for 20+ years, now it’s time to educate financial professionals on the new opportunities of Saver/Purchase.

    • Mr. Lunde,

      Nice touch.  The authors can use your insight.

      To be clear the concept derived by Dr. Salter and Mr. Evensky can make a real difference in earnings without unduly disturbing the risk structure.  Now we need to carry it forward so that it will gain strong acceptance within the CFP and CPA communities and from there financial planners generally.

      I generally oppose leveraged investing but this is not that at all.  It is an excellent application of cash management permitting a better income stream using the same amount of cash and generally leaving the existing risk structure in place.  The cost of the HECM should be quickly recovered using the strategy.

      I would have discussed the strategy with several of the tax clients at our firm along with several of our older partners.  Combining that with a maximum proceeds growth strategy is very attractive.  It also leaves the line of credit available for specific tax strategies such as the bunching of tax deductions.

  • Thanks, Critic.  Isn’t ignorance bliss, and it is widespread since we all do it.  FPs do get product bombarded and compliance weary, but the better ones are looking out for their clients.  It is unfortunate that it takes a star to get their attention, but hey, better late than never.  As to those three of your people that don’t care for me, I can understand that sometimes we get a bad impression of an industry (like the negative impressions fostered by crooks in yours) by some personal experience with a less than honest insurance or investment person.
    However, as I suggested in that previous thread, you should be doing education (preferably with CE credits) programs with your local CFP, CLU/ChFC and other financial professionals. 
    Because of John Y, we hope to have an RM program at my local (NYC) Society of Financial Service Professional (SFSP) meeting. Evensky was the key, don’t fail to use it.

    • dduck12,

      Rumor is, the number of readers who do not care for what you write is 50% higher than three.  What worries me is the one-half of a person who does not care for what you write (LOL).

      Have a great weekend!

  • As a Certified Senior Advisor and financial planner with over 35 years experience I can agree with your sentiments regarding the reluctance of many financial planners to recommend reverse mortgages to their clients, friends and family. In April 2006 Long Island Financial Advisor magazine worte an article about me and my fondness for reverse mortgages. In my mind, reverse mortgages are a life line for many Seniors who want to stay in their homes near friends and family. I try to acquaint other planners on the advantages of reverse mortgages, understanding that they are not for everyone but can be useful for others. Education is the key. Once these planners understand the advantages and applications of reverse mortgages they will be more likely to recommend them.

    • Mr. DeMaria,
      Much different than Evensky and Katz your company revenue seems to be structured more along the lines of commissioned product sales than fee based advice.  Where their professional emphasis is on formal education and credentials, yours is focused more on securities and insurance product licensing.  Their practice has a much greater emphasis on planning services than sales.
      What was so intriguing about the innovative strategy developed by Dr. Salter and Mr. Evensky was their concept of using a HECM as a standby source of cash in financial planning so that liquid assets which are normally committed to near cash reserves for contingent needs can be freed up for reallocation to categories producing higher returns..  It not only achieves better potential earnings from the same investment base but it also does so with relatively little increase in risk.  There is no leveraged investing in this strategy; yet this approach permits a clear means of calculating a ROI on the cost of obtaining the HECM in relation to the incremental net revenue generated through using this strategy.
      In what ways do you incorporate HECMs into financial planning for “the more affluent” senior?  Many of us are aware of the use of HECM proceeds for product purchases but where do you believe such leveraged investing is warranted?  What strategies do you believe should not be employed by this group of seniors when it comes to HECMs?

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