For Reverse Lenders, Not All Financial Planners are Equal

While a major push is under way on behalf of reverse mortgage lenders who are seeking referral partnerships with “financial planners,” lenders should be advised that not all planners are alike, those in the community say. 

Aside from a host of different professional designations, to which the Consumer Financial Protection Bureau has increased attention this year for their work with seniors, financial planners are wide ranging in the types of roles they serve and the clients with whom they work. 

Those distinctions can make or break a lender relationship from the get-go, Michael Kitces, financial planner, partner and director of research for Pinnacle Advisory Group told attendees of the National Reverse Mortgage Lenders Association annual conference this month during a panel discussion. 

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“Planners are aware of the general retirement crisis,” Kitces said. “The reality if you look at the space is, we acknowledge we don’t work with everyone.” 

Reverse mortgage lenders have some initial hurdles, including negative perceptions that can be combatted through education. An additional concern of financial planners is cost, Kitces said. 

“You are working from a significant trust deficit,” he said. “There are a lot of negative perceptions about the nature, costs and consequences [of a reverse mortgage]. A secondary issue is that there is cost to a reverse mortgage and cost to using debt in general to finance retirement. We are sensitive to that.”

Those issues, aside, however, there can be a challenge for those originators who are looking to partner with financial planners in all of the different roles they serve. 

For example, the term “financial advisor” is not regulated directly; rather it requires a high school diploma and the passage of a short regulatory exam. 

Wire house advisors can range from working for very small companies to very large companies, Kitces explained, and they vary widely. 

Registered investment advisors, in contrast, are regulated on the state or federal level

“This is one of the strongest segments for [reverse lenders] to be aligned with,” Kitces said. “Their businesses are based on assets under management and they have an incentive not to pay off a mortgage.”

However, there is also a specific challenge in working with registered advisors, in that they are very sensitive to cost. 

“They are the most cost sensitive bunch out there by large margin,” Kitces said. “This is part of the dyamic you will have to work through.”

Professional association meetings are a place for originators to seek contacts. Because financial planners are bombarded regularly with pitches about different financial tools and products, the approach requires some planning. 

“Pull articles from our industry trade publications, not your industry publications,” Kitces says. 

But challenges aside, there is a real opportunity for reverse mortgage lenders to partner with financial planners and advisors who have clients that can benefit greatly through the use of a reverse mortgage.

“It looks way better to keep a mortgage in retirement through reverse than forward,” Kittces said, noting roughly 10 million homeowners with mortgages in retirement. “We as advisors are comfortable with this, because we already like debt in retirement. Clients like it because they already have debt in retirement.”

Written by Elizabeth Ecker

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  • At times Kitces is very incorrect in his remarks about reverse mortgages; however, his insights (as cited above) about financial advisors are quite thought provoking.

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