Why Financial Advisors and Reverse Mortgages Don’t Get Along

The importance of home equity use in retirement income planning has been a burgeoning discussion topic in the reverse mortgage industry, as well as among certain financial services professionals. But despite the various research demonstrating the effective use of reverse mortgages in financial planning today, not all advisors are entirely convinced.

Financial advisors are the likely source of retirement planning information for millions of Americans, especially those approaching or already in their retirement years.

With rare exception, most do not recommend Home Equity Conversion Mortgages, nor do they consider them, even when the circumstances might be appropriate, according to a recent article published in the Retirement Income Journal (RIJ).


There are several reasons why advisors avoid reverse mortgages,

“As a practical matter, advisors who don’t have mortgage licenses can’t make direct commissions from a HECM or earn a finder’s fee for a HECM referral,” writes Kerry Pechter for the Journal. “Second, most brokerage advisors don’t practice ‘life-cycle’ investing, which considers an investors’ entire ‘household balance sheet,’ including home equity. Third, FINRA, the self-regulator of broker-dealers, has long regarded them with suspicion.”

But while some advisors may be suspicious of reverse mortgages based on their perceptions of these loans prior to recent HECM program changes in the last three years, others cite a lack of discussion and compensation as reasons for not considering reverse mortgages.

“In my 10+ years here, I’ve never heard reverse mortgages used in any way,” Scott Stolz, vice president at Raymond James, the national broker-dealer, told RIJ. “I haven’t even heard them discussed. We don’t compensate the advisors in any way for recommending them.”

The risk of cross-selling, in using HECM proceeds to purchase investment products—such as annuities, for example—also plays a part in advisors’ reluctance to “invite scrutiny” from regulators.

This indifference toward HECMs can be frustrating for reverse mortgage professionals, especially as the industry has been tirelessly striving to create referral relationships with financial advisors.

“It can be extremely frustrating for someone to go to an advisor to whom they’re paying a 1% fee, and say they want information about a reverse mortgage, only to hear the advisor say, ‘I can’t talk to you about that,'” said Shelley Giordano, principal at Longevity View Associates and Chair of the Funding Longevity Task Force, in the RIJ article.

Much of the wariness to accept reverse mortgage, RIJ suggests, is ingrained in the Real Estate Settlement Procedures Act (RESPA), which prohibits individuals without a mortgage license from getting paid in a mortgage transaction.

But there is one way advisors can overcome this hurdle: by becoming a licensed mortgage loan officer, said Michael Banner, founder of the American CE Institute.

“If an advisor wanted to get licensed, and licensed with an FHA-approved correspondent, they can earn a fee,” Banner told RIJ. “They would have to take part in the transaction and adhere to the cross-selling law.”

But obtaining the proper licensure may be easier said than done. For, certified financial planners (CFPs) who are also securities licensed, if they wanted to get a mortgage license, they might first need to get permission from their broker-dealer.

“The majority of broker-dealers are still agains their reps being able to do reverses,” Banner said. “They’re afraid that type-A investment advisors will convince grandma to take a reverse mortgage loan and put the money into the stock market. FINRA knows that many of its 430,000 registered reps want to be the next Gordon Gekko, and it’s afraid that it can’t regulate all of them. Fear of the ‘bad eggs’ stops them from taking the risks that might help the masses.”

Written by Jason Oliva

Join the Conversation (21)

see all

This is a professional community. Please use discretion when posting a comment.

  • The post above states: “For, certified financial planners (CFPs) who are also securities licensed, if they wanted to get a mortgage license, they might first need to get permission from their broker-dealer.” YET under HERA can an active insurance agent or active securities registrant also originate HECMs? Not unless the Mortgagee or TPO is willing to be in violation of 12 USC 1715z-20(n)(1)(A) or 12 USC 1715z-20(n)(1)(B)(i) which state the following:

    “(n) Requirements on mortgage originators

    (1) In general

    The mortgagee and any other party that participates in the origination of a mortgage to be insured under this section shall—

    (A) not participate in, be associated with, or employ any party that participates in or is associated with any other financial or insurance activity; or

    (B) demonstrate to the Secretary that the mortgagee or other party maintains, or will maintain, firewalls and other safeguards designed to ensure that—

    (i) individuals participating in the origination of the mortgage shall have no involvement with, or incentive to provide the mortgagor with, any other financial or insurance product….”

    The provisions above are not a prohibition of cross-selling but are intended to prevent anyone who can sell insurance or securities from participating in the origination of HECMs. As a financial auditor if we found a single individual who was licensed to sell insurance or securities registrant who could sell other financial products, that would be considered prima facie evidence of an inadequate firewall or other safeguards to prevent that very thing from happening. That would be considered a reportable condition.

    Most of those looking at the rules under 12 USC 1715z-20(n)(1) and (o) conclude that they strictly pertain to prohibiting cross-selling. While subsection (o) does that to a limited degree, subsection (n)(1) requires Mortgagees and all other parties to a HECM to keep those who can sell insurance or securities from originating HECMs.

    So why is this post encouraging the violation of HERA by inferring that (either insurance licensees or) securities registrants can originate HECMs if they just have the consent of their broker/dealers?

  • Based on my prior comment just posted a few minutes ago, let us look at the suggestion Mike Banner makes in stating the following: “‘If an advisor wanted to get licensed, and licensed with an FHA-approved correspondent, they can earn a fee,’ Banner told RIJ. ‘They would have to take part in the transaction and adhere to the cross-selling law.’”

    Mike is absolutely right if the advisor does not have an insurance sales license and is not a securities registrant. Otherwise, what Mike says violates the provisions against allowing such individuals from participating in the origination of a HECM.

    While a mortgagee or other party involved in originating a HECM can sell both insurance and other financial products, they can NOT allow those who sell such products to participate in the origination of HECM.

  • Financial advisors becoming licensed HECM originators is a really bad idea. They should stick to their core competency and refer business, just like they do with conventional loans. It’s a full time job keeping up with the reverse mortgage market. Jack of all trades, master of none.
    I find it sad that one of the main reasons these guys don’t consider recommending reverse mortgages is because they don’t earn income on the transaction. What’s best for their client clearly doesn’t have any impact.

  • In my opinion, what Jim Veale stated is unfortunate. Like much regulation, it is good intentioned but over reaching. It ties the hands of financial advisors in their efforts to provide clients a complete solution to their financial planning needs.

    • Lance,

      It seems Senator McCasskil wanted to take away the temptation of selling financial and prohibited insurance products from all those who participate in the origination process. The question is if HUD views my interpretation in the same way.

      It is good law and sets clear boundaries as to who can and who cannot participate in the origination of a HECM even if we do not believe that these individuals should have been excluded.

      • As I stated in response to Bob Green below, allowing FA’s to participate in the origination of HECM’s could actually reduce the temptation to place the related proceeds into another product, because they would be able to earn revenue from the HECM transaction. Reverse mortgages need to be part of a comprehensive financial planning strategy, when appropriate.

      • Lance,

        When people are not held to a fiduciary standard rarely do all of live by the standard of putting the interests of a customer above their own. Just look at what happened pre-HERA when HECM originators who held insurance licenses did in relation to delayed annuities and new HECM originators.

        In our case not only were a number of double commissions earned despite the questionable benefit to the borrower but they encouraged others to ear double commissions as well. That is why there is a provision like 12 USC 1715z-20(n)(1) got into HECM law in the first place.

        While many in our industry would never be compromised, history shows there are enough of those who would that when such activity is seen to any extent at all, the opportunity to harm others needs to be shut down.

      • Dishonest and greedy people will always find a way around the rules, regardless of what they are. It’s my understanding that FA’s are regulated with regard to investing home equity, but if they want to do it now they just find a reverse mortgage originator to do the loan (I hope that isn’t happening). I stand by my statements that it would be in the best interest of consumers to allow RMs to be part of a broader financial plan orchestrated by an educated, fully armed, and compensated FA.

      • Lance,

        FAs are not regulated. RIAs are as are insurance licensees and securities registrants.

        Anyone can use the name financial adviser; it is not a government license or a trademarked name for members of an organization like CPF and the Financial Planning Association or RIA and FINRA.

        So no one regulates FAs. They may hold licenses, certifications, or registrations where the governing body might but my grandson who is 8 years old meets all requirements to qualify as a FA.

        This is not a matter of whether or not FAs are NMLS licensed or not, it is a matter of whether they can provide insurance or financial products directly to consumers. If that human being can, then the law makes it clear that person cannot participate in the origination of a HECM in any capacity.

        I agree with the law; you do not. But the point is what does the law currently say.

      • I was referring to licensed insurance agents and holders of securities licenses when I referred to FAs.

      • Lance,

        That is the problem with that term; it is confusing. Even a white collar felon can legally call herself a financial advisor without fear of reprisal.

        I am not arguing what makes sense to a segment of the population, just what the law plainly states. There is no data on whether consumers would or would not be helped by the presence of insurance salespeople or securities registrants originating HECMs so that point seems more anecdotal than empirical. Certainly those who acquired deferred annuities in their seventies from a recently acquired HECM might have a far different response as was heard in the mid aught years in hearings with Senator McCaskill.

        You stated: “It’s my understanding that FA’s … if they want to do it now they just find a reverse mortgage originator to do the loan (I hope that isn’t happening).” That is exactly what should be expected to occur the way the law is designed.

        The law is flawed in that there is no directive on one spouse selling insurance and financial products and the other spouse originating HECMs to the same consumer. There would be no problem under federal law if the spouse originating HECMs was not an insurance licensee or securities registrant; however, in California there would be a problem for the spouse selling insurance and other financial products, if the product sold was insurance.

    • please clarify….are you saying because a financial advisor doesn’t make money on HECM’s their hands are tied and it prevents them from acting in the best interest of their client?

      • Hi Bob. My point is that if FA’s were allowed to participate in the origination of HECMs when appropriate, FA’s would be more likely to include them in a comprehensive retirement planning strategy. That would not change the ethical standards to which FA’s are held. It could increase ethical behavior of FA’s because they wouldn’t feel the need to place the proceeds into another product in order to earn revenue.

  • The article raises a lot of questions and brings up some very good points as well.

    Jim Veale also brings up some very good points, which we all have to be aware of. However, we all know since the changes have occurred in our product, especially with FA in the picture, the HECM has a great deal more credibility than it once had.

    This brings me to the point I want to make, which is that the financial planner and advisor have become more receptive to the HECM as a retirement planning tool. With that being said, now with the new ruling by the DOL, financial planners can talk about reverse mortgages to their clients. Because of this new ruling, financial planners can establish a fiduciary arrangement with their clients and charge a fee based on their advise given in reference to the HECM.

    This in itself opens up the door even more for us with the financial planner/advisor to educate and mentor them on the intricacies of a reverse mortgage. We are an opportunity for them as they are for us, we can learn from them and visa, versa. In short, we all have a win, win situation in front of us to capitalize on as far as I am concerned!

    John A. Smaldone

    • John,

      Today is my day to pour cold water on some hot ideas.

      Unfortunately the DOL fiduciary rule is no rule at all until its applicable date in April 2017. It can once again be changed or deleted at any time up until the applicable date just like what we experienced with financial assessment.

      There is no definitive DOL position that makes the presentation of a HECM strategy a prudent alternative. Some who believe in the strategies developed in 2012 through 2014, have concluded that they are prudent alternatives, but they are not DOL.

      If we want a HECM strategy considered as either meeting a fiduciary standard or a prudent alternative, we need to lobby DOL right away. DOL has no history of considering leveraging an ERISA exempt asset to carry investment, plan, or IRA assets as a prudent alternative; nor is there any sign that the DOL will expand its view of prudent alternatives to encompass the use of a negatively amortizing nonrecourse mortgage on a principal residence which cannot either be a plan or an IRA asset.

      Now is not the time to be relying on speculation, now is the time to work so that DOL will clarify the issue and eventually designate certain HECM strategies as prudent alternatives. If we want a prudent alternative status, our work is cut out for us now.

      • Jim,

        My apology to you and the others, I definitely spoke without proper knowledge. On the other hand, I wish what I pointed out was in force today.

        Your comment not only straightened me out but also emphasized the strategy that is needed to be taken now. My appreciation extended to you my friend.


  • James, your definition of the HERA Non-Cross Selling law is exactly on point. But after years of conversations with HUD, attorneys and other professionals in our industry I offer this. That particular part of the cross-selling law was created to stop the unethical practice of insurance agents and reverse mortgage loan officers from convincing seniors to purchase fixed annuities with the proceeds of a reverse mortgage.

    And of course I agree with that.

    But the intent of the law was to make sure there is no “financial incentive” to an insurance agent or financial planner to have one of their clients secure a reverse mortgage. The further intent of this law was prevent the “forced tying” of 2 products. In other words, “if you want to purchase long term care insurance you MUST take a reverse mortgage with me.”

    The language in part A below is very clear. This is a big NO NO.

    But please notice the last word of that paragraph, OR…

    Then Part B says:

    demonstrate to the Secretary that the mortgagee or other party maintains, or will maintain, firewalls and other safeguards designed to ensure that—

    (i) individuals participating in the origination of the mortgage shall have no involvement with, or incentive to provide the mortgagor with, any other financial or insurance product….”

    Many people feel that last paragraph that states “individuals participating in the origination of the mortgage shall have no involvement with, or incentive to provide the mortgagor with, any other financial or insurance product….” truly was meant to say “financial incentive.”
    So what if a reverse mortgage company truly had “firewalls and safe guards in place to ensure there was no “financial incentive” to the financial planner or insurance agent to assist their client with a reverse mortgage? Why shouldn’t, if properly licensed, they get compensated???
    And to those making comments such as “financial planners should not get involved,” or “they should stick to what they no best.” Guess what? A Certified Financial Planner knows his client’s needs and wants better than any reverse mortgage professional ever will. That’s why they should be involved!!!
    And to the comment of “why should a financial planner want to make money on this?” Because a CFP makes money on all the services and products they offer to their clients. Why should a reverse mortgage be any different?
    When is the reverse mortgage industry going to get out of the basement? Our numbers are pathetic at best and even in our hay day the number of reverse mortgages that were closed represented less than 2% penetration of the potential market place.
    I have said it before and I will continue to say it, this industry is its own worst enemy.
    When are we going to realize the reverse mortgage will never be part of the mainstream financial community until the mainstream financial community becomes part of the reverse mortgage world???
    This was the longest answer I have ever posted.
    I have been possessed my James Veale!!!
    All my best James to you and yours!!!

    • Mr. Banner,

      Your focus is on insurance licensees and securities registrants BUT the law at 12 USC 1715z-20(n)(i) is only focused on ensuring that those individuals who originate or participate in the origination of HECMs are not insurance licensees or securities registrants (or anyone else who can provide or has an incentive to provide the mortgagor with any financial or other insurance product).

      There is no question that the principal type of incentive in the law is financial whether direct or indirect. But with no adjective qualifying the type of incentive, it could have broader application but that is beyond the scope of this thread.

      The law seems clear that even if an insurance licensee or securities registrant creates a TPO (or mortgagee), AND that person originates HECMs, processes the application, or otherwise performs any other activities related to the origination of a HECM, that insurance licensee or securities registrant has violated 12 USC 1715z-20(n)(1), period.

      Mr. Banner, I am no attorney, so if you believe that my interpretation is wrong then you absolutely have that right. Please refer me to the attorneys who hold the view that either insurance licensees or securities registrants who hold a NMLS license can be employed or otherwise participate in the origination of a HECM without any violation of 12 USC 1715z-20(n)(1). Thank you.

      I wish you and your family, especially those grandchildren, the best. Have a great weekend.

      • I know of at least one large wholesale company that is fine with Financial Advisors or insurance agents doing reverse mortgages. I agree completely with you that it is not legal, but it certainly is happening now.

      • Mr. Stephens,

        If you will not report them, many of us will. So simply send me an email through Linked In and someone will get this done.

        I hope both the HUD OIG has read your comment.

    • Mike,

      What you seem to be saying is that subsection (n)(1) was written to prevent insurance and securities salespeople from getting a financial reward from originating a HECM to their customers; however, James seems on point that this about those who participate in the origination of a HECM.

      The law prohibits insurance and securities sales people from participating in the origination of HECMs it does not just limit them from making compensation on sale of HECMs to their customers. However, the law does not specifically prohibit them because the prohibition is broader than that going all the way down to those who sell securities which are otherwise exempt under FINRA and insurance people who are exempt from holding an insurance license.

      But for sake of full disclosure, I am not an attorney either.

string(104) "https://reversemortgagedaily.com/2016/04/25/why-financial-advisors-and-reverse-mortgages-dont-get-along/"

Share your opinion