How to Educate Financial Advisors About the New Reverse Mortgage

For the last several years, there has been a major industry-wide push to spread awareness among the financial advisor community about how reverse mortgages can be a powerful tool in retirement planning. But recent changes to the product that lower principal limits and change mortgage premiums have some worried that the HECM has lost its appeal among financial advisors.

While some retirement income experts admit that the new rules do change things, they insist that the HECM still has real value from a financial planning perspective. RMD spoke to several leading experts for tips on how originators can connect with advisors to educate them about the product under the new rules.

Tip No. 1: Move past the stand-by line of credit, but don’t forget it.


Jamie Hopkins, co-director at the American College’s New York Life Center for Retirement Income, says that while the changes take the steam out of the stand-by strategy, it can still be useful in some cases.

“The stand-by line-of-credit option is less attractive, there is no way around that,” he says. “The line of credit will cost more upfront to set up and will grow a bit slower than in the past… Just from talking with advisors, many are less attracted to it now with higher upfront costs.”

But Hopkins says that while its appeal is diminished, the strategy is still valid and shouldn’t be forgotten. “This still remains a very viable and useful strategy, one that is underutilized today.”

Tip No. 2: Stress the use of a HECM to pay off an existing mortgage.

Hopkins suggests originators focus on the benefits of using a reverse mortgage to pay off an existing mortgage. Explain to advisors how a HECM can be a game-changer for clients carrying a mortgage into retirement who have limited resources but want to age in place.

“For anyone considering paying off an existing mortgage with a reverse mortgage, the program just got better,” Hopkins says. “It can help solve the cash-flow issue and can be presented as a more flexible mortgage that allows for monthly payments but does not require them in the event that income or savings gets tight in a given month. This is the strategy that I think will be most widely adopted by financial advisors moving forward as it stresses the importance of cash-flow management in retirement.”

Tip No. 3: Emphasize the HECM for Purchase.

Prominent retirement researcher Wade Pfau is releasing a second edition of his book, “Reverse Mortgages: How to Use Reverse Mortgages to Secure Your Retirement,” that takes into consideration the new rules, and he says one of the topics he’ll be highlighting is the HECM for Purchase.

Pfau says the H4P program benefits from new guidelines, which dictate lower mortgage insurance premiums and a slower growth of the loan balance.

“I provide a case study about the HECM for Purchase and show that it can increase the probabilities for overall retirement success compared with strategies that would [have seniors] pay cash for the home or use a 15-year traditional mortgage to finance the home,” Pfau says. “The reason for this relates to the role of the HECM for Purchase program to reduce exposure to sequence of returns risk in retirement, which is a very important concept for advisors to understand when they are providing guidance to retiring clients.”

Tip No. 4: Curtail price concerns by focusing on how the product has been improved.

While taking out a reverse mortgage can be more expensive than other options in some cases, some experts insist the value is still there. The trouble for originators will be getting advisors to see past the price.

“Strategically combining a HECM opened sooner can help support more efficient retirement outcomes, even if the full retail upfront costs of the reverse mortgage must be paid,” Pfau says. “It is only through this type of education that I hope planners can start to overcome the new sticker shock.”

Shelley Giordano, a member of the Funding Longevity Task Force who has spent years working to promote awareness among financial planners, says it’s important to stress how the product has been improved.

“I think a lot of people have assumed that just because it costs something to set it up, the discretionary client is out the window. But that’s not the case,” Giordano says. “The product is so much better now, but this isn’t something that can be conveyed in a headline or in a TV ad; it requires us to sit in front of a financial advisor and discuss it.”

“Your sales force has to articulate that the changes are positive,” she says. “Yes, there’s a little bit more upfront cost for a whole lot of protection, but less overall cost to the customer. If you can explain that correctly, they will understand it.”

Tip No. 5: Educate, face to face.

Giordano says originators who can develop a solid connection with advisors and take the time to meet them one-on-one will have greater success.

“We have a lot of work in front of us. Lenders that have built real relationships with financial advisors will have a lot less difficultly continuing with their business, because they are able to sit with the financial advisors belly-to-belly and explain what has happened,” she says. “So there is definitely hope. But is it a hard job? Hell yes.”

Hopkins insists that this education is crucial. “Financial planners need to understand the benefits of reverse mortgages, and the recent changes did nothing to change the importance,” he says. “Clients have so much of their wealth tied up in home equity that it just can’t be ignored.”

Written by Jessica Guerin

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  • What has not gone up in price? This is nothing we did not expect. Every person associated with a loan has raised their prices. I’m making more that two years ago. Does your Big Mac still cost a quarter? To keep the convenience going, you pay for the benefit. Many benefits of the reverse mortgage have strengthened, while other financial tools remain volatile.
    Simply accomplished, just ask the advisors if they have raised their prices.

    • mephisherman (ye, olde man and the sea)

      What we anticipate and what financial advisors anticipate are two different things. It is not so much we have change but the frequency we see change that troubles financial advisors. They do not want to tell their clients one thing today and a different story tomorrow. If we hate doing that to our customers, imagine how much financial advisors who get no monetary benefit from a HECM closing hate it.

      • Advisors need to remain as a case holder if a client make any financial move after securing services, whereas residuals should always be present. Referrals rewards to lenderor/realtors are in place also to increase the use of HECM FOR PURCHASE as a financial tool.

  • The sad and hard truth is that financial planners will not fully embrace the reverse mortgage unless their is financial incentive for them to do so. A survey, not too long ago, indicated that the primary reason financial planners do not refer clients to reverse mortgage providers is the lack of incentive – read: MONETARY GAIN. Ms. Giordano does or should know this and yet it does not even enter the discussion when talking about inroads with financial planners. Therein lies the number one reason the industry gets very little from financial planners and therein also lies the solution. Nail, meet hammer.

    • BC, Nail, meet hammer is exactly correct and yet no one ever wants to bring this topic up.
      Financial planners offer their clients a plethora of financial products and, belive it or not, there are even some that have secured MLO licenses and offer FANNIE MAE and Freddie MAC products to their clients. But offer reverse mortgages? No, no, no.
      We are the ONLY industry in the financial world that limits the offering of their product from the strongest and best potential national sales force in the Country,
      We even have the antiquated and
      highly ambiguous NON Cross Selling Law that was passed in 2009 and effectively destroyed any chance of bringing the mainstream financial community into the reverse mortgage industry. We have been chasing oiur tails ever since…
      But why would we want financil professionals with an actual fiduciary responsabilty to do right by their client when we can hire part time loan officers that average less than 1 loan per month!
      I’ve said it a thousand times…this industry is it’s own worse enemy…

      • Mike,

        Very, very few unlicensed financial advisors or planners have any fiduciary responsibility to their customers beyond those imposed by DOL on advising services related to beneficiary’s distributions and self directed assets when it comes to IRA’s and IRS qualified employee benefit retirement plans.

        Those who have a true fiduciary responsibility when it comes to advising on reverse mortgages are those who due to state licenses or FINRA designation of RIA are mandated to have a fiduciary responsibility to their clients. CFPs have such a duty by contract with their clients.

        Perhaps you have confused 2009 with July 30, 2008 when President Bush signed HERA into law with its so called McCaskill amendment. The amendment required that lenders 1) eliminate employees entirely from the HECM origination process who participate in any other financial or insurance product or 2) create firewalls and other safeguards to ensure that employees who participate in the HECM origination process have no involvement with or incentive to provide borrowers with other financial or insurance products.

        We agree that in this regard the industry has been its own worst enemy but for different reasons. Selling 70 year olds deferred annuities with enormous penalties for early distributions when scheduled distributions only begin at 85 when that senior was clearly having problems meeting their current cash outflow requirements at the time that the annuity was sold. Yet some HECM originators were doing just that and even more encouraged to do that under the coined name — double dipping, meaning getting a healthy commission from each transaction.

  • It is hard to read Dr. Hopkins suggest that the discussion of the Standby HECM Strategy should be reduced (and Dr. Pfau imply) in favor of increasing our time discussing the H4P with financial advisors.

    First, as a former financial advisor any discussion of a standby line of credit strategy for seniors (especially by those who call “cash inflow” income) is time wasted. Why? Line of credit strategies are over 60 years old and many of them were introduced either in more advanced accounting courses, finance, continuing education, or as part of a client engagement.

    Mr. Harold Evensky got it right when he introduced the Standby Reverse Mortgage Strategy. Since Mr. Evensky was focused solely on HECM adjustable rate Savers, it is hard to understand why he did not name the strategy as the Standby HECM Strategy (other than fewer people know what a HECM is).

    A Standby HECM strategy differs from a standby line of credit strategy in many important ways, all of which are flow from the characteristics the adjustable rate HECM. First, the HECM line of credit grows and thus expands the possible uses of the line of credit. It is guaranteed by the lender directly and FHA indirectly. No periodic repayments of interest or principal are required (just one repayment at termination). It is a nonrecourse mortgage where most lines of credit are recourse. A qualified non-borrowing spouse deferral program is available. These characteristics as well as others make this product stand out from other lines of credit and their strategies.

    While I have heard there is an overemphasis on the basic mathematics of compounding, the various Standby HECM strategies are significantly different than the typical line of credit strategies taught in school, on the job, or in hundreds of hours of continuing education (a minimum of 80 hours every other year are required for CPAs but as the partner in charge of taxes I generally had a few hundred hours every other year between tax, accounting, and time as a continuing ed instructor for company and client staff).

    The failure of H4P to grow is history. There has been a single year where total H4P endorsements have reached 2,90. Thus it is hard to believe that emphasizing that strategy will help grow referral relationships with practicing financial advisors other than as an initial introduction and as a poorly advised indirect method of leveraging investments.

    • James –

      You state the case for the “Standby HECM Strategy” above as well and as succinctly as I’ve seen done anywhere. Kudos.

      From your perspective as a CPA, to what do you attribute the financial advisor community’s reluctance – indeed resistance – to a tool of so great a potential benefit to their clients?

      • It’s simple, really. It’s called the all mighty dollar. Financial planners have a way of changing their tune on reverse mortgages when financial incentive is involved.

      • as BC states..Financial Planners are driven by the almighty dollar….That’s why they drive BMW’s and their clients drive Chevy’s

      • Bob,

        Interesting but not always the case.

        Perhaps a bigger problem is justifying researching something that is not pressing when there is billable work needing attention.

      • George,
        You make my point…for FP’s it’s all about the billable hours…not researching and using all the tools available and doing what may be best for the client. Those that happen to do the research are typically surprised to learn that a HECM can indeed add longevity to a clients retirement plan. As proven by folks in the FP space, like Wade Phau, Jamie Hopkins, John Salter, Harold Evensky.

      • Mr. Green,

        The individuals you list, other than Mr. Evensky, are educators more than practitioners. They also lack the connection to the practitioner community that people like Mr. Kitces have. Even Mr. Evensky slipped into the night when HUD abandoned a product with a 0.01% initial MIP rate (Savers).

        Mr. Kitces, like Mr. Evensky, liked a very low upfront cost HECM that was available (not due to “charitable” whims of originators, TPOs, or lenders or bargaining skills of the borrower but rather through the borrower reimbursement structure offered) to lenders by FHA.

      • Ahh Mr. Veale,
        It’s always interesting to banter with you. I’m sorry but in this case I’ll take an Educator or two over the Practitioner. In this case the Educators are speaking to the overwhelming majority of the Country, in plain English about an option that should be considered. They do that without any bias…..just tens of thousands of modeling scenarios to draw from. The Kitces of the world speak to a vastly different and much smaller audience and sometimes lose their perspective and focus on their narrower audience.

      • Mr. Green,

        Your comments are much more understandable now. It seems you prefer agreeable prose and pretty digital pictures to the struggle for endorsements. You are not alone in that.

        Few referrals will come to most of us from the educators you cite. Few of them will ever follow through in proactively supporting the client’s HECM decision all the way through closing.

        Mr. Kitces speaks to a far larger audience than you realize. What he states reaches thousands of practitioners and from there potentially hundreds of thousands of clients. And he is but one of “the Kitces of the world” you speak of.

        What Mr. Kitces writes is actually read. While the educators you mention get articles on reverse mortgages published, the number of “clicked” readers (no guarantee they read anything) on that subject is extremely low while articles on other subjects these educators write have a much higher “clicked” readership. Multiple more people read Mr. Kitces’s publications monthly (thousands of practitioners pay for what Mr. Kitces writes) than the “clicked” readers of the reverse mortgage articles these educators produce monthly.

        While we need both educators and practitioners, one principally provides “great” prose on and pictures on HECMs while the other can bring us referrals. You make it appear you prefer the former over the latter. That kind of preference helps explain one (but just one) of the major reasons why HECM demand is so low at the being of this fiscal year.

      • Mr. Veale,

        I’m doing just fine with referrals from the practitioners you speak of, so you’ll need to point your fingers in another direction. I live on referrals and nothing but referrals from these people and also attorneys. Whats even more interesting is that these practitioners I work with (yes CFP’s, RICP’s etc.) always refer to the Pfau’s, of the financial world and never about the Kitces of the financial world. So again I have to disagree with you that the Pfau’s lack a connection with the practitioners and their work is not read. I guess they figure their clients understand the plain English of these Educators over the tech-speak of the “Kitces”.

      • Bob,

        I just read an article by Jamie Hopkins where he shows his lack of confidence in financial advisors currently adopting HECMs into their practices. We need to find ways of working with that the financial advising community if we are to grow rather than being quite so hostile to them.;GyF8PiKMQculFUQA8n3ylw==

        While there is nothing wrong with getting more finance educators on board, without endorsements, that just looks vain.

      • George, It’s quite interesting you bring up that article as I just sat with a CFP and his clients to see if a HECM may fit with their retirement plans. Although this CFP has used HECM’s in the past, He brought up this article and is now discussing HECM’s with a broader base of his clients. And funny thing is he now personally feels it is his responsibility to do so.
        You look at it as being hostile….I look at it as a Planner doing their job by bringing forth all options available. After all, when you sit with a professional from any discipline don’t you feel it’s their responsibility to give you all your options?

      • Mr. Green,

        I also read the article that Mr. Owens and your referral source refer to but have no idea from where Mr. Hopkins gets the following statement: “In fact, even the Financial Industry Regulatory Authority Inc. states that reverse mortgages are a valuable planning tool in the right situation and should be explored by advisers.”

        By using the words “in fact,” some FINRA document should be available exhorting or demanding its advising community to explore reverse mortgages. It is too critical of a claimed fact in the article to be ignored. Please provide the citation if you know it. I cannot find it.

  • The article was a good one but I think Shelley Giordano had the best outline. Educate face to face, the best and only way when dealing with financial planners and advisors.

    There are two types of financial planners and advisors, fee based and commission based. Most financial planners are fee based.

    However, both have the same goal in mind for their clients and that is to restructure their assets to best suite their goals of retirement when it comes to seniors. The fee based advisor charges a fee for their time and effort, the commission based advisor makes commissions of the products they use in the restructuring of asset process.

    The financial advisor is not interested in you selling them reverse mortgages, this is where many reverse mortgage specialists make their mistake. Many of us want to barrel in and try to impress the financial advisor with power point presentations and brochures along with a great sales pitch! This is the wrong approach!!

    First off, it is important for us to understand the financial planner or advisors world, we need to know as much about them as much as they need to know about us and our product.

    It is important for us to get the financial planner/advisor interested enough in our product for them to want us to educate them on the component parts of a reverse mortgage,

    Once we educate them enough, they will then recognize the value of our product. The will also know how to use our product as a tool when they are restructuring their clients assets.

    A good planner or advisor will know what component part of the reverse mortgage fits best in the restructuring of their clients assets.

    If we did our job properly in the educational process, when we are brought into the picture, the financial advisor or planner will have already picked out what benefit to use.
    Our job then is to follow the instructions of the planner/advisor as to what they planned for their client.

    Our roll is to make sure the senior client understands fully about a reverse mortgage, answer all their questions and go forward in setting up the counseling session.

    Once we have accomplished what I said above, we have done our part and fulfilled the financial planner/advisors goal for their client. We on the other hand have completed our responsibilities to the senior client as well! Last but not least, we now have a partner to do business with!

    Forming a long lasting relationship with a financial advisor and planner is not an easy task but it can be done! Accomplish that and a profitable relationship for both will be established!

    John A. Smaldone

    • John,

      There is an important distinction within the fee based group. Those who charge fees for managing assets and those do not manage assets.

      Originators have a general duty of care for the borrower and owe no duty of care to the financial advisor other than that of holding onto a referral source. As part of that general duty of care, the allegiance of the originator must first be to employer while also fulfilling the general duty of care to the customer.

      You have tangentially addressed the issue of the conflict of interest originators MAY have when it comes to the borrower and the referral source. There is a lot of latitude to work in when it comes to resolving a conflict of interest but in NO case can the originator simply comply with the demands of the financial advisor if that will result in significant harm to the borrower. There may be (a few) times when the originator will have to withdraw from the loan process.

      As one longtime industry originator stated: “If we ever become substantially dependent on referrals from financial advisors, know that the industry is in either in or headed for real trouble.” Obviously I have paraphrased the exact quotation.

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