Advisor Fine Sheds Light on Roadblock to Recommending HECMs

Recently, a LinkedIn post relayed a story about a financial advisor who was fined by his company’s compliance department for recommending a reverse mortgage.

The story was about a financial advisor who has helped clients manage their finances for 28 years for a firm in the Midwest.

He directed a client to a local reverse specialist to learn more about how it might improve the client’s situation. That specialist included the advisor on a follow-up e-mail with the client, which contained a proposal for a reverse mortgage. In a routine audit months later, that e-mail was flagged.

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“Two weeks later, I received a letter from our compliance department. It was basically a slap on the hand, disciplinary action for discussing reverse mortgages with a client,” he said, adding that he contested the $350 fine to no avail.

“I will always talk to clients about reverse mortgages, because I’m a fiduciary and a financial advisor,” the advisor says. “If I know of a product that helps my clients have a better retirement, I will talk to my clients about it. I answer to my clients. It’s the right thing to do.”

The advisor’s story ignited a heated discussion among professionals across the industry, many of whom shared their own stories of compliance shutdowns and expressed frustration with what appears to be a widespread institutional roadblock among the financial planning community.

“Weekly we hear that [broker-dealer] compliance officers forbid discussions on housing wealth in retirement planning,” wrote Shelley Giordano of the Funding Longevity Task Force in the post that brought the story to light. “Instead of formulating policies and procedures to ensure clients use their housing asset prudently, many BD compliance officers routinely insist on a total blackout on the issue.”

The compliance teams at many of these large firms spend a great deal of time combing company emails for violations, Giordano says. The phrase “reverse mortgage” is often flagged, she says, and there can be repercussions for the advisor.

“The industry has spent enormous amounts of time and effort on this,” Giordano says. “And we are increasingly meeting less resistance from the individual financial advisors, only to be thwarted by their firm’s policies, which say they can’t even have a discussion about a reverse mortgage.”

Chris Bruser, a Certified Reverse Mortgage Professional with Retirement Funding Solutions who has been working with financial planners for years, says he has been told by advisors on several occasions that their compliance forbids them from discussing reverse mortgages with clients.

Bruser says this is particularly troubling in light of the increasing amount of research pointing to the importance of home equity in retirement income planning.

“It’s even in the curriculum at the American College!” Bruser says. “I think you’ve got to say, ‘Hey, take a look at this research — something’s got to change here.’ How can you hold yourself out as a comprehensive financial planner if you’re ignoring people’s largest asset? You can’t be.”

Giordano says something has to give: “Enough is enough. Tell us why there is this blackout on information on reverse mortgages, especially in light of the research that’s been done.”

RMD reached out to five leading broker-dealer firms for clarification on their policies regarding the recommendation of reverse mortgages.

Edward Jones was the only firm to reply, stating that it didn’t have an official policy just yet, although “it is something we have been researching and following as a firm,” a media rep wrote in an e-mail to RMD. “It’s up to each of our financial advisors to discuss the options that are in the best interest of our clients.”

Representatives at Raymond James, LPL Financial, and Lincoln Financial declined to comment, while Ameriprise failed to respond.

Jamie Hopkins, a professor at the American College of Financial Services, says the reason behind this widespread institutional blackout is multilayered.

“Some of this is driven by misconceptions, old information, and a general compliance mentality,” Hopkins says. “Some of these concerns are also based on the fear of being unable to monitor churning or cross-selling issues. Some also worry that their employees are not properly trained or educated on reverse mortgages, and should therefore be wary about allowing them to move forward with any serious discussions.”

“Compliance has a job where protection is paramount,” Hopkins says. “Their job is not at its core aimed at doing what is best for the consumer, but instead at protecting the company.”

But Hopkins says that while there are a number of firms that ban the topic, he has seen the tide begin to turn.

“The restriction on reverse mortgage discussions and planning is widespread across the financial services industry, but in the last few years, there has been greater adoption and advancement in allowing discussions,” he says.

Written by Jessica Guerin

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  • “’I will always talk to clients about reverse mortgages, because I’m a fiduciary and a Certified Financial Planner,’ Alkahmis (sic) says.” Mr. Alkhamis’s last name is spelled two different ways in this article.

    I tried to look up Mr. Alkhamis on the CFP website and found nothing. On his website, Mr. Alkhamis claims he holds a certificate in financial planning but does not claim to be a CFP; there is a huge difference. On his website, Mr. Alkhamis also claims to hold a BS degree, a CFS, and a CRPC.

    I do not know on what basis Mr. Alkhamis considers himself a fiduciary but did advise him of the quoted claim of being a CFP.

    Some may wonder why this check was done. It is because being a CFP adds weight to the claim. It is important that we do not falsely claim as true that which is not.

  • Mr. Alkhamis states: ” I don’t answer to compliance, I answer to my clients.” Yet the columnist declares that “Mr. Alkhamis says he will continue to suggest that clients look into them when the situation calls for it, but he will be careful not to leave a paper trail, as a second citation would likely mean an end to his relationship with his broker-dealer.” Yet pragmatically those two quotations are direct in conflict to each other. It is highly unlikely Mr. Alkhamis would like the compliance officers at his BD reading those quotations.

    It is not clear why Mr. Alkhamis is a fiduciary to his clients in discussing reverse mortgages but if that is true, the BD is interfering with fulfilling that responsibility. In that case the BD must decide if it wants to 1) potentially incur the wrath of the body requiring a fiduciary standard in this matter or even FINRA, 2) adjust its policy to exempt an adviser fulfilling a verifiable fiduciary standard, or 3) end the relationship with the financial adviser. Mr. Alkhamis is concerned it could end his relationship with the BD which indeed seems to be the most likely result.

    It is important to realize that the old theme of the home being the largest asset is less prevalent among competent financial adviser clientele. The focus needs to be on the home as the least employed asset in financial planning despite its potential use as collateral in obtaining a nonrecourse mortgage that may have the potential to provide cash flow throughout retirement.

    I strongly agree with Ms. Giordano and Dr. Hopkins. Ms. Giordano hits the right chord for the industry without going over the top. Dr. Hopkins provides a good picture on the attitude of today’s BD compliance departments towards all reverse mortgages without attacking these individuals.

      • Totally agree, Bob. Jessica did us a courageous favor on this issue. Now it is up to us to bring her article to our contacts in the mainstream media. I have done so with mine this morning and hope that you will consider joining our fight by doing the same.

      • Mr. Green,

        Yet it is a start and one that the entire industry should be made aware of. I have problems with some claims but having someone step forward and identify himself as a person who has been fined is a good step forward even if it is in an industry publication.

  • Mr. Alkhamis has graciously allowed himself to be quoted on this issue, only to picked apart by spelling errors, and probably communication in the interview, and he does have a fiduciary responsibility to his clients to not withhold HECM. I am sure after reading the scathing critique of the article he will no longer communicate with us. I will apologize to him and explain the source.
    He credentials are easy to find on his web site.
    Education:
    Bachelor Degree in Science from Western Michigan University
    Certificate Program in Financial Planning from Grand Valley State University
    Designations:
    Chartered Retirement Planning Counselor (CRPC®) from the College for Financial Planning
    Certified Fund Specialist (CFS®) from the Institute of Business & Finance
    Registrations and Licenses:
    Holds securities registrations 7, 24 and 65
    Life, Health, Disability and Long-Term Care Insurance

    • Mr. Hopson,

      No one questions the designations, certificates, or degree he lists on his website. RMD evaluated my criticisms and correctly adjusted the article; thus I have removed my criticisms as deemed appropriate in light of those adjustments.

      Why do you conclude that Mr. Alkhamis has a legal duty that requires him to present a reverse mortgage? It is my conclusion that the BD should disassociate with Mr. Alkhamis.

      Please identify the legal grounds for Mr. Alkhamis to call himself a fiduciary as to presenting a HECM. I do not find it.

      • Mr. Veale,
        I said he (is his words) “has a responsibility to not withhold HECM”, that is different from your statement “that legal duty requires him to present a reverse mortgage”. that was never said.

  • A financial planner’s referral years ago: 82-year-old widow, home was paid for, not a single living relative, couldn’t afford to retire. I guess Compliance, who forbid referring RMs, thought she should keep working, or sell the house. What a shame.

    • We hear stories like this every week. Originators in the HECM industry know all too well how financially constrained some of our elders are and how disorienting “just sell your house” advice is for people your client’s age. Linda, the next time you run across this, please send the particulars to help us make the case that this advice exists and is wrong-headed(hearted).

  • There could also be another reason for the blackout. There are at least 3 disclosures (in CA) that specifically advise against utilizing a financial planning firm for the client’s proceeds–and go so far as to having the client sign forms which say they will not utilize such a firm. Pay back?

    • Ms. Jackson,

      I have not been originating HECMs for the last three years. I sent you an email asking you to send me a copy of those three (or more) docs.

      This BD shutout is much older than the addition of these documents so I doubt if those docs are the reason for the shutout; however, they could be a cause for a renewed effort in that regard.

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