Financial Planner Survey Reveals How Experience, Compliance Affects Reverse Mortgage Recommendations

The Academy for Home Equity in Financial Planning at the University of Illinois Urbana-Champaign (UIUC) recently conducted a survey of financial planners, gauging their thoughts about recommending reverse mortgage products to their clients. The findings of the study were presented by Dr. Craig Lemoine, director of the financial planning program at UIUC and executive director of the Academy at RMD’s virtual event HEQ: The Future of Home Equity in Retirement in September.

Sending the survey out to thousands of financial planners, the organizers of the survey received over 500 responses and gained a clearer picture of the perceptions that financial professionals have about recommending and employing home equity in the financial plans of their clients.

What the survey sought to learn

Seeking to gather information from financial service professionals while also leaning on the “big hitters” that are already members of the Academy itself, the researchers behind this survey sought to leverage those relationships already established by the Academy in order to get a clearer picture of how financial professionals perceive home equity options, including reverse mortgages.

Dr. Craig Lemoine, director of the financial planning program at UIUC.
Dr. Craig Lemoine, director of the financial planning program at UIUC and executive director of the Academy for Home Equity in Financial Planning.

“If you look at the Academy members, we’ve got some pretty big hitters that are connected in the insurance, broker [and] advisor spaces,” Lemoine explains. “So we [we decided to] take advantage of those relationships within the Academy, and launch a survey that measures how they might use home equity products. Please understand that this is a pretty broad survey. We didn’t just look at reverse mortgages, we looked at the whole ‘shebang,’ [in] how planners can use home equity products, or make home equity recommendations.”

This included gaining perspectives about whether home equity recommendations should be made at all, Lemoine said. The survey then drilled deeper into respondents’ perspectives specifically on reverse mortgages, which yielded a large data set that has the potential to fuel several more papers on the topics that the survey asked about.

“We sent this out to thousands of financial planners and we got over 500 results,” Lemoine says. “Of those results, we got about 350 that were completely comprehensive. Every question [was] answered, which from a stat standpoint makes life a little easier to go through that.”

The survey itself consisted of 26 questions, and was distributed through direct emails as well as paid social media posts.

Possibility of outdated compliance in home equity advice

“The very first thing we measured is [the professions of respondents]: insurance agent, broker dealer, etc.,” Lemoine explains. “So, we got a pretty good idea of who everyone was. And then we asked, ‘can you make home equity recommendations?’ A simple, top-of-the-line question, [asking if respondents are] allowed to [make those recommendations] by their compliance departments.”

That question had three possible answers: yes, they were allowed to; they did not know; or no, they were not allowed to. The survey then specifically asked about reverse mortgages, and whether the respondents recommended them even if they were not allowed to.

“Of that group, we actually found 13 participants who said, ‘yeah, I’m prohibited, but I want to go ahead,’” Lemoine says. “What that tells us is that in the giving of advice, [the idea of using reverse mortgages] comes up [in discussions about] fueling income or fueling retirement. Just because [they] can’t sell a product, doesn’t mean [that they] can’t give advice about housing.”

Right away, a conflict emerges among some respondents between the compliance environment faced by financial professionals and the actual conversations that take place. It did not represent a preponderance of situations, and unsurprisingly there was a statistically significant relationship between those who were allowed to give home equity advice actually taking the step to give it to their clients, and those who were not allowed then not giving it, Lemoine says.

“But I do think the big takeaway there is about 8% of survey participants, even if they weren’t sure or prohibited, they went ahead, and were making these recommendations [and] giving this advice,” Lemoine explains. “So, I think what that tells us is there’s just a current in the world that says this is important. We need to give advice, and maybe it also shows some outdated compliance models. They’re saying, ‘don’t touch home equity,’ [while some professionals are saying] ‘yeah, but how can you not talk about it?’”

Experience correlates to the recommendation of home equity

While it’s not particularly surprising that restrictions around recommending home equity often dictated whether or not financial professionals would make such recommendations, more surprising was a divide the study found between the experience level of financial advisors then leading to the recommendation of home equity for their clients, Lemoine says.

“And this one was surprising, because you found time and time again, more experienced advisors made more recommendations in the general home equity space, and much more so in the reverse mortgage space,” Lemoine says.

Segmenting respondents by three different levels of experience – those in the space 0-5 years, 5-15 years, and 15-plus – revealed different levels of regularity from advisors making home equity recommendations to their clients, Lemoine explains.

“And who’s making reverse mortgage recommendations? 15-plus,” he says. “About 41% of everybody in that 15-plus category had made reverse mortgage recommendations. You look at the new [advisors in the] 0-5 [years of experience range], that drops to 19%. No question that’s statistically significant. What we get into is that more experienced advisors are the ones making recommendations in this space.”

That divide in home equity recommendations between more and less experienced advisors, which Lemoine says may speak to the longevity of the advisor and the quality of the solution, as well as the level of understanding that a more experienced advisor simply has with introducing home equity as a possible solution.

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  • Even if the survey was sent to a statistically valid sample, the response rate is far too low to rely on the results from the group of surveys with responses. From the information provided above about the results from “the survey,” any conclusions derived om the returned surveys is at best anecdotal. There is no indication why the vast majority of those surveyed did not respond and no indication if the Academy even tried to gather that data. Further the article does not indicate why the responses were retreated as being provided by the addressee which is an undisclosed assumption.

    As usual we find some interesting terms like “fueling income” (whatever that may mean in the context of reverse mortgages). Is this but another example of labelling reverse mortgage proceeds as income by placing the gerundive “fueling” in front of it? Too often we hear that reverse mortgage proceeds are income that are non-taxable. How can something be income if it has to be repaid? These are mortgages, not annuities. While some recklessly try to compare tenure payouts to annuity distributions, the availability to switch payouts for a reverse mortgage without penalty make such comparisons more ingenuous than reasoned.

    As is the case with other surveys of this nature, there is seldom an expectation of providing a snapshot into the financial services community as much as providing an optimistic assessment of how the financial services community is accepting housing wealth as part of a holistic look into the financial planning practices of that community.

    As is the case with most such surveys, originators will tout its results while not disclosing how few responded and the tendency of respondents to be those who provide their services in a manner that survey sponsors had hoped. In other words, this is little more an unrealistic picture of the practices of the financial services community as a whole.

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